Nigeria: N701bn PAG: Gas Suppliers Threaten To Abandon GenCos


Gas supplies to the power sector may run into a hitch following advance notice by indigenous gas producers that the N701 billion Payment Assurance Guarantee by the federal government elapses by December this year.

The gas suppliers said the fund which was released by the Central Bank of Nigeria (CBN), to ameliorate liquidity crisis in the power sector, has not solved the issue of funding gap in the sector.

According to the gas suppliers, more than a year after the approval of the fund by the Federal Executive Council, FEC, the anticipated targets have not been met as electricity Generation Companies (GenCos) are still unable to pay their gas suppliers.

It is also believed that even if the whole sum had been released, it would still not be enough to offset the outstanding N800 billion required to settle the suppliers. FEC had, in March last year, approved N701billion as Payment Assurance Guarantee, to help GenCos meet gas payment obligation.

Giving insight as to the impending crisis, president of the Nigerian Gas Association (NGA) Engr. Dada Thomas, while briefing journalists yesterday in Lagos on the 2018, NGA, biannual International Gas Conference, said that about 1,000 megawatts (MW) of Independent Power Plants (IPP) capacity is presently being idle due to a lack of gas delivery.

Thomas, stated that despite absence of fiscal and strong regulatory regime, the association, has come a long way in its quest to contribute to the development of the Nigerian gas industry, and to ensure the right policy environment for the realization of this goal, the NGA proactively initiated programs and activities to engage government policy makers and the investing public.

“At no time in the history of our industry has natural gas been poised to play a more important role in our country and sub Saharan African energy picture. The “natural gas revolution” is the most significant energy thing in decades of the region development”, he posited.

He lamented that despite the country’s population outburst which is growing at 3 per cent annually, government has not taken the bold initiative to address the energy demand of the population.

The president further warned of the dire consequences of not addressing the Petroleum Industry Governance Bill, PIGB, as he expressed the fears that if nothing is done to ensure the Bill is signed into law before end of the year Nigeria will miss the track of attracting the needed investment to the sector.

Also, in her submission, first vice president and president-elect of NGA, Mrs. Audrey Joe-Ezeigbo said lack of respect to agreement by government poses serious challenge to investors and discourages potential investment in the sector. She disclosed that despite the approval of the fund, in 2017 only 26 per cent of the money was paid and in 2018, 27 per cent paid leaving huge gap of unpaid debt.

LEADERSHIP recalls also that Minister of Power, Works and Housing, Babatunde Raji Fashola, had said the liquidity problems that characterised the market have affected the Nigeria Bulk Electricity Trading (NBET’s) ability to deliver on its Power Purchase Agreement (PPA) obligations to the GenCos, hence the approval of the assurance guarantee.

The GenCos also claimed that despite the intervention fund, they were still cash strapped and unable to pay gas suppliers. Specifically, the GenCos said they had made huge sacrifices, bearing the excruciating burden of not being paid for electricity generated and sold to the NBET, and now faced liquidation threats, as a result of their huge indebtedness to banks and financiers.

They alleged that the federal government has not kept faith with the N701billion facility, as payment timelines are not clear, regular or consistent. Executive secretary, Association of Power Generation Companies (APGC), Joy Ogaji, said NBET has consistently defaulted in paying for electricity generated in breach of its contractual obligation, which required that the GenCos be paid in full.

She said: “I think you need to investigate the N701 billion because it is in shambles. The GenCos have business plans, which most of them have exceeded; they have worked on other expansion plans, which will be implemented as soon as the liquidity situation improves. Raising funds for expansion and construction of new plants often presents a challenge. Slow execution of PPAs is another challenge that hinders Gencos from raising the required funding.


“Since power is the livewire of the nation, we are watching out for what plans the government will come up with to ameliorate the current quagmire in the electricity value chain. We want government to know that we are willing to work with it to arrive at an amicable solution,” she said.

On his part, Fashola expressed dismay that GenCos investments are being threatened because they could not utilise their installed capacity. He noted that under past administrations, GenCos and Gas suppliers were being underpaid by NBET because the DisCos were under-collecting or under-remitting payments such that GenCos were receiving only about 20 per cent of their invoices from power.

He added that Government intervened and created the N701billion Payment Assurance Guarantee (PAG) to NBET to ensure that payment to GenCos improved. Fashola blamed the liquidity crisis facing the Gencos on the inability of the distribution companies (Discos), to pay for electricity supplied to them.

“The GenCos are short-paid because the DisCos under-remit in spite of high estimated billing to consumers. My directives seek to rectify these problems because I believe they can be rectified. Electricity consumers want better service; NBET wants its money; about N800 billion, so it can pay GenCos,” he said.

LADERSHIP also learnt that NBET, will have up to 10 years to repay the N701billion financial facility obtained from the Central Bank of Nigeria (CBN) to guarantee payments for electricity generated by the generation companies (Gencos).

Statutorily, the NBET will, within the transitional stage of the electricity market, buy power from Gencos and independent power plants, and sell to electricity distribution companies, using legal instruments, which include power purchase agreements (PPAs) and vesting contracts.

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