FG to secure Genco’s payments for energy supplied to national grid
Pending approvals from the Federal Executive Council, the government will soon begin to secure payments to electricity generation companies for the next two years for every unit of energy they add to the national grid.
Babatunde Fashola, minister of Power, Works and Housing hinted this at a presentation made February 24, at the Nigerian Economic Outlook 2017 organised by BusinessDay.
“In order to deal with the problem of liquidity we will soon announce very clear government policy, I hope I will be able to persuade my colleagues in Council to support me – that secures payments to Gencos over the next two years for every unit of energy they put on the grid so that they can also pay their gas suppliers because that is production end of the business.”
Fashola said that this should do is give comfort to other investors who will see a secure payment plan as an encouragement to come and invest in the sector.
“Then we will go and deal with the more very detailed issue of how to end energy theft, provision of meters and improve collection.”
Debts by different operators continue to widen liquidity gaps in the power sector. Gas suppliers are threatening to shut the taps over N200billion debts owed them by GENCOs.
Meanwhile GENCOs have outstanding invoices from the Nigerian Bulk Electricity Trader (NBET) worth hundreds of billions. The Discos also complain of debts by government MDAs, huge technical and collection losses in the form of power wasted along failing transmission grid lines and power theft.
Wesley Omonfoman, managing director/CEO at Global Metering Services International Ltd told BusinessDay besides securing payments, a feasible way to address the liquidity shortfall in the power sector is for NBET to embark on a long term, Bond Issuance program.
“The bonds issued will be guaranteed by the Federal Government. The proceeds of the Bond program will be used to fund the liquidity shortfall to Gencos, TCN and Gas Suppliers on a rolling basis until such a time that Discos significantly improve their revenue collection and become more efficient in their operations. The bond proceeds are structured as long term loans to Discos, which would be paid back over at least a 10 year period.”
Omonfoman said the advantage of the NBET bond program is that it unlocks sustainable long term funding from the Capital Markets (particularly Pension Funds and Institutional Investors) rather than the use of subsidies and intervention funds such as the recent N213billion CBN intervention facility to the Power Sector.
However, Taiwo Oyedele, hed of tax at PwC believes the issue is beyond funding.
“The solution to the power sector problem is really not accesss to funds but a combination of bad policies and poor regulations.”
Chuks Nwani, energy lawyer and vice president Powerhouse International Ltd, says the reforms should go even deeper.
“The regulator (NERC) should be bold enough to tell the Nigerian people that the Privatization exercise has failed to achieve the ultimate aim because of failure on the part of government and investors to perform their responsibilities as contained in the privatization document and also the regulator that has failed to insist on the rules of the market to be obeyed by all participant. We can start all over again to salvage the situation.
Nwani said that NERC should reset the Electricity market model to reflect the realities in the current economic outlook including foreign exchange value, inflation rate, taxes and tariffs.
However Fashola absolved the government of blames in the situation of the power sector, saying “At least 60 per cent of the power sector is in the hands of the private sector, so who is responsible for all these problems?
“Of the 11 discos, only Yola is under government management, 28 power plants, 10 under government the remaining under private management, so who really should produce the power? The fairest answer is that it is us – the private sector.”