The Nation Newspaper

Tag: GENCOs

  • Needless guarantee

    Needless guarantee

    •N50bn public funds to the GENCOs won’t let them put in their best

    The Federal Government, through the Bureau of Public Enterprises (BPE) and the Nigerian Bulk Electricity Trading Company (NBET) Plc signed a N50billion needless escrow guarantee account agreement on power with three Nigerian banks. The banks: United Bank for Africa (UBA), First Bank Plc and First City Monument Bank (FCMB) Plc are to act as custodians of the funds and to ensure adherence to due process in the bid to access it by owners of the electricity Generation Companies (GENCOs). The generating companies are successor companies of the Power Holding Company of Nigeria (PHCN).

    The money, to be administered by NBET was part of proceeds from the privatisation of the defunct PHCN and is expected to insure the generating companies against revenue loss in their effort to boost electricity generation. According to Benjamin Dikki, Director-General, BPE, the Partial Risk Guarantee (PRG) expected from the World Bank could not be secured in the prevailing circumstance.

    Obviously, the Federal Government has shown understandable anxiety over the need to improve electricity generation in the country. This is because of the importance of stable power if the economy must truly develop. However, the way to go should have been for it to use whatever money at its disposal to develop infrastructure in the sector rather than acting as insurer to the GENCOs. The N50billion Naira would go a long way in helping to boost desired infrastructure in the power sector.

    This should not mean a denial of the fact that power generation requires a lot of financial investment. Dikki’s costing puts the average cost of installing a megawatt at about $1.3 million which we consider to be quite huge. But didn’t the GENCOs conduct due diligence before purchasing that part of PHCN? If they did, then the duty of providing guarantee should not be that of the selling government.

    And if they did not, the GENCOs are presumed to have voluntarily taken over the risks under the legal principle of volunti non fit injuria (voluntary assumption of risk) which should not be the fault of the government. It is this fear of loss that would make them put in their best to ensure the success of their business ventures in the power sector. The best the government ought to do is to provide the enabling environment through tax incentives and duty waivers on necessary machineries, among others, that could boost the generating capacities of the GENCOs, over a specific period of time. This policy negates the best tradition and spirit of free enterprise, and such guarantee will not instill discipline in the GENCO ranks.

    Going by the country’s awry antecedents in the handling/management of such funds, the sad result of this huge fund can easily be predicted. Despite government’s assurances that the money is not a gift, we have little or no confidence in a policy initiative whereby the government stands as surety for the GENCOs. The official fears that whatever is generated might not be bought by the public is unfounded as there is already in existence a huge market for whatever power may be generated by the GENCOs.

    This booty comes across as another ill-conceived policy grandstanding and misplaced priority by the government. Again, on this issue of power, the government should not be seen to be approbating and reprobating at the same time if truly it understands the whole essence of privatisation. We ask: What is the purpose of transiting the power sector from public to private enterprise when the government knows that our money would still be deployed to guarantee these investors?

  • N50b for electricity firms to boost power

    N50b for electricity firms to boost power

    Owners of the Electricty Generation Companies (GENCOs) are to get a N50 billion prop from the Federal Government, which is desperate to expand electricity generation.

    The N50 billion will come in form of a guarantee.

    On behalf of the Federal Government, the Bureau of Public Enterprises (BPE) and the Nigerian Bulk Electricity Trading Company (NBET) Plc, the government signed yesterday an escrow agreement on power with three Nigerian banks in Abuja.

    The three banks are United Bank for Africa (UBA), First Bank Plc and First City Monument Bank (FCMB) Plc, which is the lead escrow agent.

    Although the banks will take custody of the fund, the NBET will administer the N50billion, which will be raised from the proceeds of the privatization of the PHCN successor firms.

    In the absence of the World Bank to provide Partial Risk Gurantee (PRG), the fund will serve as a palliative for the new owners to improve power generation, The Nation learnt.

    But, speaking after the documents signing ceremony, the Director General, BPE, Mr. Benjamin Dikki, noted that such financial guarantee should not BE taken as a grant, considering established processes required for any generation company to benefit from it.

