Minister of  Power, Bart Nnaji

Chineme Okafor writes that except urgent steps are taken to address the problem of inadequate gas for power generation, Nigeria’s aspiration for sustainable electricity will remain a mirage

A few months ago, the Federal Government admitted its mistakes during the planning and construction of power plants in the country, especially gas-fired plants. Specifically, President Goodluck Jonathan had stated that mistakes were made at the planning stage of the National Integrated Power Projects because government was in a hurry to achieve results, thus, overlooking the essence of feasibility studies that would have guided it in building these  NIPP plants.

Jonathan noted that these mistakes resulted in contracts being awarded in 2006, without consideration for how gas would be supplied to these plants. But beyond the issue of gas, another worrisome issue was how to get the Power Holding Company of Nigeria (PHCN) to meet its obligation to gas suppliers to thermal plants across the country.

PHCN thermal generation companies had over the years failed to meet their financial obligations to suppliers which supplied gas to them. The company has defaulted in its commitment to remit monies due to gas suppliers over the years, thus, forcing the government to arm-twist these suppliers to continue in the unprofitable venture.

PHCN’s immediate debt to gas suppliers, as at the beginning of the year was put at about N88.546 billion. A breakdown showed that Agip was being owed N60 billion; Shell, N12.246 billion; Nigerian Gas Company (NGC), N10 billion; National Integrated Power Project, N6 billion; and Ibom Power, N300 million. Currently, PHCN’s total debt portfolio has reached N400 billion. But at the last assessment, the power company’s specific backlog of debt to the NGC, the gas transportation arm of the Nigerian National Petroleum Corporation (NNPC) had risen to about N23 billion.

In a recent interview with THISDAY, Group Executive Director, Gas and Power at the NNPC, Dr. David Ige warned that existing loopholes in gas supply arrangements to power plants may eventually hurt Nigeria’s aspiration for sustainable power supply. While elaborating on issues he considered germane to Nigeria’s quest for improved power supply, Ige stated that there were indeed immediate measures initiated by the Ministries of Petroleum Resources and Power to ensure adequate supply of gas to thermal plants.

He explained that such plans would only suffice in the short term, for a specified time frame unless tangible efforts were brought to bear on certain backbone infrastructures that would guarantee long-term sustainability in gas supply to the power plants. According to him, unless such long term measures that would address the issue of a gas commercial framework, infrastructure deficit and, of course, a fiscal regime within the gas to power supply arrangement are taken now, gas supply to power plants could seize abruptly, meaning that Nigeria will be back to the trenches from where she started.

Minister of Power, Prof. Barth Nnaji, has, however insisted that generating 40,000 megawatts of electricity is achievable by 2015, but only on the basis of sustained availability of gas as fuel to thermal plants. Nnaji and his petroleum resources counterpart, Mrs. Diezani Alison-Madueke, recently set up an emergency committee to work out modalities for ensuring supply of gas to power plants within a short-term of 12 months.

But Ige has explained that this measure was only temporary, adding that it has to be improved upon over the medium to long-term. Some of the issues Ige harped on as being extremely important in relation to gas supply to power plants and by extension, the success of the power sector reforms include:

Gas Commercial Framework

About a year ago the petroleum minister had announced a new commercial regime for gas as part of efforts to develop the gas master plan. She said what the ministry has really done with regards to gas-to-power was to propose a graduation in price from what used be about 10 cents to bring the price to an appropriate price over a three year period. The minister said this was staggered to allow the power sector adjust, rather than just move from N24 to $2.

But Ige said the problem today was not just that the price projection was not right, but that the PHCN is not paying. He said: “NIPP is paying the right price but PHCN as we speak has got N23 billion outstanding debt; they are not even collecting enough revenue to meet their operating cost and this is a dilemma for us because a lot of what we did and of course, the entire gas master plan was predicated on this commercial framework, because there are many other sectors apart from the power sector that pay almost double the price.”

He noted that the resultant effect of PHCN somewhat lack of regard for the gas commercial framework was the reluctance of gas suppliers towards PHCN gas requirements, adding that if the situation is not addressed, supply of gas to PHCN by gas firms might perhaps seize, except if government employs it’s arm-twisting mechanism to force the supply of gas to PHCN.

He said gas developed by producers for other means was now being channeled to the power sector and the producers do not know whether they would be paid or even the right price. According to him, “If there was no government intervention, no supplier will supply PHCN. If we had a willing-buyer, willing-seller, nobody will sell to PHCN, and perhaps, today we will be in complete darkness.”

Sustainable Infrastructure

Ige explained that on-going gas infrastructure upgrade is currently being executed within the eastern and western gas supply axis, all of which he said includes a 1000km gas pipeline network. But he noted that this was just a tip of the iceberg to what is required in terms of gas infrastructure in Nigeria.

He said: “When we are talking about payment, I just want us to also talk about the infrastructure cost as well because for us to have full gas supply in Nigeria there is a lot of infrastructure that need to be put in place. Of course you know our infrastructure is the rudimentary kind, but there is a lot that need to be done.”

He said the expectation with respect to the master plan is that there would be funding from the government because this kind of backbone projects are funded by the government in most countries. He added that the proposal has always been included in the budget, but that it had never got any approval. According to him, “We have been told to get private investors to fund it but the problem is that nobody will come and invest private money when they are not sure of recouping their investment in a sector where the most dominant consumer is suspicious and so they will need either the government guarantee. This was the crux of the meeting we had with the president a couple of weeks ago and we expect that there will some intervention”.

Financial Discipline and MYTO-2

Ige observed that PHCN has become a huge financial burden to gas suppliers owing to its inability to generate enough revenue to pay for gas supplied, hence, the need to ensure the success of the new Multi Year Tariff Order-2, which is ushering in a cost-reflective electricity tariff structure.

He explained that PHCN’s inability to meet it obligation has cost the industry so much, adding, “My thinking is that the work we are doing, which is to let the gas flow is not sustainable without good support. At the moment, the entire group is working on letting the gas flow and all those projects that we talked about are ones that will see improvement in gas supply, which will in turn lead to some improvement in power when things start to get better.

According to him, the Minister of Power has promised that going forward, there will be changes in revenue collection and remittance. “We have also talked to the Nigeria Electricity Regulatory Commission that the price has to be right if you are bringing third parties to come and invest, as government has said that it cannot fund this kind of capital projects.”

Explanations from key stakeholders in the gas-to-power supply chain, point to the fact that gas for power projects so far initiated by the Federal Government are only temporary measures with limited impact on the nation’s electricity needs over the long-term. As it stands, except further measures are taken promptly, the country may only witness momentary stability in power supply. As declared by Ige: “If the money flows, gas supply will definitely flow to power plants for steady power supply.”