From Uche Usim, Abuja
With 26 energy firms under her watch, Dr.(Mrs) Joy Ogaji, the Executive Secretary, Association of Power Generation Companies (APGC), is saddled with the responsibility of ensuring that her members’ multi-billion naira investments are not crippled by challenges buffeting the sector.
Mrs Ogaji, who also doubles as the Legal Adviser to the Presidential Task Force on Power (PTFP) ,says Gencos in the country are contending with over N500 billion debt owed by the Federal Government, insufficient liquidity, militancy, gas supply challenges, among others.
She said the Gencos are surviving largely on loans from creditors, stressing that letters from the lenders to recover their loans have been nerve-racking.
She said the N701 billion recently approved by the Federal Executive Council (FEC) was for 2017 to 2019 operations, stating that the government has kept mute on previous debts.
In this interview, she reveals that her most recent professional engagement was the transaction monitoring, evaluation and facilitation for the completion and handover of the vertically unbundled assets of the Power Holding Company of Nigeria (PHCN) to private owners and monitoring and evaluating the activities of investors to benchmark them with set standards.
She speaks more about the epileptic power situation in the country and the power sector in general.
I know Nigerians are asking that with the increase in capacity to produce enough power for the nation, why haven’t we seen this newly added capacity when we switch on our fridge, fan or TV? Why is electricity generation not better as promised? Well, the answer is that most of the newly added capacities have been constrained from reaching the end user of the power. The country needs electrical power to feed its industries, which in turn grow the nation’s economy. So, the big questions are one; who constrains the Gencos’ available capacity of 7,500MW from effectively being converted to useable energy? Two, any justification for constraining the available capacities? Three, have the Gencos been receiving their revenue for these constrained capacities, otherwise called deemed capacities, since the constraints are due to no fault of theirs? Now, let me provide the answers.
The grid code demands that all network users, including the Gencos, should, as a matter of rule, obey any instruction from the System Operator (SO). Therefore, despite the Gencos’ efforts to increase their available capacity effectively and nominating same on a daily basis, the SO has the grid right to instruct any Genco to reduce or cut down on its nominated capacity. To safeguard the grid from partial or total system collapse, the SO is justified for issuing such instructions as above. In view of these facts, the legacy Gencos are yet to be paid the deemed capacity since November 2013.
It is imperative to note that for a Genco to nominate any capacity, it means effective commitments has been made as per gas for thermal plants and other equivalent necessary overhead costs, which apply to both thermal and hydro plants. Costs associated with deemed capacity are legitimate costs that must be recovered.
When there are restrictions on the grid either due to load rejection on the part of the Distribution Companies (Discos) or congestions on the transmission network (line cuts, transformer faults, etc.) to evacuate available capacity, the SO instructs the Genco to ramp down on its nominated capacity and the Genco must comply.
In global electricity markets, compelling a generating station to reduce its generation in order to maintain the power grid attracts financial costs as contained in Power Purchase Agreements (PPAs). It is not different in the Nigeria electricity market, which clearly says in the Transitional Electricity Market (TEM) Order No. NERC/14/0008, Section 16B, paragraph 1 & 2 of 2014, that a generator will be paid for the generation capacity utilsed to deliver electrical energy, plus deemed capacity; where deemed capacity is capacity that would have been delivered but for the SO’s instruction to the said generator to derate or reduce its capacity to achieve grid balance and stability.
Payments for deemed capacity over this period has run into billions of naira that would have been used in maintaining generating plants and paying for already purchased/contracted gas and services. Compelling a generator to ramp up and ramp down at unscheduled time affects its equivalent operating hours and stresses the internal parts of the machine thereby reducing the plants’ lifespan.
Generating plants can no longer sustain themselves as the percentage of their revenue received does not cover their operating costs.
We are surviving on loans because what we get does not cover out operational costs, like I said earlier. History has shown in the past three decades how generating plants were run right to the ground by the defunct NEPA/PHCN without paying attention to scheduled maintenance and overhaul. This new breed of determined operators have continued to maintain standards by increasing their national generation capacity without being paid rightly for their services.
It is only a matter of time for them to run out of funds to maintain the generation capacities and also to produce the much-needed energy for the nation. As a matter of urgency, generation companies are calling on all relevant government agencies to facilitate the payment of the outstanding invoices. We want the Transmission Company of Nigeria (TCN) to improve the reliability of the power grid system to avoid incessant blackouts and incidences of deemed capacity (stranded generation) and maintain grid-acceptable frequency limits of between 49.5Hz and 50.5Hz at all times. In other words, our position is that the total outstanding invoice on deemed capacity must be added to market revenue gap for payment.
The recent development in the industry where the Nigerian Electricity Regulatory Commission (NERC), the sector regulator, has to escrow the account of the Discos is not just a welcome development but also a wake-up call to all participants in the electricity market. With the dwindling commercial performance in the Nigeria Electricity Supply Industry (NESI) and the inability of some stakeholders in the power sector to meet up infrastructure performance targets due to the decline of market funds and its attendant increased debt profile in the entire value chain of the power sector, the account escrow move is good. I mean, what are the Discos afraid of? Recall that Nigeria Bulk Electricity Trading Plc (NBET) repeatedly published that the Discos remitted only 30 per cent of their monthly energy invoices in 2016.