    His words: “This N50 billion is not a dash. There are certain conditions that must be met before funds can be drawn from this escrow account. The market and systems operator have to confirm the quantum of power that was put on the national grid. The market operator has to confirm that because of system defects and inefficiencies in the transmission network, certain amount of power was lost. So, there has to be a due process before any Genco can draw from this amount; it is not a gift because certain conditions have to be met.”

    He said :”It is actually the generation companies that are left on the high end and we need to guarantee that whatever power they generate will be paid for if not, they will lose their capital and not able to invest in expansion of their capacities.

    “We have a deficit of about 29,000 megawatts (MW) of basic power needed to stabilise our power needs of 40,000MW and the average cost of installing a megawatt is about $1.3 million and that will mean an investment of $7.5 billion for 5000MW, and so we need to make sure that we create the atmosphere that will enable these generation companies to make investments without worrying whether they will be able to recoup monies they have invested and that is why this escrow account was created,” Dikki said.

    On the roles of the banks, Dikki said: “The banks are the custodians of the money, which is deposited in them and we want to establish a process through which this money will be drawn and not just drawn frivolously; that is why the BPE, Bulk Trader and the banks signed the agreement to say that you have to follow a process to draw this money; otherwise, there will be penalties.”

    The distribution companies are not covered by this escrow account because they have committed to reducing the Aggregate Technical Commercial and Collection (ATC&C) losses of the companies.

    Dikki said: “If you recall, they (distribution companies) were not given to the highest bidder but to those that committed to reducing ATC&C losses by a certain percentage and so they have committed and have given a technical proposal with a business plan cataloguing the level of investments that they will make every year in this regard.”

  • NERC moves to clip GENCOs,’ DISCOs’ wings

    NERC moves to clip GENCOs,’ DISCOs’ wings

    TO ensure that the 14 power generation and distribution companies do not derail, the National Electricity Regulatory Commission (NERC) will soon release the guidelines for their operations

    The guidelines will regulate the safety, health and environmental operations of the GENCOs and DISCOs, NERC Chairman Dr. Sam Amadi said.

    Amadi told The Nation that NERC’s action was to prevent the firms from siting plants indiscriminately and posing security risks to the society, under the pretext of overcoming infrastructural problems. The commission, he said, would ban any of the firms without adequate safety and health standards from operating outside their domain when the guidelines are out.

    He said the commission was fine-tuning the guidelines to ensure that the firms carried out their operational obligations without problems.

    NERC, he said, had subjected the draft to public scrutiny to get more input. The guidelines will encourage safety of people during the installation, maintenance or operations of equipment by the firms.

    Amadi said: ‘’ In anticipation of the entry of private sector participants in the electric power sector, the Nigeria Electricity Regulatory Commission (NERC) is in the process of perfecting guidelines that will ensure that operators do not breach their licence obligations, and at the same time are able to temporarily operate out of compliance, where the urgent need arises.’’

    He defined the right to allow the firms operate outside their boundaries as “derogation,’’ adding that the idea is tied to certain safety and health conditions which the companies are obliged to meet.

    “Operators would be made to apply to NERC seeking for time to comply with codes and standards, and then submit detailed plans and timelines for eventual compliance,” he said, adding that the commission will consider the applications, and if found not to impinge on health and safety issues, and are justifiable, derogation may be granted.

    “We have our expectations from the companies and we would try not to compromise the safety of the operational environment of the operators,’’ he added.

    Amadi attributed the development to the weak state of the industry inherited by the new operators, noting that the sector is yet to rid itself of obsolete equipment, a development, he argued, that has made it difficult for the firms to operate and comply with the standards set by NERC on generation, transmission, distribution and customer welfare.

    According to him, issues such as distribution networks and customer care are vital to the industry’s growth. He noted that the companies are required to do something along that line. He said the DISCOs were obliged to take care of their customers by opening as many care centres as possible.

