Funding Discos in Nigeria

Funding Discos in Nigeria

http://www.ngrguardiannews.com/business-news/108444-funding-for-privatised-phcn-firms–foolishness-at-large-

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What Key Stakeholders should do now!

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The Nigerian Bulk Electricity Trading Company (NBET) began the much awaited steps towards the formal registration of participants in the Nigerian Electricity Supply Industry (NESI). A good start was to negotiate the Power Purchase Agreement (PPA) between International Oil Companies (IOCs) and the defunct Power Holding Company of Nigeria (PHCN).

NBET as the bulk electricity trader is a credit worthy off-taker. It will see to the timely implementation and respect of contracts on purchase and distribution of bulk electricity between the generation and distribution companies. As a bulk procurer and seller of electrical power and ancillary services from IPPs and successor Gencos, NBET on its part, is expected to give confidence to Gencos and Discos in terms of its ability to offset payments for power procured from the Gencos and Discos’ payment for power sold to them. In the event that a company breaches the terms of the vesting contracts entered into for example by delay in payment for power sold to it, the bulk trader is expected to offset payments due to the Gencos from which it procured power through its replenishing capitalisation fund at least until the electricity market is adjudged matured enough for both Gencos and Discos to trade directly. However, the capitalisation base of the Bulk Trader has severally been put to question by IPPs on the ground that $1 billion was not enough for a sector that is aiming to achieve 20,000MW within a very short time. The concern is that the capitalisation status of NBET is low and it sends the signals to investors that it is not strong enough to financially care for the obligations in the privatised electricity sector.

For the TCN, which is under a management contract by Canadian firm, Manitoba Hydro International (MHI), its failure to manage the grid system, either as a result of inherent internal politicisation of roles, resistance to MHI’s contract or lack of corporate governance in planning and execution of crucial transmission projects to boost the country’s weak transmission network, will most likely pit it against generation and distribution companies, which would not tolerate unnecessary laxity as frequently displayed by the TCN. Following the poor management track records of the PHCN, which the TCN was part of, the tendency of the company to relapse in its responsibilities, which are crucial to the growth of the power sector remains a real source of worry to stakeholders in that there is a covert gang-up by its “old war horses” to see that MHI’s efforts at enthroning transparent management of operations in the company do not see the light of the day. This may likely affect MHI’s operation, and the company may end up achieving very little before the three-year contract elapses. There is also the issue of incremental source of funding for transmission projects, which the TCN is expected to manage under the watchful eyes of MHI. Unless Manitoba compromises in view of pressures against it, these projects are expected to improve the confidence level in NESI.

The NERC on its part has the overall role of ensuring that possible competition in the sector are kept healthy while sanctioning errant activities of market participants either by withdrawal or suspension of their operational licenses. The commission will frequently review activities in the sector chiefly to ensure its smooth transition while participants work towards efficiency in the sector.

The Federal government wants to resolve all outstanding labour issues before handing over the assets. Labour unions in defunct PHCN claim that what the government has paid so far is terminal benefits to most of the staff in the Generating companies and have now started with colleagues in the distribution companies. The Discos are going to take much longer time and money. But nobody has been paid pension and the unions are insisting that the government must pay everything before handing over. Another issue the Federal Government wants to look into is the availability of Nigeria’s gas to power the Nigerian Power System!!

With the successful conclusion of the sale of the generation and distribution companies and eventual takeover by new investors, Nigeria’s Power Sector will be revitalised and expectations are that electricity-starved Nigerians will soon begin to enjoy regular power supply.

It must be mentioned though that no matter what the challenges are, the new dispensation would be better than where the country was coming from.

Concerns over Enugu Distribution Company

The Bureau for Public Enterprise (BPE) appears to be mismanaging the fallout of Interstate Electric Limited’s default in payment for the Enugu Disco and this will erode confidence in and lower credibility of the hugely successful power reform exercise. Interstate Electric limited is the preferred bidder for the Disco whilst the rule makes provision for the reserve bidder to make payments for any Disco should the preferred bidder defaults in payment for any reason. A sound approach put in place to ensure no one cartel, wittingly or unwittingly jeopardises this unprecedented giant strides in the history of Nigerian Power System. The experts in law will be in a better position to interpret the rules and maybe the provision is there to allow the preferred bidder, who has shown lack of will and financial muscle to run a power network by not being able to pay like the remaining investors, even 3 weeks after the deadline, to make payment anytime it desires. The argument put forward by the Preferred looser (mine) is that their financial investors are not sure of the veracity of the Power Sector reform process giving the antecedents of the Nigerian Polity. Fair enough! What about the financiers of the other 14 investors who paid on schedule. They recognise the same risk and perhaps more. Hence, this argument holds no water. The reserve bidder will probably take the matter to court giving their vested interest and down payment.

Regulation, Consumer protection and Competition Issues must now take the front burner. The NIPP privatisation must be successfully completed; the transmission corridor strengthened. There is need to stimulate huge private sector investment in new generation capacity across the country and the management of the highly technical electricity market must be insulated from political and other interferences.

WHEN AN INVESTOR TAKES OVER A DISTRIBUTION NETWORK – WHAT SHOULD BE DONE FIRST?

Following the completion of the acquisition process, Investors need to ascertain the true value of the asset purchased. Identify where the Assets are and embark on a huge investment, that methinks will amount to rebuilding the entire network. Accurate data gathering will be a good start. Knowing where the Assets are as well as their health indices will suffice. The most important Asset that needs stock taking is human capital. Recruitment of ex-PHCN staff means there will be need for manpower training and development. Effort must be made not to allow the kind of problem encountered in the Oil Industry to occur in the Power Industry where true knowledge became the prerogative of the IOCs.

A pertinent issue that requires urgent attention is the connection of distributed Generation to the distribution network. Such connections, if they run in parallel with the Distribution network, must be disconnected when there is a system fault on the distribution network otherwise, such generators will continue to feed the fault and kill people. This can be achieved using Loss of Mains protection such as ROCOF and Vector Shift relays. The distribution code should reflect this as a condition for the connection of such Generation. This will apply to Negris’ connection in Lagos as well as Geometric Power Limited’s in Aba and many others that will spring up!

10,000MW promise again in December

For the umpteenth time, the nation in darkness is being promised of the realization of 10,000MW of Electrical Power by the end of this year. The main reason for this is that those who utter these kind of statements, although are in ministerial or high Governmental positions, lack knowledge of how a real Power System Operates. Added to this is the fact their audience, the general population, does not have a clue as to what it takes to have constant power supply – Not to blame them, they have lived without it since birth! Hence, anyone in Nigeria can say anything about Electrical Power Generation for electioneering or propagandist campaign. At the end of December, the excuse will then be something along the lines of “what we promised was the total Installed capacity would be 10,000MW” but that was not what was said! or “We have the 10,000MW ready to go, but the Transmission Network is unable to evacuate the power Generation”- Nonsense! Why don’t you do proper Power Project Management and avoid putting the cart before the horse! or “It is the unavailability of Gas” – Never mind that the Power Stations would be commissioned by means of an “I better pass my neighbour Generator”! Shame…………

The pledge of improved power supply in Nigeria is now worth 100 for 10 kobo (Very cheap!!!!).