Why Nigeria’s power sector privatisation is not working – GENCOs

Electricity generation companies in Nigeria, GenCos, on Sunday, blamed the federal government for the current poor state of the privatised power sector.

The GENCOs were reacting to a call by Senate President Ahmad Lawan for the review of the privatisation exercise for failing to deliver on its objectives.

The Executive Secretary of the Association of Power Generation Companies, Joy Ogaji, pushed back the accusation, saying the Bureau for Public Enterprises (BPE) should be held responsible for failing to meet its obligations in two of the three foundation agreements reached with the new operators in 2013.

Mrs Ogaji told PREMIUM TIMES the governing contract agreements reached with BPE prior to the takeover of the power industry in November 1, 2013, include guidelines on how to make electricity generation and supply in the post-privatisation era sustainable and effective.

She said the first set of agreements commonly called industry agreements included the Power Purchase Agreement (PPA), the Gas Supply Agreement (GSA), the Gas Transportation Agreement (GTA) and the Grid connection agreement,

The other agreement for the provision of securitisation was meant to guarantee the power purchase agreement (PPA) and power production to ensure 100 per cent payment to make power available.

The guarantee was to give assurance to banks willing to finance the acquisition of the power plants, without which the business would be infeasible.

Agreements not activated till date

Following the privatisation exercise, Mrs Ogaji said the former Power Holding Company of Nigeria (PHCN) was unbundled into six GenCos and 11 distribution companies (DisCos), and sold to core private sector investors.

Since the new owners took over in 2013, she said, none of the agreements have been activated.

The BPE’s refusal to activate these agreements, she said, resulted in the non-payment for power generated and supplied to the national grid, as there has not been any effective power purchase agreement since 2013.

“This has led to a huge outstanding debt of approximately one trillion Naira (N1TRN) owed to GenCos from the inception of privatisation till date,” Mrs Ogaji said.

Despite the inactivated contracts, she said the declaration of the Transitional Electricity Market (TEM) compelled the GenCos to embark on some additional investments in the sector, resulting in huge capital, increased regulatory risk, and rising debt profile.

The GenCos accused the Nigerian Bulk Electricity Trading (NBET), saying its lack-lustre performance as the off-taker of electricity produced by the GenCos, has worsened the situation in the industry.

“The non-provision of the securitisation for payments (the Guarantee) has encouraged multiple defaults on invoices for power supplied to the national grid and with zero consequences for such defaults,” Mrs Ogaji said.

She said the GenCos have received payments of between 11-30 per cent of their invoiced amount on a monthly basis, with some of the shortfalls settled from the N701 billion power support fund, leaving a huge outstanding.

“The weak transmission (Grid) and distribution network inherited from the PHCN are still in existence and are not complementing GENCOs’ efforts in maximizing available capacities to the benefit of the Nigerian consumers.

“The maximum capacity attained by the national grid ever is 5,375 MW as opposed to the current overall average available capacity, 8,589 MW, and installed capacity of 13,427 MW, with an expansion capacity of 20,000MW in an enabling environment.”

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Stranded generated power that could have been made available to Nigerians in the light of maximum attained grid capacity is an average of 3,214MW.

“This implies that if we had a grid capacity that matches our average available capacity, 3,214 MW can be immediately made available to Nigerians with the current state of operations of the GENCOS and at no additional cost,” she said.

Describing the call by the Senate for the cancellation of the privatisation exercise as premature, the APGC Executive Secretary said focus should be on the structural issues affecting GenCos operations.

Probe all parties’ roles

She called on the Senate to embark on fact-finding mission to determine the commitment of all parties to ensure everyone was fulfilling the contractual obligations drawn up to guide and regulate the privatisation of the sector.

The GenCos also called for the review of the Electric Power Sector Reforms Act (EPSRA), the Multi-Year Tariff Order by the Nigerian Electricity Regulatory Commission (NERC) as well as market rules and other governance documents in the electricity sector.

Other demands include an independent stress test on the electricity generation, distribution and transmission capacities to enable GenCos plan on how to rebuild the sector.

Also, the GENCOs demand local/foreign guarantees (backed by the World Bank/AFDB) to enhance a guaranteed payment plan to improve generation and implement power expansion plans.

When contacted for the BPE’s reaction, the spokesperson, Amina Othman-Tukur, promised to send a response after consulting the appropriate authorities on the matter.

However, Mrs Othman-Tukur did get back to our reporter at the time of publication of this report.