    Chief Executive Officer, Septa Energy Nigeria Limited Philip Iheancho said the industry is battling with infrastructural problems, adding that the GENCOs’ failure to access gas, among other materials, may force them to open plants outside their base without considering the implications.

    Environmental safety, he said, should be given priority when establishing plants in the power sector.

    President, Senior Staff Association of Power Holding Company of Nigeria (PHCN) Godwin Ifenacho said the planned privatisation of the National Independent Power Plant (NIPP) projects would succeed if investors were sure of getting production materials. There would be a challenge when the power plants find it difficult to access materials, Iheancho said.

    ‘’For instance, the distance between Omotoso and Papalanto power plants and Escravos Gas Project in Delta State is long, making it difficult for the plants to access gas for production. Based on this, the operators may be compelled to site gas plants outside their areas of operations, not minding the implications to the health of the environment,’’ he said.

  • How GENCOs can improve power, by experts

    How GENCOs can improve power, by experts

    Well-located plants, constructed pipelines, a reasonable price regime, and additional investment in gas sector will help the four power generation companies to improve electricity in the country, experts have said.

    The experts, Supo Shadiya, Philip Ihenacho and Taiwo Afonja, who spoke at a summit with the theme: The Nigerian Gas:The backbone of Nigeria power sector in Lagos, said the Geregu, UghelIi, Shiroro and Kainji power plants would increase electricity megawatts when these above conditions are met.

    Shadiya, a Director at the Nigerian National Petroleum Corporation (NNPC)/Chevron Nigeria Limited Joint Venture, said infrastructure were crucial to the growth of the gas sector, adding that with the right infrastructure in place, it would be easier to produce enough gas for the power generation firms.

    He said investment in gas pipelines, among other critical areas, would help to foster the growth of power sector. He urged the governemnt to construct the East-West and North gas pipelines to enable power generation firms operate well, saying when this happens, firms would be able to access gas irrespective of their locations.

    Shortfall in gas production, he said, would continue, for as long as Nigeria is not ready to synchronise investments in the sector, stressing that stakeholders need to share and combine ideas for growth. He said immense opportunities exist for those that are ready to tap them.

    With Nigeria’s 179 billion gas cubit feet reserves and an estimated 600billion cubit feet projection, investors, he said, had a lot to gain from the sector, arguing that government’s ability to provide an enabling environment would help the International Oil Companies to produce gas for power firms.

    Ihenacho, the Chief Executive Officer, Seven Energy International, called for a paradigm shift in the ways gas plants are cited in the country. He said gas plants should be evenly distributed, as against the situation where they are sparsely sited. He argued that the manner the gas plants are sited will not meet the needs of the power generation companies.

    He said the collocation of gas plants and power generation companies must be given priority, in view of the problems in the power sector. The gas plants and power generation firms, he said, must be sited close to each other to improve electricity supply.

    Minimal distance, he added, should be between the power firms and gas plants if Nigeria wants to generate more electricity megawatts.

    “‘This brings us to the issue of cost involved in processing and transporting gas from one place to another. The farther the distance between a power generation firm and a gas plant, the higher the cost of transporting the product and vice-versa. Besides is the nature of producing gas. The cost of production varies, depending on the source of the product.

    “For instance, gas derived from deep, semi -deep or shallow onshore attracts different prices. Once consumers (individual and corporate) are not ready to bear the cost, it is a problem for the gas company. To process and supply gas it to consumers require huge investment. Investors can only invest in gas production, when the rate of returns is high,’’ he said, adding that the huge cost of producing and transportating gas, discourage people to shy away from the sector.

    He said the unattractive pricing is a disincentive in gas production and distribution, stressing that the issue has affected the operation of power generation firms.

    Ihenacho added: “A gas pricing scheme introduced in 2010 shows that gas should be produced and transported to designated locations at $1.50 mmbtu. This is a term used to describe the unit of gas processed and transported to consumers). At that price, investment in gas value chain is no longer attractive.

    He said collocation of gas plants must be giving priority to foster growth of the firms.

