Recently, the Federal Government paid a legacy debt in excess of N213 billion to, among others, boost the supply of gas to the power sector. However, SEBASTINE OBASI writes that Nigerians have remained apprehensive over a number of issues undermining the sustainable supply of electricity as promised by government.
Since last November Nigerians have looked forward to the realisation of the promise that power supply would stabilise with the sale of the defunct Power Holding Company of Nigeria’s, PHCN, generating and distribution assets to private companies.
But hopes were dimmed as electricity privatisation threw up more unforeseen challenges, even more so when the federal government failed to declare the Transitional Electricity Market, TEM in March, due to inadequate gas supply to the power plants. The TEM was meant to set the stage that will ensure accountability and boost further investment in the Nigeria’s power sector.
How the market will work
When it becomes operational, the transitional market will streamline operations along the value chain from the producers down to the distributors of electricity in the following ways:
?Make it mandatory for the Nigerian Gas Company, NGC, to be sanctioned if it failed to deliver on gas supply commitments to the power producers, in line with the Gas Supply Agreement, GSA, signed in 2013.
?Sanction any power generating station that failed to deliver on its electricity supply commitment to the national grid in accordance with the Power Purchase Agreements, PPAs, signed with the Nigerian Bulk Electricity Trading Plc, NBET.
Sweetcrude learnt that actionable agreements, such as Transmission Use of Service Agreements, TUOS, which have since been signed, are still awaiting implementation, pending the declaration of TEM. Others also pending are the Grid Connection Agreements; Ancillary Services Agreement; Power Purchase Agreements, PPAs; Gas Supply Aggregation Agreements; GSAAs; and Gas Transportation Agreement, GTAs.
The GSA mandates the gas supplier to provide the agreed minimum amount and quality of gas to the power producers.
The agreement also mandates the power producers to pay for gas supplied, and provides for penalties for non-delivery of the required gas and non-payment for the gas delivered.
It was gathered that of all the agreements that are awaiting implementation, the GSA poses the greatest threat to the declaration of TEM because of the persistent interruption in gas supply to the power producers.
Gas supply challenges
The question now is: with the federal government’s N213 billion lifeline to the sector, will the gas issue be resolved with the promised take off of TEM in November?
The Chairman of Nigerian Electricity Regulatory Commission, NERC, Dr. Sam Amadi, has promised that the federal government’s intervention will take care of the gas issue, as well as others issues militating against power supply.
He also allayed the fear that the intervention will be marred by official red-tapism associated with such interventions, saying, “There is no fear. The process is being worked out by the CBN. The fund will be ready by then.”
Amadi also said that some power plants in the country are ready to generate an additional 7,000 megawatts, MW, of power into the national grid but were hindered by the shortage of gas to fire the turbines.
As a result, he noted that the 7,000MW supply target set for 2013 could not be realized, a development he said could be reversed with the passage of the Petroleum Industry Bill, PIB.
“PIB is critical to move forward on gas to power; the law should be passed as soon as possible. Although the debate over the bill is big, but we want the matter to be resolved in a way that makes gas to power commercially viable and bankable,” he said.
According to him, Nigerians are right to question the excuse of gas shortages because as a gas producing country, Nigeria should not use gas shortages as excuse for not generating enough electricity.
He also noted that the NERC in collaboration with the Ministry of Petroleum Resources and other relevant stakeholders, built the Multi-Year Tariff Order, MYTO model, based on the availability of certain projected quantity of gas.
“We built an MYTO model even in not very good scenario because if we have used good scenario, we would have projected 16,000MW. This would have been the best case scenario and it would have been a realistic benchmarking if gas was available. Today, we have about 7,000MW ready to come into the market but no gas to fire the turbines. So, if you look at that, you could say that you can generate 6,000MW today, if we put the gas in the power plants,” he said.
He, however, blamed the gas situation on pipeline vandalism, adding that as a result, the country lost about 800MW between February and March this year. He also noted that before now, the power reform was moving fast but gas was lagging behind.
“Today, you see a mismatch. You have a much-more developed power sector and a very under-developed gas sector, both in terms of policy and management framework. Initially, gas people were not thinking about power; all along, Liquefied Natural Gas, LNG, is the business of gas. So, they did not bother about domestic supply,” he added.
Underutilisation of substations
Corroborating the NERC Chairman’s views, the Director-General, National Power Training Institute of Nigeria, NAPTIN, Mr. Reuben Okeke, said gas supply shortage is stalling the activation of 224 distribution substations built by government to boost electricity supply.
