BusinessDay

Power plants suffer shortage amid Nigeria’s decade of gas

Less than 20 days after launching an ambitious plan to power its entire economy with gas by 2030, most of Nigeria’s gas-fired power plants are suffering from low gas supply and other operational problems, a development that is keeping many Nigerians in darkness.

Two weeks after President Muhammadu Buhari told the world, Nigeria is ready to leverage on the huge gas reserves to become a major gas-consuming country, problems relating to gas supply and maintenance loopholes have thrown the country into darkness in recent weeks as more than 16 electricity-generating plants are facing critical challenges.

In an apology statement to Nigerians, minister of power, Saleh Mamman, admitted seven thermal plants were battling with low gas shortages as a result suffered “breakdown” but assured that there were ongoing efforts to restore power to the affected areas in the country.

The seven thermal power plants experiencing breakdown as a result of gas constraints include Geregu, Sepele, Omotosho, Gbarain, Omuku, Paras, and Alaoji power plants.

Most experts are wondering how a country that boast of Africa’s largest proven gas reserves of 203 trillion cubic feet and 600tcf unproven gas reserves still struggling with a shortage of gas for domestic use.

Other stakeholders say the breakdown of power plants as a result of gas shortage is a perennial challenge bedeviling the Nigerian Electricity Supply Industry (NESI), even as financial liquidity cripples the ability of power generation companies to fund government-controlled gas pricing systems.

The electricity distribution companies (Discos) are finding it hard to collect significant revenue for energy distributed to customers.

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This also affects the Discos’ remittance to market operators and Nigerian Bulk Electricity Trading Company (NBET), a body that buys power from the Gencos through power purchase agreements (PPAs) and sells to the Discos through vesting contracts.

As a result of low remittances by the DisCos, NBET too has been unable to meet its obligations to GenCos. The ripple effect means GenCos too will be unable to pay gas suppliers. A key operational and financial data of the industry indicate that between January 2019 and September 2020, NBET had a payment shortfall of N865 billion to GenCos.

“It’s impossible to talk about a decade of gas without talking about fixing Nigeria’s power, which consumes about 70 percent of the domestic market,” Yusuf Usman, chief operating officer (Gas & Power) at Nigerian National Petroleum Corporation, said at 2021 Nigeria International Petroleum Summit (NIPS).

According to Usman, Nigeria needs to have a liberalised market system that will create the right environment for a more efficient price system.

“Any power that is not paid for by the consumer is paid by the government who is already overburdened with fixing infrastructural challenges,” Usman said.

The Oil Producers Trade Section, comprising international and local operators in the Nigerian oil and gas industry, has also raised issues concerning unpaid gas invoices in the power sector, which it says is a major challenge.

In its presentation at the international conference of the Nigeria Gas Association, the OPTS said, “We must of necessity repay all outstanding gas invoice arrears. Some companies are being owed as far back as 2015-2016. This is not sustainable; we must be able to get assurance that when we produce the gas, we will get paid for it.

“So, we must quickly settle all outstanding debts and make sure that we establish bankable credit support that will make the gas business grow so that investors can develop more gas resources.”

Speaking at a day public hearing organised by the House of Representatives joint committee on gas and petroleum resources last month, Mele Kyari, group managing director of the NNPC, said investors need clarity on fiscal terms before they can invest in gas development projects across the country.

“The PSC simply says the parties can sit down and agree on a framework for monetising the gas on terms that are mutually acceptable,” the NNPC GMD told the lawmakers.

Over time, gas producers have been cautious of investing in gas infrastructure in the country as a result of low gas prices and lack of assurance or guarantee of payment from the GenCos. Hence, the process for gas supply agreements has been fraught with challenges.

A Gas Sale And Aggregation Agreement (GSAA), which is typically between the GenCo, gas supplier, and the gas aggregation company, stipulates contractual framework, rights, obligations and risk allocation for gas supply to the GenCo.

The most prominent case was the sloppy gas supply deal between Calabar GenCo and Accugas Limited, forcing the Federal Government to keep paying over $10 million monthly with or without gas supply to the plant.

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