Power Sector Still Bedevilled

ANALYSIS 5

 

Power Sector Still Bedevilled

The present administration inherited poor power supply in May 2015, owing to sundry problems, including shortage of gas, but steadily increased generation to an all-time peak of 5,074MW on February 2, 2016. Ejiofor Alike however reports that with current generation down below pre-privatisation levels amid buck passing by electricity operators, the past two years might have defied ‘Buharinomics’

When the present administration took over on May 29, 2015, the power sector was on its worst shape as it had crashed to 1,327 megawatts, exactly a week before the handover date, after many gas-fired power plants were shut down as a result of inadequate supply of gas.

Before the power sector was handed over to private investors on November 1, 2013, the country had attained generation of above 4,000MW.

In fact, an all-time peak of 4,502.2MW was achieved on December 21, 2012, following an improvement in gas supply and better management of the water levels at the hydro power stations.

However, after the sector was handed over to the private investors, the new owners could not sustain and consolidate on the previous gains as attacks on gas pipelines left the sector with inadequate gas to fire the turbines.

Even when there was enough gas, the new owners of the generation companies could not pay for gas as a result of poor remittances by the distribution companies that sold the generated power.

It was not surprising that on May 22, 2015, exactly a week before the former President Goodluck Jonathan handed over power to President Muhammadu Buhari, power generation dropped to an unprecedented low of 1,327 megawatts, according to the Federal Ministry of Power.

 According to the ministry, most key gas plants in the country, including those located at Utorogu, Chevron Oredo, Oben gas-fired power plants, were all shut down,  while Ughelli and Chevron Escravos power plant had been isolated.

In the eastern axis, Shell Gas and Alakiri plants were also shut down, forcing power generation to drop to abysmally low level.

The affected power plants that were shut down as a result of the disruption in gas supply, included Egbin, Olorunsogo 1 and 11; Omotosho 1and 11, Geregu I and 11, Ibhonvor and Sapele on the western axis, and Alaoji on the eastern axis.

A strike by the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and the National Union of Petroleum and Natural Gas (NUPENG), over the transfer of operatorship of the Oil Mining Lease (OML) 42 to two indigenous companies, was blamed for the situation.

“The overall effect is that power supply which had started picking up steadily since the beginning of the week following repairs of various vandalised portions of the ELP Line (Escravos-Lagos-Pipeline) and the Trans-Forcados Gas Pipelines, has fallen to all-time-unprecedented low of 1,327m was at 1.00 p.m. May22, 2015,” the power ministry had reportedly said.

Before generation worsened to 1, 327MW on May 22, it had risen from 2,800MW on March 30 to a peak of 4,500MW on April 3, 2015.

After the handover to the new administration, the destruction of gas infrastructure in the Niger Delta ceased and Buhari enjoyed what was regarded as honeymoon for about seven months.

With the improvement in gas supply to the power plants for seven months as a result of what was regarded as Buhari’s famous ‘body language,’ power generation rose steadily to hit an all-time peak to 5,074MW on February 2, 2016.

Before this new peak, the current administration had first hit a previous peak of 4,883.9MW on Monday, November 23, 2015.

Indeed, Nigerians attested to the improvement in power supply at the early life of this administration, which was attributed to the famous ‘body language’ of the President.

But barely two weeks after the 5,074MW peak, a new militant group – Niger Delta Avengers (NDA) struck and bombed the Forcados pipeline, eroding the gains of the previous seven months in the power sector.

Pre-privatisation generation milestones

After the 5,074MW all-time generation level attained in February 2016, generation continued to drop steadily to its current level of below 4,000MW.

So, more than three years after the assets were handed over to private entities, supply has continued to hover below the pre-privatisation levels, while government and the private investors have continued their blame game, which still hinges on the old excuses of sabotage and chronic underfunding.

For instance, while the country’s power supply has been hovering below 4,000 megawatts in recent months, the country had on Saturday, December 21, 2012, hit an unprecedented peak of 4,502.2 megawatts.

