There appears to be palpable discord amongst the players within the gas-to-power value chain. This may soon lead gas producers and suppliers to cut off supplies to power generating companies (GENCOs) if urgent steps are not taken to address the nearly N1 trillion aggregate debt threatening to obliterate the entire value chain.
“Gas suppliers are being owed significant amounts of money for gas supplied to the power sector even before the completion of the privatisation. That was part of the sector debt that the N213 billion the Central Bank of Nigeria (CBN) power intervention facility was supposed to liquidate.
Since 2014, after the privatisation, new gas debts have arisen with no payments to gas suppliers by the GENCOs, simply because the government, through NBET has been unable to pay GENCOs for power generated”, said Odion Omonfoman, energy analyst and chief executive, New Hampshire Capital.
The revenue gap in the industry has grown too large and needs an urgent solution. There is a case of a single gas supplier that is being owed as much as $32 million according to sources.
“It is a sad reflection of the state of our power sector. The debts are now so much that it has become unbearable for the gas producers to continue supplying gas for which they are not being paid and where payments are being made, a significant portion is in Naira”, said Dolapo Oni, Head, Energy Research, Ecobank Development Company (EDC) Nigeria Ltd.
The fear of contagion is real
Can the GENCOs cope without supplies from the gas firms or will Nigeria be plunged into nationwide darkness?
Some analysts are in support of the move by the gas firms to cut off supplies to the GENCOs as the nationwide blackout that would follow suit will put the magnitude of the problem in the sector
on the front burner.
However, there is this fear that the action might trigger a contagion in the banking sector.
“Gas companies are profit entities and not charity organisations. Government is living in denial of the crisis in the sector and has not put forward a credible solution or plan to resolve the liquidity crisis in the sector. This does not bode well for the entire economy as it could trigger a contagion in the banking sector and banks may rush
to exit the power sector in a stampede”, Omonfoman said.
The direct implication if the gas firms go ahead with their threat and turn off supplies to the GENCOS according to Omonfoman “is clear – darkness. Almost 85 percent of our energy mix is gas based, so we would lose 85 percent of available generation.
The Hydro GENCOs – Shiroro, Kainji and Jebba cannot meet this shortfall.
The indirect implications are numerous and cannot be quantified”.
“The resultant blackout would continue to drag the pace of growth in the economy as businesses will have to provide their own power at higher cost, hurting profitability and job creation. The spiral effect all through the economy will ensure the economy suffers some contraction in economic activity, which would then ensure we are
in this recession for longer than necessary”, Oni said.
With the grave implications on the economy and Nigerians as a whole, sources at the presidency say the gas producers and suppliers would be unpatriotic if they go ahead with their threat to cut GENCOs from their gas
supply.
“The patriotic argument is stale now. Patriotism is to ensure that companies that are investing in your country, employing people and contributing towards the economic growth should not be punished but rewarded”, said Dada Thomas, President, Nigerian Gas Association (NGA).
“The debts the gas firms owe, nobody is forgiving them; they are not reducing the interest rate, instead, the
interest is mounting every day. Where does patriotism come when you have to face your international lenders?
You cannot pay loans with patriotism. You pay with dollars. So there has to be a balance”, the NGA President
added.
How far will stimulus package go?
BusinessDay investigations reveal that the federal government is putting together an intervention fund which will be disbursed directly to the gas firms within the next three months.
“That will give some oxygen to the gas companies to breathe a bit but government needs to do that fast.
Honestly, some gas firms may not survive the next 2 months. That’s how bad it is”, Thomas said.
The way forward, according to Omonfoman “is not so straightforward” and involves concerted efforts by every stakeholder in the sector, including the gas suppliers, to quickly find a sustainable way to address the liquidity crisis in the power sector.
“The Federal Governmen and National Assembly is key to finding a solution. With respect to the gas supply issues,
one way to address this is for the federal government to allow gas suppliers with secure gas supply agreements/commitments with GENCOs net off their gas production to the GENCO directly from their incremental crude oil production for a stated period.
This would apply to associated producers with crude oil production. This would at least stabilise gas supply to GENCOs who can produce more power”, Omonfoman said.
For Oni, resolving the conundrum will entail that “DISCOs have to meter their customers. Electricity tariffs have to increase. Debts owed by MDAs have to be paid. The NBET needs to be properly capitalized to cover 6 to 9 months of payments to GENCOs, even if DISCOs are not paying.
The TCN needs to be decentralized and privatized or more power generation within the regions need to be off-grid or embedded within the DISCOs”.
