Experts in the Nigerian power sector have faulted the power purchase agreement between the federal government and the Trans-Afam Power Limited, stating that there were many challenges inherent in the single buyer model, especially the contingent liability it places on the government due to market illiquidity and lack of incentives for performance by some market participants.
The Federal Government had recently signed a 20-year Power Purchase Agreement with Trans-Afam Power Limited, a subsidiary of Transcorp Power, to ramp up the 726 megawatts capacity of the Trans-Afam Power Plant in Rivers State.
Nnaemeka Ewelukwa, Managing Director, Nigerian Bulk Electricity Trading Plc signed on behalf of the Federal Government, while the Chairman, Trans-Afam Power Limited, Stanley Lawson, signed for his company, stating that the firm would invest £150m on the plant.
However, speaking with Businessday, Lanre Elatuyi, an Abuja based power analyst said that the new long term agreement was uncalled for at a time the market is to transit to wholesale competition, and at a time NBET has initiated plans to establish a power exchange for the spot electricity market.
According to him, there is a need for clarification from the government, as to what informed the need to sign a new agreement, amidst outstanding payments for energy with capacity running into billions of Naira that some Generation companies (Gencos) are being owed.
“The question here is why is NBET-a special purpose vehicle owned by the FG is signing 20 years PPA with Transcorp at a time when NERC-the regulator is asking some Discos and Gencos to enter into bilateral agreements as a precursor to market transition to wholesale competition?
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“NERC- the regulator has in a letter written to Ikeja Electric, Eko Disco, Abuja Disco, and Gencos few months ago mandated them to start initiating bilateral contracts. Why then the need for a 20 year PPA by NBET whose license expires by next year? Besides, there are some NIPPs that have been idle for years and are begging for dispatch, so it is a bit surprising that NBET is signing a new PPA! NBET was supposed to be transitional due to the degree of market opening after the unbundling of the vertically integrated NEPA.
“There are many challenges inherent in the single buyer model, especially the contingent liability it places on the government due to market illiquidity and lack of incentives for performance by some market participants,” he said.
Elatuyi speaking further said noted that the single buyer model has lasted more than anticipated, “in 2021, after the ten years expiration of NBET’S license, all contracts were to be novated, but because of the commercial viability of NESI, there was a renewal for three years which I believe will elapse by next year.
“I agree that we need to ensure resource adequacy, but given the existing stranded generation and the bottlenecks in distribution networks, beside the ATC&C loss of 48 percent in the industry, I am not sure signing a new PPA will have any positive effect. There is huge gap between generation and load already, and efforts must be on how to increase capacity utilization.
“There is no point adding more generating capacity when some legacy Gencos are still being owed billions of naira,” he said.
Also, the president of Nigeria Consumer Protection Network (NCPN), Kunle Kola Olubiyo told Businessday that the project may not be impactful as the need of the Nigerian power sector is not generation which the 20 years agreement seek to achieve.
Noting that Nigeria currently have a installed capacity of 13500MW on the grid, Olubiyo said the nation have not fully maximise the power being generated by the generation companies.
He said, “The problem we have is not power generation , the power we generate are not properly paid for or maximised.
“If energy is distributed and NBET or other agencies are not able to ensure 100 percent remittance, the generation will not be properly incentivized.”
He also argued that NBET, who signed the agreement on behalf of the federal government was not in position to do so as, its operating licence is expiring in 2024.
“NBET was not designed to be a permanent institution, we are expecting that by 2024, its licence should expire. Then it can be renewed or cancelled. So it cannot be signing an agreement that will last for 20years.
“NBET is not supposed to offer any commitment that will exceed 2024. No agreement is supposed to exceed this year because there are calls to review the privatisation program.
“The current privatisation program has failed and it should be reviewed. It had brought about monopoly and leakages in the sector.
“We have stranded energy that we are not able to exhaust. We need to address the challenges hindering the appropriate use and payment of power generated.
“The new agreement will not make any impact, if issues that is causing power rejection is not addressed.”
For Joe Ajaero, president, Nigeria Labour Congress, the power sector has not recorded any progress with the privatisation program.
For him, there is need for the government to introduce power sector reforms, while reviewing the privatisation deal adding that lack of clear policy has posed a major setback to the privatisation deal.
He said, “Nigeria has remained in the same spot where President Obasanjo left it, especially the power sector.
“We are still generating and distributing about 4000 megawatts by this time, this is not progress at all. The country is receding.
“We do not have a clear policy on the power sector privatisation, the sellers are same as the buyers. The regulators keep increasing tariffs and devaluing the naira, we increase tariffs because of inflation.
“We need reforms to achieve sustainable power supply.”