N701bn Stimulus: FG Moves to Buoy Electricity Generation


As the Central Bank of Nigeria and Nigerian Bulk Electricity Trading Plc plan to begin disbursement of a N701 billion financial stimulus for generation companies, Chineme Okafor examines the impact of the incentive on the country’s energy production capacity

Reliable hints on developments in Nigeria’s electricity industry last week indicated that the Central Bank of Nigeria and Nigerian Bulk Electricity Trading Plc had firmed up arrangements for periodic pay-outs to the power generation companies from the N701 billion stabilisation fund approved for them by the federal government.
THISDAY gathered that the fund disbursements exercise might have begun, albeit behind closed doors.
This came just few days after the government, through the Nigerian Electricity Regulatory Commission, declared the “eligible customers” regime, which, according to NERC, would now allow the Gencos to sell their stranded generation capacities to willing consumers with minimal interference from the 11 electricity distribution companies. The development appears quite in sync with plans by the government to activate the competitive sides of the Gencos, which for long have allegedly operated in huge debts.

Although, the CBN and NBET could not confirm that they were about to disburse the fund to the beneficiaries, who are mainly gas producers that send gas to the Gencos for electricity production, but rarely got paid. But industry sources in Abuja confirmed that the payments were imminent. They further explained that a final approval of this was expected from the federal government after which the payments would commence, adding also that the Gencos are quite excited about the development.

Industry insiders stated that as part of the arrangements for the disbursement of the N701 billion financial guarantee approved by the government to support NBET’s financial commitments to the Gencos, payments could be made directly to gas firms who supply gas to the Gencos, to offset Gencos’ debts to them instead of paying to the Gencos. They noted that the plan to pay the gas suppliers or companies directly for gas supplied to Gencos was adopted to avoid possible cases of Gencos failing on their financial obligations to the gas suppliers, a development could cause further setback for the sector.
According to the sources, the gas supply invoices for January and February, which the Gencos submitted for consideration by NBET and CBN, were ready for payment and could be taken up immediately the CBN commences disbursement.
An official of one of the Gencos confirmed to THISDAY that this was part of the arrangements, adding that going forward, the Gencos would be asked to submit their monthly gas supply invoices to NBET and CBN to validate and make payments directly to the gas suppliers, instead of paying to the Gencos to pay the gas suppliers. The official also stated that the Gencos were comfortable with such arrangement. He added that they would in this regard concentrate on producing power, expanding their generation capacities and bother less about meeting their monthly gas supply bills which the stimulus fund will mostly take care of.

The Minister of Power, Works and Housing, Mr. Babatunde Fashola, recently clarified that the N701 billion power intervention fund would be spread over the next three years to give relief to operators in the sector. Fashola stated that the Gencos would be expected to produce more electricity to put on the grid.
The minister had also noted that the objective of the financial intervention was to stabilise and steadily grow the output of the generation and gas subsectors of the electricity industry. He said that other initiatives in the areas of governance; audits; recapitalisation; revenue collections; and metering, which involved the distribution companies and Transmission Company of Nigeria, would be implemented alongside a new framework – Power Sector Recovery Plan – to improve performance of the market.

THISDAY gathered that estimates by the power ministry showed that the total cumulative amount the market owed the Gencos and gas suppliers since February 2015, when the Transitional Electricity Market took off, might be about N495 million. This means that if no concrete actions were taken, the huge amount could continue to grow by an additional N20 billion monthly in 2017.
Experts say the increasing debts may gradually erode the Gencos’ ability to sustain their current electricity generation levels.

A closer examination of the N701 billion stimulus package shows that while it would be drawn monthly, it would be paid to the Gencos and gas suppliers under amendments to their power purchase agreements and gas sales agreements.
The disbursements would equally strengthen, but not undermine, the contract provisions that currently govern the electricity industry.

Besides, as part of its payment cycle for 100 per cent of the energy component of their invoices, the proceeds will be disbursed by NBET, as may be agreed by the CBN, and the ministers of finance and of power, works and housing, as a matter of policy, which would also be subject to the level of revenue collection achieved by NBET from the Discos.
However, provisions in the stimulus programme also estimate that NBET will continue to collect up to 25 per cent of its monthly invoice from the Discos, and this was based on the last payment performances of the Discos, throughout 2017. NBET would, however, expect to see some gradually increase in the Discos’ remittances to it through 2018 to possibly 80 per cent, from which some kind of revenue equilibrium would have been achieved in the market, and at which point the stimulus may cease.