Resetting the Electricity Market for Improved Performance

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With the failure of the federal government and the private investors to fulfil their respective obligations in the performance agreement they signed during the power privatisation in 2013, it has become imperative for both parties to reset the electricity market as the initial five-year agreement lapses in November 2018, Ejiofor Alike reports

The protracted electric power sector reform which commenced in 2001 was successfully concluded with the hand-over of the power assets to private investors on November 1, 2013.
But before the federal government transferred the ownership of the distribution and generation assets to the investors, both parties had signed a performance agreement, which stipulates the obligations of each party within a five-year period, ending November 2018.

The power agreement contains the obligations of the federal government in the areas of enthroning market-reflective tariff regime, supply of gas to power generating companies and payment of subsidy to the investors.
On the part of the investors, the owners of the distribution assets are required to allocate specific amount of money yearly to upgrade the assets and provide meters to customers.

The generation companies are also required to ensure that their machines are up and running such that with the declaration of the Transition Electricity Market (TEM) and the activation of all the vesting contracts agreements, the Gencos will pay for any gas which the Nigerian National Petroleum Corporation (NNPC) is ready to supply but their machines are not in good conditions to take.

Also, if the machines of the Gencos are in good conditions to take gas but the NNPC are unable to supply the gas, the federal government is required to pay the Gencos for the power, which the machines should have generated with their available capacity.

Under the performance agreement, the federal government agreed to enthrone a cost-reflective tariff regime, pay N100 billion subsidy and hand over the assets to the private investors with clean balance sheets so that they can deliver adequate and sustainable power to customers.

On the part of the companies, they are obligated to invest a specific amount yearly to upgrade the assets, reduce commercial and technical losses, install a specific number of meters yearly to ensure that all customers have meters by the end of the first five years.
However, five years after the agreement was signed, the federal government has failed to make enough gas available, pay subsidy and enthrone the agreed cost-reflective regime.

With the selling price of electricity lower than the actual cost price, the investors are running at huge financial deficits, while some Discos resorted to outrageous estimated billing to meet the running costs.
The failure of the federal government to fulfil its obligations under the performance agreement has fuelled serious liquidity crisis in the power sector, which hampered the capacity of the distribution and generation companies to meet their obligations.

Even when the Gencos managed to generate power in the face of the challenges, the federal government only pays them a fraction of their monthly invoices because even the World Bank partial guarantee has not guaranteed regular payment to the Gencos.
While some Discos approached the banks for credit facilities to boost their assets, they have failed to provide meters as agreed in the performance agreement.
It is estimated that the banks are exposed to the tune of over N1 trillion to the power sector.