In a bid towards finding a lasting solution to challenges associated with gas supply to power Generating Companies (GenCos) in the country and general improvement across the power sector value chain, minister of Power, Adebayo Adelabu in conjunction with the Ministry of Petroleum Resources (Gas) has set up a ministerial committee towards resolving the crisis. The committee will consist of representatives from the two ministries, gas suppliers, the Nigeria Electricity Regulatory Commission (NERC) and stakeholders in the electricity value chain sector.
The minister also had a separate meeting with foreign development partners operating in the country yesterday. During the meeting, Adelabu lauded the group’s developmental role in the power sector over time and urged them not to relent in their continued support. He also briefed the partners on the Federal government’s transformation master plan, under the power ministry, to improve power supply across the nooks and crannies of the country.
“When we resumed here, we spent the first three months diagnosing and investigating issues that have affected development in the power sector and why the sector is still at the level it is today and the factors militating against the turnaround that is envisaged in the sector.
“We consulted, we engaged all the stakeholders. At the end of the diagnosis and investigation, we had a full understanding of the situation. We discovered that most of the problems in the sector are not all technical or engineering-related, it actually has to do with liquidity, funding, structural or operational issues which anybody, that has the commitment, could resolve. Though they are simple issues, they are multiples, complicated and permeates all the sectors in the value chain.
“We met as a team to provide practical solutions and came up with a timing template on those issues that can be resolved in the short term, mid term and those that can be resolved on the long haul and we capped these activities up in December, last year when we had a ministerial retreat where we had the various stakeholders, cutting across the value chain, in attendance. We had serious discussions that lasted three days where we came up with what we have to do.
We are focused on providing workable solutions to the various issues.”
He emphasised that the main problem of the sector is liquidity and funding, adding that the sector is supposed to generate -funding if allowed to operate a commercial model whereby all the costs attributed to generation of power, transmission and distribution of power are recovered through the tariff while the operators are given a good mark up. All which leads to a cost reflective tariff which is how the sector is supposed to operate. With this, there would be sustainability of the sector. There would be continuity in production, transmission would be seamless while distribution would be impeccable”, he said.
He however noted that the sector is not allowed to charge a cost reflective tariff. “Government promised a subsidy which is not a problem, but that is when government does its own part with timely release of money. “Once the sector suffers from liquidity challenge, there would be no investment in the sector and that is why the structures are dilapidated. It’s important we resolve the liquidity issue”, he emphasised.
Adelabu also spoke on the pivotal role of the states in the power sector, adding that the DisCos, as presently constituted, should be unbundled along state lines. “We need to encourage the states to have their own power generating company, and encourage them to establish structures for transmission and distribution. Each State government must also start showing interest in those in charge of distribution in their States, while the federal government can track generation and transmission, the States should be able to track the distribution companies”.
The minister also spoke on the strategy that the ministry would adopt to ensure incremental improvement in power supply in the country. These strategies include; ensuring that the Rural Electrification Agency (REA) live up to expectation by serving the underserved and the unserved rural communities that may not be commercially attractive to the distribution companies, focusing on distributed power by intensifying effort to raise volume of renewable energy to national capacity, with focus on developing small hydro power plants along the 26 small dams in the county. “We can hybridise this with solar when the water level goes down”.
He added that the solar option is being considered for the northern part of the country including use of windmills to generate power off shore, along the coastal part of the country.
Responding, the development partners made up of representatives from the European Union (EU), United States Agency for International Development (USAID), United Nations Industrial Development Organisation (UNIDO), the World Bank, United Kingdom’s Foreign, Commonwealth and Development Office (FCDO), Japan International Cooperation Agency (JICA), African Development Bank (AfDB), Agence Francaise de Development (AFD), Embassy of Norway in Nigeria and Germany’s Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) commended the minister for the comprehensive diagnosis of the challenges in the sector including the government’s transformation plan adding that they would need to further organise themselves in order to avoid overlap of functions. They also assured Adelabu of continued support since his briefing has given a clesr direction on how to resolve some of the issues in the power sector value chain.
Also at the meeting on Wednesday with the minister of State, Ministry of Petroleum Resources (Gas), Ekperipe Ekpo, the two top government officials acknowledged the need for innovative thinking in resolving the gas supply challenge to the GenCos.
Adelabu said the two ministries should work together to find a lasting solution to the problem, wondering why the issue of gas supply to the power sector was not prioritised in view of the importance of the sector to economic development.
He also suggested that payment of domestic gas supply should be denominated in naira instead of dollars. “ If we are serious about the economic development of the country, we need to solve the problem of gas supply today. We should look at the possibility of mandating the gas suppliers to price in naira. The domestic supply is just a fraction of what the gas suppliers supply to the international market, so paying in naira should not be a problem”.
Unlike what operated in the past, Adelabu added that in order to further resolve the gas supply challenge, the GENCOs must enter a contractual arrangement with the gas suppliers.
“With such contractual arrangement with gas suppliers, the minimum requirement that should be supplied to the generating companies would be clearly stated, thus eliminating the present situation where the generating companies are only operating at about 20 percent of their installed capacity”.
Adelabu stressed the importance of liquidity in the power sector value chain. “We cannot over emphasise the importance of liquidity in the sector, the generating company has to cover their overheads, maintain and service their machineries, most importantly , pay for gas which is the raw materials needed for production. The only way to sustain production is payment” .
Also speaking, the Minister of State said the major challenge with the gas supply is due to the vandalisation of the gas pipeline in the Niger Delta. “ This has affected production from the Nigeria Liquified Natural Gas (NLNG) company which is producing below capacity. He however assured that the OB3 line which supplies gas to the northern part of the country would soon be commissioned to enable supply to the northern part of the country.
“ Knowing the importance of gas supply to generating companies and the industries, we held a stakeholders’ meeting on Tuesday with gas suppliers in order to know why there has not been adequate supply of gas to generating companies, we need to work together to resolve this”, he said.
Ekpo also agreed with the suggestion that payment for domestic gas supply should be in naira. “However, this should be legislated on. We can both meet Mr President on this, once we agree on modalities as he is the only one that can give the directives”.
He expressed grave concerns about the vandalisation of the pipeline in the Niger Delta adding that his major concern is to find a solution to the problem .
