• Thursday, June 13, 2024
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Gas suppliers shut Gencos out as banks refuse to provide LCs


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