Last October, at a market participants’ workshop in Abuja, Mr. Moshood Saleeman, the Market Operator, which is an arm of TCN, pointed out that if poor collection by Discos continued, their accounts may be escrowed.
About a fortnight ago, the Association of Nigerian Electricity Distributors (ANED) likened such move to centralise their revenue accounts to nationalisation of the Discos. The electricity sector is a value chain, which needs to be remunerated as applicable covering the cost of generation, transmission and distribution. The Gencos are entitled to 60 per cent of market remittance as they do not just generate power but also pay for gas supply and gas transportation.
Transmission charge costs 11 per cent, distribution gets 25 per cent while the remaining 4 per cent is meant for regulatory charges and NBET. The revenue referred to by the Discos are not their personal revenue but market funds to which they were made trustees to collect and remit. The poor remittance of market funds by the Discos has prevented the rest of the electricity value chain from meeting up with their operations and also service their liabilities, which includes gas payments.
Gencos, the supply sector of the industry, can no longer perform required and scheduled maintenance as well as pay for gas supply. The need to monitor the flow of market funds has become necessary as this will enable transparency in the market and also give the regulator the ability to identify issues that will progress the sector and act accordingly in advising the government and stakeholders where funds actually need to be ploughed into the sector in order to bring about self-sustenance and competitiveness.
This very act and stance of NERC and the Federal Government will definitely send positive and promising signals to potential investors as well as generation licensed investors, who are yet to commence construction of generation, that the current administration is ready to make the sector viable and sees the power sector as its top priority and a strategic route to the newly inaugurated economic recovery plan.
The issue of everyone crying wolf should be fast gone. There have been blame games being played by the various players in the sector; it does not matter whose voice is loudest. The truth is, the Gencos have, in keeping with the terms of their contract, generated power which has been sold by NBET to the Discos. What the Gencos want is to be paid fully for power received and sold. If one claims electricity consumers are not paying, let us see the payments transparently.
If centralising the payment system is tantamount to nationalising, the question that comes to mind is: what does selling the electricity and keeping the money all to oneself mean? If Discos claim they are not collecting enough, then they should open their books to make it plain for all to see and confirm their story. He who asserts must prove.
The move by the regulator to bring about transparency in the market and also the plans to declare eligible customers would bring about better performance in the electricity value chain, which in turn, would raise sustainable cash flow for all market participants and reduced tariffs due to competitiveness.
Despite the lack of payment, our members are going through serious difficulty in accessing forex. We have been calling on the Federal Government to intervene just like they have been intervening in other sectors. We need easier forex accessibility. All our spare parts are sourced abroad. No Nigerian company produces them and we can only buy with dollars. So, forex is a major problem. We appreciate the fact that government is trying to make forex available to everyone but we want a special focus on the power sector because power is the bedrock upon which other sectors can thrive.
We were not consulted or engaged before they approved the N701 billion. If they had engaged us, this money would have been more than N701 billion. We would have captured the arrears they owe us. We heard about the money just like you heard. All we know is that FEC approved it and it was announced by the Minister of Power. We do not know how it will be shared. We also don’t know how and when it will come. We were told the money will be be used to pay 2017 to 2019 operations.
Yes! it is not just the lenders’ letters that are hurting us. There is so much pressure from auditors. Each year, you have your account audited and auditors don’t know what to do with that money (debt) hanging there. You keep carrying over. Every year, it is balance brought forward. So, they are now questioning our companies that, should we treat this as bad debt? This is because we don’t know when it will be resolved.
It does not have a time line. And once it is treated as bad debt, you know the impact on your company. No foreign investor wants to do business with your company. None will even come near you. No bank will want to loan you any money. So, we are in that precarious situation.
It will interest you to know that most of the Solar Independent Power Producers (IPPs) are also our members; both thermal and hydro Gencos are actually going into all these renewables. We’ve discussed with the new ones coming in. Because they have not started generating, they’re still in their initial process, but we are in touch with them.
We have 26 power stations that make up APGC. Some of them have two; like Mainstream has Kainji and Jebba. NIPP has 10 power stations.
Recapitalisation, just like re-mortgaging, means you are not meeting your repayment and so on. I’m speaking as a Genco. We have also not been enaged as stakeholders. Before you bring up a policy or programme, engage us as stakeholders so that we discuss the pros and cons. Then you can put it up in public. So, if the government has a recapitalisation plan, I cannot really comment on it until I have the full picture. Just like the N701 billion. We only heard. Is it a loan? Is it a subsidy? Is it a free gift? We don’t know. Until we are fully briefed, I can’t say what our action will be. However, I can tell you that the Gencos will not be affected. They are keeping to the business plan. Go to the Bureau of Public Enterprises (BPE) and ask how the Gencos are performing. In fact, they will tell you they have exceeded their expectations.