Business Cover

GenCos to Senate, power sector privatization reversal not solution to challenges

*Sector owes us N1trn in power generated

By Obas Esiedesa

Electricity generation companies in Nigeria have said cancelling the power sector privatization done in 2013 is not the solution to the challenges facing the sector.

The companies in a statement on Sunday in reaction to the Nigerian Senate’s call for the reversal of the privatization process, said calls for cancellation of the privatisation were premature.

The GenCos said focus should be on finding solution to structural challenges facing the sector and non-activation of agreements reached when the sector was privatized.

According to the companies, the failure to expand transmission and distribution capacities, coupled with the non-payment for power generated by them were at the heart of the sector’s challenges.

The GenCos held that they were owed about N1 trillion for power generated and supplied since privatization in 2013.

“Worthy of note is that the weak transmission (Grid) and distribution network inherited from the PHCN days are still very much in existence and are not complementing our efforts in maximizing our respective available capacities to the benefit of the Nigerian populace.

“The maximum capacity attained by the national grid ever is 5,375 MW as opposed to the current overall average available capacity 8,589 MW and installed capacity of 13,427 MW with an expansion capacity of 20,000MW in an enabling environment.

“Average stranded capacity that could have been made available to Nigerians in the light of maximum attained grid capacity is an average of 3,214MW. This implies that if we had a grid capacity that matches our average available capacity, 3,214 MW can be immediately made available to Nigerians with the current state of operations of the GENCOS and at no additional cost”, the companies stated.

On their performance since November 2013 when the sector was privatized, the companies said: “Part of the obligations imposed on the owners of the GenCos at the point of privatization, was meeting of a minimum performance target (MPT) of 5,000MW set by the Federal Government of Nigeria (through BPE) for the GenCos. Each GenCo was mandated to increase the generation capacity of its plant to a threshold set by the Federal Government within 5 years.

“The penalty for not meeting the MPT was a possible takeover of any defaulting GenCo by the government.

“Notwithstanding the non-payment of GenCos’ invoices for power supplied to the national grid, the GenCos took loans and other credit facilities to fund the capital expenditure required to meet the MPT by ramping up capacity.

“It is very important to stress that The GenCos have doubled their available capacities from 4,214MW at takeover in 2013 to 8,145MW in 2020. Out of the 8,145MW available capacity, only 3,987MW is generated for Nigerians. The balance 4,159MW is stranded as a result of constraints in the national grid capacity.

GenCos in addition to acquiring the assets for over $1 billion, have invested heavily in ramping up nameplate capacity through frequent maintenance, minor and major inspections and also major overhauls. GenCos since November 2013 have spent circa $1 billion to ramp up capacity not only to meet the performance target set by the government but to act responsibly in the provision of power to Nigerians and also to maximise their return on investments in order to fulfill their obligations to the financial service providers for their respective acquisitions”.

The generation companies therefore called for “urgent review of the Electric Power Sector Reforms Act (EPSRA), the Multi-Year Tariff Order, Orders made by NERC so far, Policies, Market Rule and other governance document in the NESI;

“Conduct a viable and independent stress test on the Generation, Distribution and Transmission capacities to enable us plan proactively and build the sector.

“Immediate separation and unbundling of the Independent System Operator (ISO) and Transmission Service Provider (TSP) from the existing Transmission Company of Nigeria (TCN) to drive efficiency in the wheeling and allocation of power.

“Provide local/foreign guarantees (backed by World Bank/AFDB) to enhance guaranteed payment plan for GenCos to enable them improve generation and implement expansion plans (for power growth).

“Ensure that there is transparency in the billing, collection and remittance as well as develop a viable metering framework to improve collection efficiencies”.

They called for the liberalisation of the “market to create market confidence and ensure the viability and credit worthiness of the power sector.

“Ensure Effectiveness of all market agreements, firm monitoring and enforcement of the rules by the regulator on “all market participants.

“Ensure that the monitoring and enforcement agencies in the sector procure and improve data quality to enable efficiency and improved future planning and projection (by section 55: sub 3, the NASS and the Presidency have a monitoring role in the Power Sector by reviewing the quarterly reports from NERC on its activities)”.

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