Post privatisation in power sector: Achieving efficiency for GENCOS
Any keen follower of the Nigerian power sector would readily attest to the fact that prior to the privatisation of the sector, cases of corruption, poor plant maintenance, lack of adequate spare parts and vandalism of electric utilities were issues bedeviling the sector.
It was equally not far-fetched that adverse macro-economic changes, gas pipeline vandalism, limited gas supply, regulatory uncertainty, lack of respect for contract sanctity and government policy inconsistency has in the post-privatisation era further added to the sector’s woes.
Industry watchers observed that despite private investment into the power sector, issues with collection, transmission, gas supply among others have limited the impact that private sector would have had in the sector especially as it affect the generation companies (GENCOS).
They have expressed concern over the state of the power sector in Nigeria and the implication for investors in the sector; the various disruptions to the operations of other enterprises in the economy, especially the SMEs and the hardship suffered by the citizens.
Considering the huge gap between electricity demand and supply, managers of the economy require the right business environment for the on-going reforms along the electric power value chain to be effective.
GENCOS and the growing challenges
Industry analysts observe that the power sector operates on the tripod of electricity generation, transmission and distribution. The trio makes up the value chain that brings electricity to consumers.
The generation companies (GENCOs) are the producers of the vital commodity transmitted to the distribution companies (DISCOs) for distribution to the final consumers.
They argue that considering the importance of power as the fundamental ingredient for the growth of any economy, getting all the parts to work in sync is crucial. But, getting the generation to function effectively is more important. It is the aces required to complete the puzzle.
In the power value chain, generation involves producing electric power from sources of primary energy at a power station by electromechanical generators, primarily driven by heat engines fueled by chemical combustion or nuclear fission.
It also involves other means, such as kinetic energy, through flowing water (Hydro), and solar photovoltaics and geothermal power.
“The make-up of the electricity sector consists various players, from the fuel suppliers (water, gas, oil, and other renewable sources of fuel); generators (who generate the power), transmitters (transporters of the generated power to the distributors) and distributors (who retail the power to household consumers and other smaller businesses”. They said.
Joy Ogaji, an industry player in the power sector in a recent write up disclosed that if GENCOs are to play their role in the power supply value chain, they must be saved the agony of the debt squeeze, which is threatening most of them to buckle under the weight.
Ogaji argue that venturing to invest in the power generation assets was predicated on the promise by the bulk trader to shield the GENCOs from these problems, irrespective of what happens in the downstream sector of the industry.
According to her, the worsening market liquidity squeeze has culminated in a situation where the GENCOs lack the necessary funding for their operations, acquiring spare parts and equipment for the power generation equipment.
She further opine that the policy of domiciliation in dollars of the cost of gas, the primary fuel for power generation, coupled with the associated take or pay obligations, strenuous letter of credit conditions by gas suppliers, are tough hurdles in the path of the GENCOs.
“Despite their willingness and readiness to deliver their mandate in line with the terms of their PPAs, the GENCOs are unable to deliver power, because they are bogged down with huge unpaid debts by various stakeholders”.
“These challenges are potent threats to continued existence of the GENCOs. The combined effects of these problems exert enormous pressures on the GENCOs and their investors, negatively impacting their capacity to deliver power to consumers” she added.
Recent findings further indicate that in the last ten months, revenue shortfalls of N25 million a month have been a critical issue for power companies. This is a significant amount of money and this is leading to a situation where DISCOs are unable to pay back to NBET and NBET is unable to pay the GENCOs.
Reports show that GENCOs are asking for a debt of about N146 billion and these are just the GENCOs that were privatised. There are also issues with NIPP and the IPP that were run by Shell and the likes which the government owes about N90 billion.
Addressing issues of GENCOS
Power operators disclosed that GENCOs have made significant capital investments towards capacity enhancements, with specific examples of Egbin, Geregu and Ughelli power plants, resulting in increased generation.
It is however instructive to note that a lot more needs to be done to ensure that the operators surpass the requirements of their performance agreements.
Sunday Oduntan, executive director, research and advocacy, Association of Electricity Distribution Companies observe that as long as the same fundamental issues and challenges exist in the power sector, there are no miracles to seeking the turnaround that we all desire. “No investor will invest in a sector that returns, approximately, 50 kobo of every Naira of energy that is delivered”.
Oduntan pointed out that government have failed to honour any of its commitments to investors as the issues of improvement in gas supply have not materialise because pipeline vandalisation have constantly resulted in an average of 50 percent reduction in generation, for the period of May, June and July.
Analysts are of the opinion that to achieve sustainable supply growth in gas to the domestic market through bankable Gas Supply Agreements in the short-term and facilitating the creation of a fully commercialised liquid gas market in commercially enforceable GSA in the long-term.
In the views of Joy Ogaji, the situation with the power generating companies is gradually gravitating menacingly towards an acute crisis point. If urgent steps are not taken by all stakeholders, total cessation of operations by GENCOs is imminent.
The energy experts was quick to note that this is not just an empty threat to either government or the policy makers; this is the cold reality, requiring concerted action to halt the clear and present threat to the drive towards a functional economy.
“Government’s desire at this time is to ensure adequate provision of the basic infrastructure to drive economic growth. The wheels of the economy would not turn, if the GENCOs are unable to generate electricity required to power the productive engines”.
“The GENCOs are availed very limited options to manoeuver. Either the stakeholders, particularly government, roll up their sleeves and face up to the challenge of resolving the issues militating against GENCOs’ mandate, or fold their hands and watch the system go down”.
“The issues are pretty clear. The GENCOs are dedicated to deliver on their commitments to deliver power to the people. But, drastic steps must be taken to resolve lingering issues to avoid an elongated system collapse”. She said.
KELECHI EWUZIE