Insurmountable debts: Has gas-to-power programme failed?

Sopuruchi Onwuka

The ongoing pressure on the Ministry of Finance Incorporated and regulators to offset the huge debts in the gas-to-power programme falls into pattern with traditional issues that dominate debates on how investors and players in the nation’s energy sector would become commercially viable and independent of periodic government bailouts.

Penultimate weekend, the Senior Technical Assistant to the Hon. Minister of State Petroleum Resources (Gas), Mr Abel Nsa, told media representatives at a special information session hosted by the Sahara Group that government was working with regulators to address urgent calls for another bailout.

The update by Mr Nsa follows similar promises by Minister of Power, Adebayo Adelabu, and the Minister of State for Petroleum Resources (Gas), Rt Hon Ekperikpe Ekpo, respectively to intervene in defraying the different layers of debt affecting power producers and their gas suppliers.

Adelabu had in consultation with delegates of generation companies (Gencos) in the country pledged to prioritize immediate payment of a substantial portion of the N4 trillion debt owed the upstream segment of the industry, saying that the balance to be settled through financial instruments such as promissory notes.

He informed them of plans to convene an industry meeting with President Bola Tinubu to stabilize the sector and avert an imminent collapse of national power infrastructure.

Chairman of the Association of Power Generation Companies (APGC), Col. Sani Bello, explains that the N4 trillion debt comprises N2 trillion for 2024 and N1.9 trillion in legacy arrears. He noted that the need for resolved the debt overhang has become urgent to enable the players maintain infrastructure.

“Without urgent intervention, the entire power ecosystem could collapse,” Bello warned.

Prominent player in the power sector, Kola Adesina, told the minister that the situation in the industry has reached a state national emergency that affects the full spectrum of the economy.

The CEO of APGC Power, Dr. Joy Ogaji, stated that the challenges facing Gencos are not limited to erratic gas supply, chronic payment defaults, currency volatility, and pilling debts. She added that only about 30 per cent of monthly invoices were currently being paid by the government. The challenges, she noted, translate to operations and maintenance impediments.

Adelabu had reported that Nigeria owed N3.3 trillion to power-generating companies, comprising N1.3 trillion of current debt and N2 trillion from legacy debt. He explained that some 60% of the total debt was owed to gas suppliers.

However, industry estimates show that the power sector liquidity crises associated with huge debts overhang of up to N4 trillion have continued to threaten the gas-to-power programme with instability and poor commercial performance. And players blame government for slow response to cash calls in clearing subsidy backlogs.

Mr. Nsa, who represented the minister at the Asharami Square in Lagos, stated that President Bola Tinubu has directed relevant ministries and agencies to urgently address the debt issue, adding that government was working to also deal with defects in the commercial frameworks governing interdependence of play in the gas-to-power programme.

The Oracle reports that the debts in the Nigerian electric power supply industry (NESI) accrue mainly from poor commercial performance by the distribution companies that operate market concessions in the country and also from the subsidy elements in the tariff structure.

The Oracle reports that the gas-to-power programme bonds the commercial fate of players in thermal power generation and supply loop in a single channel of income operated by the electricity companies that operate distribution concessions in the market.

To guarantee security of gas supplies to the generating companies, the petroleum industry is required by regulation to meet domestic gas supply obligation to high demand but low tariff power sector. Thus, cost recovery plus commercial margins flow from the downstream through the midstream and upstream power sector to the domestic gas industry.

However, the rigid nature of existing transmission and distribution network infrastructure and apparent reluctance of market concession operators to invest in network expansion mean that offtake from robust generating capacity is limited, leading to high redundancy rate in the upstream end of the chain. The upshot is that with installed generating capacity above 12,000 megawatts (MW), available generating capacity of over 8,000 MW and significant 7,000 MW of transmission capacity, the distribution companies run the market with collective capacity of 4,500 MW.

Executive Director in charge of Transmission Service Provider (TSP) at the Transmission Company of Nigeria (TCN), Engr. Oluwagbenga Ajiboye, had stated that inability of the electricity distribution companies in Nigeria to take up available generation from the power grid continues to hamper efforts at boosting affordable power supplies to homes and businesses in the country.

The situation, he said, left significant proportion of the nation’s electricity generation and transmission capacity redundant, and rendered investments in full industry value chain unattractive.

He declared that the distribution companies have proved incapable of effectively making returns from the full generation load available on the national grip,  noting that actual distribution capacity in the industry is limited and rigid, leading to high redundancy levels at the upstream end of the industry.

He stated that the Discos often blame reluctance of customers to pay for their resort to load rejection. He pointed out that despite grid simulations showing TCN could deliver up to 8,701MW to DisCos, actual uptake remained limited.

He lamented that TCN remains helpless in the prevailing situation because, according to him, it has no control of the Discos which are now privatized.

Checks by The Oracle showed that the bulk of the debt owed generating companies belong to the Niger Delta Power Holding Company (NDPHC) which operates the government’s power plants built under the National Integrated Power Programme (NIPP).

For TCN alone, he said “the market owes us about N457 billion as of March, being to the market shortfall and legacy debts. We have traced N217b to the legacy debt, and we are in discussion with MOFI to pay us something out of it.”

Government is committed to gradually offsetting the outstanding debts,” Nsa stated, adding that the MOFI which represents government’s interests in some of the companies operating in the power sector has come under pressure from the Presidency to expedite the process of defraying the outstanding debts.

But concerns have continued to escalate over the persisting liquidity impasse and its tendency to defy all measures evolved by the Nigerian Electricity Regulatory Commission (NERC) to boost flow of revenue returns from the market to the full investment loop.