    Iheancho continued: ‘‘The distance between gas and power plants must not be too long. For instance, the distance between the Escravos Gas Project in Bonny, Rivers States, and Omotoso power plant is long, making it difficult for the plant to access enough gas for operation. Proximity between the gas plants and the power plants is one area that must be given priority in the country.’’

    Afonja, a Partner, Energy and Project Finance, Adepetun Caston-Martins Limited, said investment in gas plants was crucial to the growth of power companies.

    He urged investors to provide bankable projects to grow the gas and power sector. She said financial institutions are not ready to support non-bankable projects, adding that the development has culminated in low investment in the sector.

  • Gas distribution firms, Gencos in talks

    Gas distribution firms, Gencos in talks

    • 15% power lost to weak grid

    Following the privatisation of the power sector, natural gas distribution companies are discussing with power equipment manufacturers for the manufacture of small power generating plants that run on gas for captive power supply to the electricity distribution companies now owned by new investors.

    The Managing Director of Falcon Petroleum, Prof Joseph Ezeigbo, told The Nation that his company was discussing with Mantrac Limited, manufacturer of Caterpillar power equipment, for private power generation for Ikorodu in Lagos State.

    He commended the privatisation, noting that it was time for Nigerians to expect stable power supply. He also noted that the power the company would generate will not be supplied through the grid because it is wasteful due to weak infrastructure.

    “We don’t intend to take it into the grid because our grid is so wasteful. We lose about 15 per cent of electricity that go to the grid because of the inefficiency of the transmission infrastructure.

    “What we aim to do is be in consent with the distribution company (DISCO) for Ikorodu that we will generate electricity and give it to them. What they will do is ensure that the distribution system is organised and retooled to be able to take electricity without losses and get it to homes,” he said.

    Falcon Petroleum owns the franchise for natural gas supply within the Ikorodu industrial axis and Mantrac has just introduced a new power generating plant that runs on gas, which can generate more than five megawatts (MW).

    He said with the captive generation, the residents of Ikorodu Town will have 24-hour supply of electricity every day.

    Ezeigbo said: “We are negotiating with the government and hopefully when the distribution companies (DISCOs) take over the stations, we promise the people light 24/7. What we intend to do is generate electricity with natural gas and sell to the DISCOs.

    “ We are holding meetings with Mantrac to purchase between 2.5MW and 5MW of gas stations and deploy them in Ikorodu and pipe natural gas to them to generate electricity that will supply Ikorodu light 24/7, that is the promise we are giving the nation. Once the discos takeover, we will be running smoothly.”

    This can also be replicated in other areas.”

    On the ability of the new investors to efficiently run the DISCOs and the cooperation of consumers, he said that once a thing is privatised, the tendency is for people to actually live up to expectations. “Once they take over, there are some innovations that can come to play for them to take advantage of, to ensure that there is stable light in the country. I believe that will happen and with Mantarc coming up with gas engines at the moment that will make things a lot easier,” he said.

    On impact of high tariff, he said the tariff will be nothing when compared to what Nigerians spend on generators. He said: “The poorest man in the country at least would have “I pass my neighbour,” which is regarded as the least and cheapest generator set in Nigeria. I pass my neighbour uses petrol and if you convert the cost of petrol to the amount of money he will pay with the increased tariff in electricity, it is a chicken change. There is a company we converted to natural gas a couple of years back that spends N100 million a month on diesel and when they converted to gas they were using N38 million and was saving over N61 million. Imagine what it saves for the company.

    “I use about 2,000 litres a month in my house, which is over N200,000, so if I have steady light and pay N50,000 a month , that means a lot of savings. Whatever we do once there is steady supply of electricity; the increased tariff can be afforded by Nigerians because the benefits are so high.”

    He said the control and management of the power sector by the private sector, with the diversification of government’s funding system, government will make more money to maintain the services they actually suppose to get involved with and leave businesses to business men to run and that will mean more money for everybody, and the more efficient the system will be. In anything government people think they are going to share national cake and nobody is ready to work. Privatisation will improve the economy, make more money for the government, and more money for the investors, he added.

