Nigeria may be in for a prolonged power crisis, as gas suppliers have shut out power producing companies because banks refuse to provide them with letters of credit (LCs) to guarantee their purchases.
The banks’ refusal to provide LCs is informed by their already troubling exposure to the power sector, running into several billions of naira, which may take a long time to redeem, analysts say.
An industry operator told BusinessDay that the banks would not open their doors to any electricity company because of their already huge liabilities.
When Gbite Adeniji, Senior Technical Adviser to the minister of State for Petroleum, Upstream &Gas, was told by BussinessDay that the power companies were complaining they could not sign gas contracts for generation of power, he said, it was possible that no contract had been signed between them and gas suppliers because they had failed to meet the laid out conditions.
“It is possible to the extent that the power producers have not complied with the conditions. There are conditions that must be complied with before the agreement becomes effective and these may not have been completed by the buyers of the gas. These include bankable letters of credit.”
To make sure that the agreement is bankable, the buyers are told to bring an LCs that would guarantee that they would pay if they are supplied with gas.”
He said the energy service works on the basis that the buyer of electricity or gas has the ability to pay and would pay, but that if they are not bankable, nobody would sell the commodity to them.
John Ayodele, deputy managing director of the Ibadan Electricity Distribution Company, told BusinessDay that lack of binding agreements between the power companies and other stakeholders was inhibiting the smooth operation of the companies.
“There is no contract signed between anybody, there is no contract that has been signed to deliver1,000 megawatts in the industry as at the moment”.
Ayodele said for now, there was no contract binding upon anyone in the industry, adding that the only contract that was signed, was the gas contract Egbin Power plc signed to generate 220 megawatts of electricity.
“Power companies cannot go to the banks and ask for loans. No way, their balance sheets are not sufficient to earn them that opportunity. If you go to any bank and present the balance sheet of my company, the clerk to the manager would send me out. The situation is that bad”, he said.
Another industry operator who was once a managing director of one of the distribution companies, said the privatisation exercise was expected to attract funding from technical partners to the sector.
He added that unfortunately, the technical partners, rather than bringing money, were now being paid by the buyers of the electricity companies.
According to him, the expectation that huge money would come to the industry so that the companies would be able to defray their liabilities to the banks and have enough breathing space to do good business has been elusive.
Olusola Bello