He argued that the 224 substations could not operate optimally due to gas shortage. “Though the stations are ready to help move the country from its current 4,500MW supply level to 20,000MW in the next few years, it has been impossible to achieve this feat, due to gas shortage. Also, shortage of gas has stalled the various projects initiated by the government to wheel electricity into the national grid,” he added.
Many of the power generating plants built under the National Integrated Power Project, NIPP, he said, have not come on stream because of inadequate gas supply.
“Aside the fact that the country is targeting 5,000MW from the NIPPs, 6,000MW is expected from the privatised successor companies unbundled from the PHCN. However, gas is impeding the country’s ability to generate electricity,” he said.
Okeke, however, argued that there is no way the country’s energy needs can be achieved without being complemented through renewable sources of power supply.
Nigeria, he said, requires substantial electricity for sustenance, stressing that thermal and hydro power plants remain the major sources of the country’s power supply.
Dire consequences for agreements failure
But while Nigerians remain helpless over the inadequate gas supply situation and the attendant irregular power supply, their West African neighbours are being compensated. For example, the federal government recently paid about $10 million to Ghana, as compensation for Nigeria’s failure to meet the gas supply agreement it entered with the latter.
Under the agreement signed in 1999, Nigeria was required to supply Ghana a total of 123 million Metric British Thermal Units, MMBtu, of gas per day.
However, Nigeria was said to have failed to meet the target, supplying only 30 MMBtu/day and sometimes less.
According to the Director of Planning and Business Development of the Volta River Authority, VRA, Mr. Kofi Ellis, Ghana had been paid $10 million as damages by Nigeria over the shortfall as stipulated in the gas supply contract.
“The contract already stipulates some liquidated damages for reduction in supply,” Ghanaweb quoted Ellis to have said. “I know that already we have been paid some damages for the reduction in supply,” he added.
A recent visit by the Ghanaian Minister of Energy and Petroleum, Mr. Emmanuel Armah-Kofi Buah, to Nigeria culminated in West Africa’s biggest gas-supply nation promising to supply a constant 50 MMBtu/day.
Ellis noted the intervention by Nigerian government, while also admitting that in as much as Nigeria would want to help Ghana, it is also facing challenges.
“I guess Nigerians also share in our problems. They understand. The unfortunate thing is that this is a commodity that both countries need for themselves. So it is a matter of trying to see how best you can help your neighbour,” he said.
He however said the contract would not be revoked notwithstanding that Nigeria is facing challenges in meeting the terms.
Similarly, Nigeria is still paying liquidation damages to the West African Power Pool, WAPP, for its inability to meet its gas supply contract value to 14 of the 15 countries of the Economic Community of West African States, ECOWAS.
Although the amount is not stated, the Chairman, Presidential Task Force on Power, Dr. Beks Dagogo-Jack, explained that the Federal Government failed to fully meet its contract percentage because it chose to first address soaring domestic demand.
“Currently, we are paying liquidation damages. We are giving them less than 60 per cent of the contract value, and the country is paying for not giving them what the contract says, simply because we want to meet domestic demand. So, it’s not like we are giving them 100 per cent,” he said.
Designed to ensure regional power systems integration and realisation of a Regional Electricity Market, REM, the Power Pool is a specialised institution which covers 14 of the 15 ECOWAS countries. These are including Benin, Burkina Faso, Côte d’Ivoire, The Gambia, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo.
With 26 member companies, WAPP is made up of public and private generation, transmission and distribution companies involved in the operation of electricity in West Africa.
Urging Nigerians to support government to ensure the right gas pricing, Dagogo-Jack said it was good to establish the right understanding of the issues that are ongoing.
“The issues that are ongoing are commercial in nature; extremely commercial in nature,” he said. “We have to surgically remove from our heads the concept of some ubiquitous government that can come in and make something happen. That’s where we are running away from. We should just run away from there,” he added.
Impact on manufacturing
Apart from the electricity aspect, inadequate gas has taken its toll on the manufacturing sector of the economy. For instance, Dangote Cement Plc, said recently that its first-half profit declined by 11 per cent, as operating costs increased on gas supply challenges resulting in the use of heavy oil for its plants.
“We appeal to the government to do something about the problems of gas and LPFO supply,” said the company’s Group Managing Director, Mr. Edwin Devakumar.
“If we don’t have power and fuel, businesses cannot survive. If not resolved urgently, the situation will compound the problem of unemployment and insecurity in the country. It will impact on companies’ profitability. We have already lost about 10 per cent of our capacity and that means less cement in the market,” he said.
Sweetcrude learnt that the cumulative cost of the sales for four major cement firms – Lafarge WAPCO, Dangote Cement, CCNN, and Ashaka Cement, increased by eight per cent in half-year 2014 to N120.17 billion, from N111.73 billion in 2013.