  • Workers’ protest may stall PHCN handover to GENCOs, DISCOs

    Workers’ protest may stall PHCN handover to GENCOs, DISCOs

    Despite making all payments, the 13 generation and distribution companies(GENCOs and DISCOs) may still have a hurdle to clear before taking over the assets of the Power Holding Company of Nigeria(PHCN).

    The workers are threatening to stop the takeover until the Federal Government implements its agreements with them before PHCN’s privitisation began a few years ago. The agreement included the payment of their severance package and re-employment by the new operators, among others.

    Earlier, the workers protested the handing over of the Transmission Company of Nigeria (TCN) in Abuja to Manitoba Hydro International, a Canadian firm.

    The Chairman, National Union of Electricity Workers, Lagos Chapter, Mr Adeleke Ibrahim, said workers had not receive their severance package because of the Federal Ministry of Power’s inability to put its record straight.

    He urged the committee and government agencies charged with computing the allowance to speed up and ensure that it is paid in time. The payment, he said, would placate the workers and avert problems in the future.

    The union, he said, would resist any further delay in payment because the workers had waited long enough for it and were now worried.

    The Chairman, Nigerian Electricity Regulatory Commission, Dr Sam Amadi, believes the workers’ action cannot scuttle the reforms in the sector. The workers had no power stopping Nigerians from benefitting from the reforms.

    He said the 13 GENCOs and DISCOs had met the requirements for operating as private entities, adding that the threat cannot stop them from starting operations.

    The workers, Amadi said, had not been justifying their earnings because they could not provide light for the country.

    He said it was time the workers left the sector for private companies to improve electricity supply in Nigeria.

    Amadi said: “The workers have been collecting salaries for years, yet they could not guarantee power supply. The government has paid N400billion as severance package, in addition to 50 per cent increase in their salaries. In spite of this, they are unable to justify the payment. Do we have light in the country? No. They have no choice than to leave for the new operators to come in to improve power supply.

    “I believe in the workers’ welfare, but I do not support any strategy that would destroy the successes recorded in the power reforms. The workers should go because issues relating to their outstandings have been sorted out. They cannot stop the private-sector- led initiative introduced to enhance productivity in the power sector.”

    The spokesperson in the Ministry of Power, Mr Timothy Oyedeji urged the workers not to lose sleep over the matter since the government has agreed to pay, adding that there are laid down structures for the payment.

    He urged the workers to refrain from doing anything that could affect the privatisation process.

    The workers’ actions, he said, would not prevent the companies from starting their operations, adding that some people were against privatising the sector.

    He said laid down procedures were followed to drive privitisation, urging workers to show enough understanding for the growth of the power sector.

    The former President, Senior Staff Association of the defunct National Electric Power Authority, Mr Godwin Ifenacho, said the protest followed the uncertainty surrounding the fate of the workers. He said the workers were provoked by the slow pace of payment, adding that only 40 per cent of the workers have received their emoluments.

    He said workers in Abuja among other cities had been paid, while others have not.

    He said: “The problems lie in the ways in which the workers are paid their emoluments. A situation where some workers have been paid, while others have not, is not good enough. This has created room for suspicion and fear. Based on this, the workers have no choice than to threaten to sabotage the efforts of the government.”

    The workers, he said, did not want what happened to the workers of the moribound Nigerian Airways and the Nigerian Telecommunication Limited(NITEL) to happen to them. After the liquidation of the Nigerian Airways and NITEL, the government failed to fulfill its promises of re-absorbing the workers”.

    “Workers are afraid of being thrown into the labour market. Their argument is that when the companies eventually take over the assets of PHCN, they would not employ them. To avert this, they want to stop the companies from starting operations,” he said.

    He urged the government to fast-track payment to dispel rumours that it has a hidden agenda, adding that the government must speed up the payment process, because the period for handing over the assets of PHCN to the private operators is near.