â€¢ Undecided on NDPHCâ€™s request to increase retail electricity tariff
Chineme Okafor in Abuja
The Nigerian Electricity Regulatory Commission (NERC) has written to the Vice President, Prof. Yemi Osinbajo, to express its worries about the Gas Sales Agreement (GSA) the Niger Delta Power Holding Company (NDPHC) signed with a private gas firm, Accugas Limited for the supply of gas to its 562 megawatts (MW) Calabar power plant, and which the World Bank guaranteed after initially refusing to.
Documents obtained by THISDAY yesterday in Abuja, indicated that the NERC initiated an investigation into the GSA between Calabar power and Accugas – a subsidiary of Seven Energy, from which it raised its worries on the likely impact of the World Bankâ€™s $112 million guarantee for the GSA, on Nigeriaâ€™s electricity market.
It was gathered that NERCâ€™s investigation involved a public hearing with key stakeholders in the sector except the World Bank which allegedly ignored the public hearing, and that NDPHCâ€™s â€˜take or payâ€™ GSA with Accugas was consummated regardless of NDPHCâ€™s very difficult financial position which the World Bank originally raised and said was the reason it would not guarantee the GSA.
In this regards, other documents obtained by THISDAY which included a December 2016 letter to the Minister of Finance, Mrs. Kemi Adeosun, by the World Bank Country Director, Mr. Rachid Benmessaoud, had the bank clearly stating that it would not proceed with its guarantee of the GSA between NDPHC and Accugas because of NDPHCâ€™s poor finances.
â€œAt the time of the due diligence, the Bank was informed that NDPHC was on track with its payment obligation and well-funded, and the IDA guarantee was presented to the IDA board on this basis.
â€œSince the time of such board approval, in August 2016, the financial situation of the energy sector has deteriorated, and it appears that NDPHCâ€™s financial position has substantially changed for the worst. IDA is not in a position to backstop an entity in default of its obligations and therefore would be unable to proceed with re-execution of the IDA guarantee agreement,â€ read excerpts of Benmessaoudâ€™s 2016 letter to Adeosun.
Similarly, another document from the World Bank indicated that one of its arms, the International Finance Corporation (IFC) had invested $75 million in equity in Seven Energy – the parent company of Accugas, as well as $500 million bond as an anchor investor.
However, NERCâ€™s report stated that the NDPHC had posted a Letter of Credit (LC) with JP Morgan Chase to backstop its payment obligation under the GSA, and that the Nigerian Bulk Electricity Trading Ltd (NBET) would according to the structure of the contract, assume the credit risk for a drawdown on the LC.
The regulator noted that this was of concern to it, been that it has a potential impact on the power sector as well as on Nigeriaâ€™s sovereign credit rating.
Worried about the bankâ€™s initial position and what may have informed its change of decision, NERC referred to Benmessaoudâ€™s 2016 letter to Adeosun, saying: â€œIn the course of reviewing the documents submitted, the commission noted with particular interest the content of a letter dated December 19, 2016 issued by the World Bank to the federal ministry of finance in which the IDA indicated that it was not proceeding with the re-execution of one of the suites of agreements under the PRG for gas supply to Calabar power plant.â€
â€œThe reasons adduced for the change of position by the World Bank included an acknowledgment of by the management of the NDPHC of the state of arrears in respect of payment for gas supply to Accugas Ltd, lack of funds to settle current and future obligations for gas supply deliveries to its Calabar power plant and the deteriorating liquidity situation in the NESI,â€ added the regulator.
It explained that the World Bank has not given reasons why it changed its decision, and as such asked the federal government to investigate the transaction and what forms of assurances the bank may have obtained to therefore proceed with its guarantee of the GSA.
Also in the report, NERC stated that a request by the NDPHC that its retail tariff be reviewed upwards from N18 per kilowatts hour (kWhr) to N23kWhr, as it is with other generation companies (Gencos) in the country to enable it meet its obligations, has not been decided yet.
It explained that it had simulated the impact of the tariff review request on the current end-user tariff and that it would led to a four per cent increase in the average electricity tariffs of consumers in the country, as well as an addition of about N47.8 billion to the 2018 tariff deficit.
NERC therefore asked the government to clarify its policy direction on the current role of NDPHCâ€™s power plants in reducing overall tariff shortfall in the market through rates that are lower than that of other Gencos.