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| • Begins public hearing, to pay PHCN’s $14 b gas debt from money |
A LIFELINE of $213 billion recently announced by the Central Bank of Nigeria (CBN) for the electricity sector is not free, the Nigerian Electricity Regulatory Commission (NERC) has declared.
In fact, those who receive the funds must sign a performance agreement with the commission. To secure the support of Nigerians and make them part of the process for the disbursement of the fund, NERC will this week commence a series of public hearings across the country.
The commission says it is working on what it described as a “novel approach” that would incorporate consumers into the monitoring of the benefitting parties. The fund is expected to take off the same time with the planned commencement of the Transitional Electricity Market (TEM), a turning point in the electricity sector when all trading arrangements would be consummated through contracts.
In an interview to give a fresh insight into the fund, the Chairman of NERC, Dr. Sam Amadi, noted that electricity consumers would be allowed to be a part of this entire process.
He told The Guardian: “NERC is working on a system that will enable the Nigerian consumer to contribute both to the content of the performance agreements and to the monitoring of the various parties. To this end, we are organising a series of public hearings across the country. NERC wants to ensure that this entire process is not only transparent but also productive. NERC will soon be announcing the modalities for this novel consumer-centric monitoring system.
“Before they receive the funds therefore, they will commit to certain performance standards which they must meet. For instance, gas suppliers would commit to supply agreed quantities of gas under a very clear and enforceable contract while generating and distribution companies would commit to invest in relevant upgrades and improvements in areas like metering, transformer replacement and general change management.
“NERC with the assistance of the fund managers and the Special Purpose Vehicle (SPV) being created for the project will closely monitor and regulate the disbursement and fund utilisation to ensure that the performance agreement is adhered to by all parties. The disbursement will be done in tranches so that if a party does not live up to the performance agreement then it will not receive the next tranche of funds. But if it does, it will then be cleared by NERC to receive the next tranche. That way there would be checks and balances that ensure compliance with the performance agreement.”
On the relationship between the legacy debts being offset by the funds and those being handled by the Nigerian Electricity Liability Management Company (NELMCO), Amadi noted that the fund would offset the money owned gas suppliers over the years.
His words: “NELMCO only deals with debts that arose before November 1, 2013 when the new owners took over the management of the electricity companies. So the only item in the list of debts to be redressed with the CBN is only the debt owed gas suppliers before November 1, 2013. That is what we call the legacy gas debt. It is just 14 billion. The rest of the debt is incurred by the private firms so should be paid by the private firms who incurred them. So, it will be wrong to ask NELMCO to settle these debts. Don’t forget that it is taxpayers that pay NELMCO debts through public fund.
“That will be unfair. We are taking the $14 billion legacy gas debt because we believe that paying it off benefits the consumers because it will deepen confidence of the gas industry to improve supply of gas to power. Confidence of gas suppliers is critical to the power industry because it will lead to increased private sector investments in gas supply which will in turn drive the delivery of more electricity to more Nigerians.
“As a result of the improved confidence in the market, we expect improved commitment of various short/medium term supply projects. It is anticipated that over the next 24 months, an additional 1800mmcf/d of gas will be added to the domestic market, a significant portion of which will be deployed to the power sector. Currently, as much as 765mmcf/d of gas is being deployed to the power sector.”
He stressed that government was not planning to bail out the sector, noting that the fund was not a bailout, but rather an intervention.
Amadi stressed: “Government is not bailing out the power sector. This is not a bailout and NERC is against any bailouts. A bailout suggests that the market is in a terrible crisis and even the optimisation of market processes may not stave off a looming collapse. That is not the case of the Nigerian electricity market. This market is not about to collapse. We have conducted a stress test of this market and we can say its fundamentals are still robust. It is said that what did not kill you makes you stronger. We went through a crisis and survived hence we are stronger.
“NERC saved this sector from the terminal distress that would have warranted such a bailout through its effective management of the Interim Rules Regime. That regulatory framework enabled us to make a smooth and guided transition from public electricity market to a private sector managed electricity market. What remains now is to enter into a stage of the market that is wholly based on bilateral contracts.”
He went on: “The fact of the matter is that in making such transition it is expected that there will be significant shortfalls in the revenue of the market. This happened when India privatised its electricity assets. It happened also in Chile and Mexico and the rest of the reforming electricity markets. So, an effective regulator will seek a way to redress the revenue shortfall in order to improve investment in the sector and enhance capacity and reliability. This is the idea of the intervention fund. Now, this is a different kind of intervention fund.
“It is the financial market supporting the electricity market to balance even and move faster towards financial viability. This is not intervention as subsidy. This $213 billion is not coming from tax payer or from crude oil revenue. This is the Central Bank providing financial support to the electricity market through the deposit management banks with a clear guarantee of full repayment. This facility will be used for two things.
“Firstly, to pay debts owed gas suppliers. It is our expectation and plan that this will in turn enable the gas suppliers to supply more gas so that more electricity can be generated and distributed to the Nigerian people. As you may know, lack of adequate gas supply to GENCOs has been one of the main reasons for electricity shortage. And one of the main reasons that adequate gas is not getting to GENCOs is because the gas suppliers have been owed huge sums of money for the gas they have been supplying. Therefore paying off these huge debts owed the gas suppliers will encourage them to keep up and increase the gas supplies to GENCOs so they can in turn generate and send more electricity to DISCOs to distribute to more Nigerians. About 80% of our generation comes from gas-fired plants. So it will grossly damage the confidence of gas suppliers by not paying for gas supplied even before the assets were privatised. But note that we are paying only well-verified and attested gas debts
“Secondly, to pay for the revenue shortfall in the power industry. Since November 1, 2013 when the new owners took over the GENCOS and DISCOS, concerns have been expressed that the tariff did not cover the exact levels of technical, commercial and collection losses. These losses constitute significant components of the prices.
“Again, there is a backlog of subsidies not paid which makes its difficult for the DISCOS to receive all the guaranteed revenue to pay for power supplied by the GENCOS and pay for other services. Because of these problems, GENCOS are not paid for power supplied. The CBN money will help to pay for the unpaid debt owned to GENCO. Paying off this revenue shortfall, under the arrangement we are putting together with the CBN will provide financial liquidity that will enable DISCOs and GENCOs to invest more in building capacity to deliver reliable electricity to Nigerian homes and businesses.”
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