After this new peak, generation had stabilised at 4,356.9 megawatts of electricity on December 29, 2012.

Before these milestones, the country’s power sector had attained a previous peak of 4,454.1 megawatts on December 19, 2012, after an earlier peak of 4,237 megawatts on August 8, 2012, which was then the highest power output ever generated in Nigeria.
Liquidity crisis

As the country was grappling with the destruction of the gas supply to the power plants after the first seven months of this administration, there was a hike in the cost of foreign exchange, which compounded the financial problems of the private investors, who took over the power assets.

According to the power reform agenda, the government sold the power assets to the private investors because they are better positioned to access funding to upgrade the assets, which were grossly underfunded and poorly-managed by the federal government for over three decades.

But with the rising cost of forex, coupled with poor remittances by the distribution companies, the new investors started lacking access to funding.

The blame games

Since the power generation worsened, the investors have blamed the federal government for not abiding by the privatisation agreement and electricity consumers for failure to pay tariffs.

On its part, the government has also accused the companies of frustrating the attempts by the government to activate their agreements in the Transitional Electricity Market (TEM), which should bind them to objective service delivery.

While the generation and distribution companies have blamed poor supply on gas shortages and grid instability caused by weak transmission infrastructure; the Transmission Company of Nigeria (TCN) has also blamed the Discos for rejecting power allocated to them.

The TCN has also blamed the Gencos for collapsing the transmission infrastructure with low generation.

Gas suppliers have maintained that there is enough gas to generate power but that the generation companies cannot pay for gas.

The excuse by the Gencos for their inability to pay for gas is that they are being owed for the power they generated into the National Grid.

According to the Gencos, they are being owed by the Nigerian Electricity Bulk Trading Plc (NBET), better known as the Bulk Trader for the power generated into the National Grid.

NBET, on its part, has claimed that it has insufficient fund to pay the Gencos because the Discos make under-payment for the power they buy and distribute to their customers.

But excuse by the Discos is that the tariffs paid by customers are not cost-reflective for them to recover the actual cost of power and remit to NBET.

They also blame their revenue shortfall on ministry, departments and agencies (MDAs) debts and failure of customers to pay electricity bill.

Funding interventions/escrow account

To address the liquidity challenges, the federal government had approved N701 billion intervention fund to assist the members of the electricity value chain to meet their obligations.

But the electricity distribution companies under the aegis of the Association of Nigerian Electricity Distributors (ANED) argued that the N701 billion fund has the potential to worsen revenue shortfalls bedevilling the power sector.

The Nigerian Electricity Regulatory Commission (NERC) has also resolved to escrow the accounts of the Discos to ensure that money realised from the power sector is distributed to all the members of the value chain – gas suppliers, Gencos, Discos, TCN and the regulators.

However, the Discos have opposed the move, saying that it would also send very wrong signals to investors that Nigeria is not fully open for private sector investment.

 “You cannot have a supposedly private sector-owned and managed business in which the government now seizes control of its revenues,” the Discos had argued.

The systemic blame games took a different dimension recently when the 26 Gencos requested the 11 Discos to come clean on why they opposed the open revenue management being planned by NERC.

The Gencos accused the Discos of increasingly creating lots of suspicions among sector operators on their operational integrity.
The Gencos has also blamed the liquidity crisis in the power market on the Discos which they alleged have remained financially irresponsible in their obligations to the market.
The 26 Gencos, under the umbrella body of the Association of Power Generation Companies (APGC) insisted that the claim by the Discos that the escrow account proposal was an attempt by the government to nationalise their operation was unfounded.
So, after inheriting 1,327 megawatts of electricity in May 2015, following the temporary shutdown of several power plants over shortage of gas, the present administration had increased generation to an unprecedented peak of 5,074MW.

But sundry problems in the sector has since forced generation down below 4,000MW, which is below the pre-privatisation levels, thus defying ‘Buharinomics’.