Contract Activation: Geometric Power lays viability template for NESI

• Nnaji calls for grid decentralization

Sopuruchi Onwuka

Activation of contract governed transactions among all players in the gas-to-power programme of the government holds potential to arrest the worsening debt overhang in the sector and also improve all efficiency levels in the electricity supply industry.

Chairman of Geometric Power Limited, Prof Barth Nnaji, told The Oracle Today exclusively that the commercial relay that binds all players into a unified channel of revenue returns from the market has no inherent defect. He pointed out however that it requires best business practices and transactional discipline of all players in the loop to achieve shared viability.

Prof Nnaji who is a former Minister for Science and Technology and later a Minister of Power told our correspondent that the relay arrangement supervised by the Nigerian Electricity Regulatory Commission (NERC) is perfect in concept but defective in operation, resulting in frictions among players in the chain.

He made it clear that the gas-to-power programme which offers strong fiscal incentives for low cost power production in the country is a business advantage with potential to accelerate productivity and economic development of the country.

He expressed strong confidence that the contract activation mechanism introduced by NERC to instill discipline would reset the system.

Prof Nnaji is the only Power Minister in the country who has not only invested in the Nigerian Electricity Supply Industry (NESI) but also runs an integrated system that brought to the gas-to-power programme to a perfect model. He confirms that commercial losses remains a challenge in the market due to limited investments, and adds that Geometric Power Limited and sister Aba Power limited are constantly investing in system capacity and commercial instruments.

In sharing his experience in the market so far, Prof Nnaji whose holding company has subsidiaries in generation and distribution ends of the business stated that debt would not an issue of every segment of the business is self accounting.

He said Geometric does not envisage any bottleneck in upflowing commercial returns in the integrated business model in which it’s Osisioma power plants draw gas from Shell’s facilities in nearby Owazza field to produce electricity that is sold by the Aba Power Company, all in Abia State.

He said all transactions from  gas supply to electricity supply are government by binding contracts that commits each entity to be responsible for meeting its financial obligations.

He said the commercial model in building and operating the integrated power production and distribution system had been worked out by the company’s lenders and simulated to ensure that there would be no avoidable losses.

From dedicated pipelines from gas production site to the power plants, through network reinforcement and mass metering; Geometric has not just proved operational and commercial efficiency but also laid a template for commerciality in the gas-to-power programme.

“We are the only company that has been constantly building new substations in our network. We have a scheduled metering programme that has not defaulted. And as a result we record the lowest technical and commercial losses. I think any distribution company can still do the same thing. So, we are not even exceptional,” Prof Nnaji told our correspondent.

He said Geometric which operates a captive market would soon start exporting excess production to the national grid to earn more money especially now that NERC is working to restore payment integrity in the system.

He however noted that government can decentralize the grid into regional networks that are plugged into the National Control Center to make them less vulnerable to frequent collapse. He said regionalized grids would also create room for regional capacity expansion and stability, allowing greater participation of investors in captive power, mini-grids and embedded generation in existing networks.

Prof Nnaji made it clear that regional transmission networks would enhance the overall efficiency of NESI, accelerate industrialization, deliver the full economic growth objectives and realize the development aspirations of government in the power sector.

He also pointed at the huge generation capacity redundancy in the sector as a regrettable paradox in a country where over 60 percent of the population has not access to grid power and where almost every consumer is underserved.

The Oracle Today reports that every segment of the Nigerian society including the office of the President of the Federal Republic relies on self generation to back up supply shortfalls from the national grid.

Prof Nnaji decried the commercial, capacity and debt issues in the downstream power industry which have led to sub-optimization of existing capacity and stalled overall investments in the industry.

He explained that commerciality of the system principally resides in revenue collection efficiency, adding that a convincing and transparent billing system could significantly reduce disputes, enhance collection and also guarantees sustainable investment in service improvement.

Prof Nnaji pointed out that billing efficiency can only be achieved through full metering coverage of the consumer population.

The Oracle Today quotes the Executive Secretary of the Association of Power Generating Companies (APGC), Dr Joy Ogaji, as saying that power distribution companies owe the generating companies over N2.0 trillion in bad debts.

Dr Ogaji who spoke at the Strategic International Conference of the Association of Energy Correspondents of Nigeria (NAEC) in Lagos explained that over 60 percent of the debt to power producers belong to gas suppliers.

Managing Director of Falcon Corporation, an integrated energy provider, Mrs Audrey Ezigbo, stated that the activation of contract based relationship among players in the gas-to-power programme is a right step that would still require robust stakeholders’ engagement to fine-tune and perfect.

Spokesman of the Association of Electricity Distribution Companies (AEDC), Chief Sunday Odutan, says that huge debt accumulation in the gas-to-power programme resulted from government’s slow response to cash calls in the system, low sub-commercial tariff regime and reluctance of consumers to pay bills.

Several statements from the National Association of Electricity Consumers (NAEC) contend that over 70 percent of bills pumped out by the distribution companies are overestimated, exploitative and unacceptable. The association states that nearly 80 percent of all estimated bills from distribution companies are contested and disputed.

A source at NERC also confirmed that most dispute settlement interventions of the regulatory agency in the marketplace are related to estimated billing. The agency has been very clear that all billing disputes in the NESI and associated debts building from them could be resolved by full metering of all customers by the distribution companies.

Numerous directives to distribution companies on metering coverage of the market failed. And government’s metering intervention programmes including the National Mass metering Programme and the ongoing third party metering services have been botched by investment evasion. Also the situation has been compounded by proliferation of meter vendors not accredited by the distribution companies in the market.

Prof Nnaji said that responsibility of investments in downstream distribution infrastructure, including commercial instruments, cannot be shifted to the customer who is expected to pay the services. He made it clear that distribution companies must perfect their network infrastructure to cut technical losses and also evolve a commercial model that eliminates all collection losses.

He pointed out that that the current commercial regulations governing the gas-to-power programme in the country should and could make adequate market returns to offset the piling debts if there were adequate investments in network capacity and full metering coverage.