Darkness to persist as debt crisis weakens power sector

Adebayo Obajemu

The poor state of power supply in Nigeria may not be improving anytime soon as findings have revealed that lengthening chain of unsettled debt obligations is weakening the synergy of firms operating within the critical sector.

EnergyDay learnt the generation companies (Gencos) are being heavily owed by the Nigeria Bulk Electricity Trading Plc, which buys electricity through power purchase agreements and sells through vesting contracts to the distribution companies (Discos), which then supply it to the consumers.

And the Gencos are lamenting that the lack of payment is making it difficult for them to secure gas supplies from upstream producers, who are also owed significant debts of about $1.34 billion.

A top official of a GenCo, who pleaded anonymity, said no payment had been made to gas suppliers for January, compounding the liquidity challenges facing the industry.

“There is an insistence on payment by most GenCos for any transaction now due to the persistent liquidity issues coming from inappropriate tariff regime, poor collections and inadequate funding of government subsidies,” the source said.

Last week, the Minister of Power, Chief Adebayo Adelabu, revealed that the debts owed the power companies have accumulated up to N3 trillion. The Minister, who gave the figure during a press conference in Abuja, said the amount represents the N1.3 trillion debts owed to generation companies, and about $1.3 billion owed to gas companies over the years.

He said: “We have a legacy debt of $1.3 billion before 2014 to gas suppliers’. At today’s rate, that is close to N2 trillion. If you add the N2 trillion legacy debt to N1.3 trillion owed to GenCos, we have an inherited debt of more than N3 trillion in the power sector.

“How will the sector move forward? Nigerians deserve the right to know and we are working underground to resolve these issues.”

Adelabu, who said he undertook a tour of several power plants and was close to tears because some of the plants currently operate below 20% capacity, observed that the inability of power plants to operate to full capacity was due to unpaid debts and low gas supply.

“I am amazed at the level of under-utilisation of these power installations,” the Minister said.

The development has led to frequent power outages in Africa’s largest economy, with available record showing that the country has already suffered three grid collapses in 2024.

Data from the Independent System Operator by BusinessDay on national peak demand forecast last week revealed that the country requires nothing less than 19,798MW to reach sufficiency. However, generation by the GenCos was a meagre 3,834.5MW, leaving a deficit of 15,938MW.

Despite repeated promises by successive governments to tackle these challenges, tangible progress has been slow. Under the erstwhile Muhammadu Buhari administration, the grid collapsed 99 times, despite tranches of financial interventions from the Federal Government. Cumulatively, the sole grid collapsed 222 times between 2010 and 2022, according to The Punch Editorial (12th Feb.2024).

Ironically, at 206.5 trillion cubic feet, Nigeria’s natural gas reserves are among the largest in the world, as the country owns 33 percent of Africa’s total natural gas reserves.

While Nigeria grapples with generating 12,000MW and transmits 4,000MW-4,400MW, its counterparts, South Africa and Egypt are on 58,095MW and 59,063MW respectively, having constantly explored a diversified mix of energy resources.

According to the Nigerian Electricity Regulatory Commission (NERC), there are 22 grid-connected generating plants in operation, which comprise seven GenCos, five independent power producers and 10 generating stations under the National Integrated Power Project with a total installed capacity of 11,053.6 megawatts (MW).

However, of the 22 power plants, findings showed about nine of them account for about 80 percent of generation due to their size and availability.

Analysts say the implication is that the (over) reliance of the grid on the energy supplied by nine power plants may pose a risk to network stability in event of a sudden loss of any of them unless adequate proactive measures, such as spinning reserves are put in place.

Spinning reserves are backup energy production capacities that can be made available to the system operator (for transmission) within 10 minutes of a power system failure and can operate continuously for at least two hours once brought online. It is done by increasing the power generation output of power plants already connected to the system.

After the privatisation of the distribution and generation legs in 2013, the Federal Government, which still controls the transmission leg solely, committed N2.8 trillion to the sector between 2015 and 2022.

“The government should privatise the transmission company to attract investment, and technical expertise”, Festus Egeonu, a business analyst told our correspondent in a chat.

“The sole national grid is a threat to efficiency. Tinubu must do everything possible to break that jinx in the sector.

“The state governments should move swiftly to take advantage of the amended Electricity Act 2024, which was recently signed into law by Tinubu to provide power in their domains.”

Kayode Oluwadare, an energy expert, said. “The major issue over the years has been the unavailability of gas. Large gas-fired power plant projects require power purchase agreements and feed gas agreements before they can secure funding, but the inability of those projects to secure feed gas supply on a long-term basis is a major challenge.”

Although the government had at the beginning of the year agreed to pay electricity subsidies of N1.6 trillion in 2024 to the Nigerian electricity supply industry, just N450 billion was provided for in the budget.

“One of the major challenges of the power sector is weak tariff regulation and liquidity crisis, which is borne out of the fact there are a lot of commercial losses and collection losses,” Chinenye Ajayi, an electricity lawyer and team lead of the Power and Infrastructure Practice at Olaniwun Ajayi LP, told a national daily.

The Discos are not feeling any better. Last week, the Abuja Electricity Distribution Company (AEDC) threatened to disconnect electricity in the Presidential Villa and 86 Federal Government’s ministries, departments and agencies (MDAs) over N47.19 billion outstanding debts as of December 2023.

Experts said this creates a ripple effect, with DisCos unable to pay gas suppliers, leading to supply cuts and ultimately, power outages.

Some of the affected MDAs are chief of defence staff – Barracks and Military Formations owing (N12 billion); FCT Ministry (N7.6 billion); Ministry of Finance (N5.4 billion); Ministry of State Petroleum (N2.1 billion); Ministry of Health (N1.19 billion); Ministry of Information (N302 million); Ministry of Education (N1.8 billion) and Ministry of Agriculture (N140 million).

Others indebted are the Federal Inland Revenue Service (N362 million), Central Bank of Nigeria’s governor (N1.5 billion), Ministry of Foreign Affairs (N200 million), and Ministry of Budget and Planning (N168 million), among others.