Nigeria Approves Payment of N1.3tn Gas Supply Debts to Power Generation Companies

Nigeria’s federal government on Thursday revealed that it has directed the Ministry of Finance to begin the payment of the first tranche of the N1.3 trillion gas supply debts owed power Generation Companies (Gencos) as well as gas suppliers.

The revelation came as the government admitted that many electricity Distribution Companies (Discos) operating in the country are technically insolvent and finding it difficult to do business.

Nigeria’s Minister of Power, Chief Adebayo Adelabu who spoke in Abuja, stated that a liquidation plan had been approved by President Bola Tinubu, beginning with the payment of about N130 billion in the first installment.

Adelabu, along with others, spoke at the 8th African Energy Market Place themed: “Towards Nigeria‘s Sustainable Energy Future: Policy, Regulation and Investment – A Policy Dialogue for the National Integrated Electricity Policy and Strategic Implementation Plan (NIEP-SIP).”

The minister explained that the government was working to get the distribution companies solvent and effective by unbundling their operations along state boundaries, insisting that their areas of coverage were too large for them compared to the Discos’ capacities.

“Mr. President has approved the submission made by the Minister of State Petroleum (Gas) to defray the outstanding debts owed to the gas supply companies to power generation companies.

 “The payments are in two parts, the legacy debts and the current debts. For the current debt, approval has been given to pay about N130 billion from the gas stabilisation fund which the Federal Ministry of Finance will pay.

“The payment of the legacy debt will be made from future royalties in exchange for incomes in the gas subsector which is quite satisfactory to the gas suppliers. This will allow the companies to enter into firm contracts with power generation companies.

“For the power generation companies, the debt is about N1.3 trillion and I can also tell you that we have the consent of the president to pay, on the condition that the actual figures are reconciled between the government and the companies.

“ This we have successfully done and it is being signed off by both parties now. Majority has signed off and we are engaging to ensure that we have 100 per cent sign off.

“The debt will be paid in two ways, immediate cash injection and through a guaranteed debt instrument, preferably a promissory note. This assures the companies that in the next three to five years, the government is ready to defray these debts,” the minister stated.

According to Adelabu, the recent ‘Band A’ electricity tariff that came to force on April 3, 2024 had also succeeded in reducing the cost of production by manufacturers by 40 per cent.

Adelabu argued that the insinuation that the recent electricity tariff increase for Band A customers had  increased the cost of production for manufacturers, leading to the high cost of goods and services was not entirely true.

“The electricity tariff was not targeted at worsening the already bad economic situation of high inflation rate and naira losing value but targeted at resolving or reducing the hardship of the people.

“Those on Band A, if they should do their arithmetic properly, to compare what they have been spending on energy provision from grid supply and energy generators put together, before the review of tariff, they have achieved nothing less than 30 to 40 percent reduction in their total cost. That is the truth.

“We are also electricity consumers, so we can attest to this fact. It is true that if you are in Band A, your bill would have doubled if not more. But check out what you have been spending on your generator, including servicing, diesel and petroleum procurement, it would have come down considerably.

“So the argument of this new tariff having the capacity of increasing the cost of production and raising the prices of goods and services is not logical.

“Manufacturers under Band A should have a lower energy cost by now, thereby, reducing their cost of production. Except those that have not been paying for electricity in the past. We can also come together to compare notes with practical example. But how this new tariff regime will increase the cost of production is not valid because I am in that industry too,” he stated.

He also said that with the generation of 700MW from Zungeru hydroelectric power plant, the Nigerian Electricity Supply Industry (NESI) has now recorded a new feat of 5,000MW.

He maintained that the supply of electricity had increased due to the implementation of the Electricity Act 2023 and the band A tariff, adding that the Discos were requesting more load for onward distribution to the customers.

In his speech titled: “The Journey So Far”,  Adelabu said that the NIEP-SIP will serve as a guiding blueprint for Nigeria’s energy development, addressing areas such as rural electrification, public-private partnerships for universal electricity access, power-source specific policies, bulk power purchase, and management of local distribution in rural areas.

Amid growing challenges, Adelabu said that the government remains steadfast in its determination to forge ahead, knowing that the journey to sustainable energy access is not one without its hurdles.

Also speaking, Chairman of the Nigerian Electricity Regulatory Commission (NERC), Sanusi Garba, argued that  that most of the Discos operating in the country are currently insolvent.

To that extent , he noted that they are unable to pay for invoices sent to them from the electricity market and invest in network expansion projects, explaining that the poor financial state of the Discos makes it difficult for them to raise the needed capital to invest.

The NERC boss pointed out that the challenges facing the sector were a culmination of all past inactions and missteps by those saddled with the responsibility of managing the sector both at policy and operational levels.

“Today, when you look at distribution companies, they are clearly and technically insolvent, and you also want them to raise capital in terms of debt or equity. It’s a herculean task.

“ I also want to mention that implementing the power sector reform requires very strong political will to implement decisions that impact on the wider public,” Garba maintained.

Also at the event, the Vice President, Power, Energy, Climate and Green Growth Complex, African Development Bank AfDB), Dr. Kevin Kariuki, noted that the bank has so far spent over $450 million to support various power sector projects and programmes in Nigeria.

He explained that another $1 billion was being planned to support the power sector reform effort by the government.

Kariuki stressed that with 90 million out of 600 million people in Africa without access to electricity living in Nigeria, the effectiveness of the reforms will be measured based on how much of the over 13GW of installed capacity Nigeria utilises for its development.

He said: “The AfDB is acutely aware of the extent of the challenge, ranging from addressing the electricity access deficit to rehabilitating and upgrading the power system to meet a load of 20GW which is believed to be the true demand, for Nigeria’s 200 million people. Hence, we must have all our hands on the deck empowered by the new Electricity Act, 2023.

“At AfDB we put our money where our mouth is. As is clearly manifested by the fact, we will be shortly seeking board approval for a $1 billion Policy-based Operation (PBO) with a significant energy component aimed at supporting the ongoing power sector reforms triggered by the new Electricity Act.”

In his remarks, the Director General, Nigeria Country Department, AfDB, Mr Lamin Barrow, stated that in line with its strategic objective to accelerate universal energy access through the “Light up and Power Africa” High-5, the bank was supporting the Nigeria Electrification Project (NEP), which seeks to expand access by providing off grid solution to the unserved population.

Barrow added that the bank was also piloting innovative approaches to enhance productive use of energy efficient equipment, noting that under the Nigeria Transmission Expansion Project (NTEP), it is supporting the construction and rehabilitation of a 500km transmission backbone across the country.

“The bank is also providing technical support through preparation of feasibility studies for the 1 GW solar project in Jigawa State, which is at early development stage.

“Also in line with Nigeria’s Energy Transition Plan, the Bank is financing a study on battery energy storage systems to support Nigeria tap new technologies for a sustainable energy future,” he stated.

Emmanuel Addeh

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