Nigeria Cannot Sustain Electricity Subsidy, GenCos Are Being Owed N1.3 Trillion, Says Power Minister Adelabu

The Minister of Power, Bayo Adelabu, has said Nigeria cannot continue to subsidise electricity, adding that the nation must begin to move towards a cost-effective tariff model.

The minister said this in a briefing in Abuja on Wednesday, where he stated that only N450 billion was budgeted for subsidy this year, but the ministry needs over N2 trillion for subsidy.

Adelabu also said, in the briefing, that the problem of lack of electricity in Nigeria had been worsened by the debts owed the Generation Companies (Gencos).

He described the issues as multiple technical operational problems across all segments in the value chain, but made complicated by lack of sustaining liquidity and infrastructure funding, as well as structural misalignment.

“The simple technical operational issues are: shortage of gas supplies and aging dilapidated generation machineries causing below optimal capacity utilisation,” he said.

 He also listed inadequate power evacuation capacity at Genco locations, coupled with unstable and fragile transmission lines, devoid of automated frequency controls, lacking in fail-over or back-up capacity with frequent human disturbances through vandalism and theft.

Others, he said, are: Aging weak distribution infrastructures (lines and transformers) coupled with huge meter gaps causing unbearably large technical and collection losses.

“These are issues that look so simple on the surface and should ordinarily require little efforts to fix over time. However, it’s been quite difficult to get these problems fixed over the years due to the complications wrapping the entire value chain end to end.

“The major complications are: The persistent liquidity issues coming from inappropriate tariff regime, poor collections and inadequate funding of government subsidies leading to huge debts owed to the transmission, generation and gas supply companies.

“This has restricted investments required for sustaining supply flow, capacity expansion and infrastructural improvements. It has also not only discouraged lending to the sector by financial institutions as the sectoral activities are not bankable, but has also made the sector unattractive to new investors,” he said.

The second complication, he maintained, is the value chain structural issues bordering on operations and control of generation, transmission and distribution segments.

According to him, there has been an inability of the Nigerian electricity supply industry to adhere to market rules and to enforce market discipline. This, he said, has led to each segment in the value chain operating on a best endeavour principle.

Adelabu said the third complication is the lack of clear and unambiguous definition of the concept of electricity as a nation.

On the roadmap for stabilising the sector in preparation for turnaround, he said there was a need for settlement of existing sectoral outstanding debt obligations to the gas supply and power generation companies, using partly cash payment and guaranteed debt instruments. 

“Settlement of existing sectoral outstanding debt obligations to the gas supply and power generation companies using partly cash payment and guaranteed debt instruments. N1.3 trillion is current debts to the Gencos and $1.3 billion legacy debts to the Gencos,” he added.

On ongoing activities in the ministry and its agencies to improve power supply, he said they include augmentation of the hydro plants and thermal plants.

The recent completion of the 700MW Zungeru Hydro Electricity Power Plant in Niger State.

He also highlighted the financing of the required infrastructure to enable complete evacuation of the 40MW Kashimbila Hydro Power Plant in Taraba state using the Promissory Note facility at the Debt Management office (DMO).

In addition, he mentioned the resuscitation of abandoned 26 small and medium size Hydro plants across the country with solar hybridisation, negotiations to settle the huge outstanding debts obligations to the Gencos using cash injection and guaranteed debt instruments.

Speaking on frequent grid collapses, he said this was caused by shortage of gas, ageing machines in the grid value chain, low capacity to evacuate generated power, and destruction of power stations in some parts of the North-East geopolitical zone of the country.

He said the Transmission Company of Nigeria has over 100 abandoned projects due to variations on contract figures as a result of the fluctuations of the FX, hence the company will not award any new contracts till all such projects are completed.

The minister also said over N50 billion had been earmarked in the 2024 budget to build mini grids to supply power to remote areas, adding that electricity Distribution Companies (DisCos) should sit, and anyone found wanting will have their licences withdrawn.

The minister also said he has reached out to the National Security Adviser (NSA), Nuhu Ribadu, to help provide security for power infrastructure.

Recently, power supply has been fluctuating, sometimes to as low as 2,000mw, as the roughly 24 thermal power plants continue to shut down due to inadequate gas supply.

Typically, operators sell gas in dollars to power plants since most segments of their investments are priced in the US dollar, but Gencos have recently found it difficult to pay since they get their own payments in naira which had been badly devalued in recent months.

Upon that, they have complained of underpayments recently, with their association saying last year that the federal government owed them over N1 trillion.

Although Nigeria has a huge proven gas reserves of 206 trillion cubic feet, it has not been able to take advantage of it due to very low investment in the sector, due in part to the price regulation of $2.18 per million British Thermal Units (MMBtu) for gas-to-power charges.

Emmanuel Addeh

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