Association of Electricity Generation Companies (AEGC) blame poor commercial returns by the Discos for the apparent relay of debts from the downstream to upstream and gas supply segments of the commercial interdependence.

Dr Ogaji declares at every opportunity that over 60 percent of debts owed the gencos is actually owed to the gas companies that fuel thermal power production plants.

At Asharami Square, the gas and power portfolio managers of Sahara Group lamented the ipact of debts in their respective commercial performances but stopped short of blaming sister Ikeja Electric for the their woes. They instead pointed at the subsidy gaps in the market recovery process as the bane of their operations.

However, the distribution companies have at all times blamed poor market returns on the Nigerian subsidy culture and the related reluctance of consumers to pay their bills.

At a recent media workshop with NERC, Olumide Jerome of the Abuja Electricity Distribution Company (AEDC) said rising customer debts and overloaded infrastructure are the main reasons for load rejection by Discos. He also blamed huge collection gaps as key issues I the commercial performance of the Discos.

He explained that the culture of low electricity bills has taken deep root in communities that it has become nearly impossible to enforce tariff correction in such locations. He said most customers have refused to match up improved quality of supply with proportionate increase in the amounts they pay monthly for the services.

In explaining load rejection, Olumide pointed out that existing distribution capacity cannot be stretched beyond its limits. He added that technical limits must be separated from commercial losses since, he said, both of them impact market performance.

The Oracle reports that the average technical, commercial and collection (ATC&C) performance which measures the rate of revenue recovery from the market against losses has always been low for all discos; and analysts blame the situation on disputes relating to estimated or arbitrary billing of customers by the Discos.

In analyzing ATC&C, a power industry pundit, Engr Lateef Olaosun, stated in a chat with The Oracle that the biggest cause of low commercial performance across most of the Discos remains collection losses relating to estimated billing.

Reports filed in by participants in a cohort programme commissioned by the Wole Soyinka Center for Investigative Journalism (WSCIJ) showed that disputes over billing and poor supply services with most Discos occur in low income residential areas where customers are angry over low quality supplies amidst rising bills.

The reports show that most Discos deploy prepaid meters in high brow areas inhabited by the most upscale and powerful class of the society. These locations enjoy the best supply services, least disruptions and near zero billing issues.

Numerous recommendations for the Discos to roll out prepaid meters as a way of addressing billing disputes fell on deaf ears as the market players point at the high cost of meter procurement and deployment. But questions continue to be asked on why it has remained always easy for the Discos to meter up VIP locales.

The WSCIJ cohort concluded that the poor and voiceless in the society for which the government takes responsibility for subsidy payments actually pay more for electricity through bloated estimated bills for little and unstable electricity supply hours.

To address most of the feedbacks inundating the regulator from consumer communities across the country, government has in several interventions introduced several measures to address the root causes of billing disputes, associated collection losses and growing debt overhang in the gas-to-power programme. These measures include several creative mass metering programmes; customer sponsored metering initiatives; third party metering schemes; and the prevailing presidential metering programme. But it remains to see any level of enthusiasm in welcoming the intervention by the Discos.

Second, the call s for clear revenue and remittance dashboard for all players in the gas-to-power programme failed to earn any response from the regulator and the Discos; leaving TCN and the gencos at the mercy of the market players who have been severally accused of flamboyant operating styles while swimming in debts.

Third, the attempt by NERC to introduce contract based relationship between the commercial relay players in the gas-to-power programme failed on arrival as neither the Discos nor the gencos have ever arrived promptly to discharge payment obligation to suppliers.

Again, the demand by regulation that Discos should upon assumption of assets bequeathed them by defunct National Electric Power Authority (NEPA) and subsequently the Power Holding Company of Nigeria (PHCN) embark on network capacity expansion has never been either activated or enforced.

The Oracle reports that there have been several other regulations and interventions conceived to whittle down the colossal influence of the Discos on the market. Part of them includes the Eligible Customer Regulation, Customer Service Regulation, and the recent devolution of power sector operating control from federal exclusive list to concurrent list.

In a recent meeting with the Senate Committee on Power to address persistent bottlenecks and chart a course for ongoing sector reforms, stakeholders engaged on new interventions including the widening metering gap, the Presidential Metering Initiative, the proposed Meter Asset Fund, establishment of the Nigerian Independent System Operator, transition to a multi-tier electricity market, and the role of newly created State Electricity Regulatory Commissions.

The Oracle reports that since the country’s political administration returned to civil rule in 1999, very little progress have been made in delivering the highly sold benefits of the electric power sector reforms with the efficient hands of the private sector. The industry has been embroiled in deepening debt crisis as investments get caught up loose and ineffective commercial arrangements.

With huge funds consistently pumped from public coffers into private pockets as government continues to rescue players, concerns continue to rise over the privatization model that led us this far. There also questions over the role and capacity of regulation in controlling the mafia-like behemoths that operate large electricity market concessions in the country.

Adelabu acknowledged the government’s role in the sector’s liquidity crisis and pledged to clear the debt and pursue reforms, including full liberalization of the electricity market and further tariff correction. He also restated the resolve of the present administration of the government to introduce measures that ensure the sector’s sustainability.

That the prevailing situation in the NESI is unsustainable is not in doubt. What is seriously in doubt is whether the gas-to-power programme as currently modeled will deliver the expected reform objectives. Further decentralization of the sector into smaller concessions and decentralized grids to allow in more innovative players has been seriously canvassed by experts. Displacing existing model with smaller market concessions designed for decentralized, mini and micro grids that fit the sizes and needs of specific communities has become necessary as green energy solutions loom in the horizon.