New power contracts unsettle operators

Electricity operators in Nigeria are facing an uphill task to meet new power commitments of delivering 5,000 megawatts of power from July 1, according to experts.

The operators, earlier in the week, committed to this under the pain of sanctions if they default, according to the regulator.

On Wednesday, Sanusi Garba, chairman of the Nigerian Electricity Regulatory Commission (NERC), said in a press briefing that the absence of commercial contracts underpinning transactions within the sector had been a major challenge and the commission was poised to resolve this.

Experts, however, expressed doubts and concerns about the ability of power operators to live up to this commitment, which will require them to maintain power levels on the grid that hasn’t been seen in years.

Ayodele Oni, partner, energy practice group at Bloomfield LP, is indifferent about the update.

“I am not sure they can meet up with this pledge because of their distribution capacity,” he said.

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“But put Eko Electricity Distribution Company and Ikeja Electricity Distribution Company together at optimal, they might just be able to do it.”

Chijioke James, president of Electricity Consumers Association of Nigeria, asked why operators were given a lesser target.

“Why are operators committing to delivering only 5,000MW by July? We were told Nigeria has a generation capacity of over 7,000MW of electricity,” he said.

The development, according to him, does not excite consumers.

“We believe we should have more with the level of investment made by the government in the power sector in the last decade,” he said.

Power generation companies were also required to sign contracts with gas suppliers for the necessary gas volumes in order to meet the projected power delivery.

According to Sanusi, gas-fired power plants generate 80 percent of Nigeria’s electricity, and a lack of firm contracts has forced suppliers to prioritise other users.

He said the commission was working to ensure that all contracted gas volumes were fully paid for.

Oni said the operators need to prove they are bankable to get firm gas contracts.

He said: “The key thing when it comes to the requirement to get firm gas contracts is the ability of the distribution companies (DisCos) to show that they can pay for the gas needed.

“They should be able to provide bankable securities, standby letter of credit if they need gas. This will give the gas suppliers confidence that they will be paid.”

Oni said the DisCos would need to be paid at the right time to achieve this feat.

Garba said the new contracts would also obligate the Transmission Company of Nigeria, a Federal Government-owned participant, to ensure that the grid remains stable enough to wheel the contracted volumes beginning in July.

The NERC chairman said the commission would enforce this contract by ensuring that erring market operators pay stiff penalties for failing to meet their obligations.