Nigeria’s Transitional Electricity Market on the horizon

The declaration of the Transitional Electricity Market (TEM), which was originally scheduled for March 1, 2014, is expected to happen in a couple of months to create competition in the Nigerian electricity market.

For instance, the declaration of TEM would make it mandatory for the Nigerian Gas Company (NGC) to be penalised if it fails to deliver on its gas supply commitments to the power producers, in line with Gas Supply Agreement signed in 2013.

Also, any power generating station that fails to deliver on its electricity generation commitments to the national grid according to the Power Purchase Agreements signed with the Nigeria Bulk Electricity Trader (NBET) Plc will also be sanctioned. And the NBET would not be paid for power not supplied to the distribution companies who ultimately lose revenue for failing to supply improved electricity to households and businesses.

The launch of the TEM was said to have been shelved because all the conditions precedent, which must be met during the interim period between the completion of the privatisation process and the start of the TEM, had not been met.

According to Business Monitor International (BMI), government’s decision to delay the launch of the TEM is something that could weigh on investor sentiment.

The Nigerian Electricity Regulatory Commission (NERC) recently approved and signed into law the rules for the interim period between completion of privatisation and the start of the TEM.

The order provides for regulation which shall apply to energy produced and delivered as well as associated services during the interim period.

The interim rules are intended to cover all electricity taken from the transmission system by the distribution companies (Discos) with adjustment made to account for any bilateral arrangements between generation companies (Gencos) and Discos).

The objectives of the rules are to establish a framework to govern trading arrangements during the interim period when Power Purchase Agreements (PPAs) between the privatised Power Holding Company of Nigeria (PHCN) successor generation companies and Nigerian Bulk Electricity Trading Plc (NBET) and vesting contracts between NBET and the privatised PHCN successor distribution companies will not be effective.

It is also to manage the probable revenue shortfall in the industry by determining the revenue allowable to participants and service providers during the interim period.

The objectives also include the establishment of payment arrangements and flow of funds from Discos through the market operator to all beneficiaries and to establish the sources of funds required to ameliorate the probable shortfall in the revenues collected by the Discos during the interim period.

The market operator shall ensure the Discos with invoices for their allocation of energy delivered and available capacity regulatory charges and services provided in each month during the interim period.

In the event of disputes arising during the period between participants and service providers, it shall be resolved in accordance with the disputes resolution provision of the market rules.

FEMI ASU