N600bn fund: GenCos write NERC over planned 0.75% NBET gas charge

Chairman/Chief Executive of the Nigerian Electricity Regulatory Commission (NERC), Prof. James Momoh

As the federal government plans disbursement of a N600 billion power sector intervention fund, Generation Companies (GenCos) have approached the Nigerian Electricity Regulatory Commission (NERC) to intervene on the imposition of a 0.75 percent administrative charge on them by the Nigerian Bulk Electricity Trading Plc (NBET).

A letter written under the umbrella body, Association of Power Generation Companies (APGC), addressed to NERC chairman, Professor James Momoh and received by the commission on Monday, stated that the imposition of the gas supply charge was a condition precedent for them to benefit from the N600bn power fund.

“It would further worsen the liquidity crisis being faced by the GenCos and set a dangerous precedent in the Nigerian Electricity Supply Industry (NESI),” they said.

At least Geregu and Sapele Power signed the letter on behalf of over 20 thermal GenCos. The letter was said to have been copied to the Office of the Vice President, the Chief of Staff to the President, the Ministers for Power and Finance, the Director General, Bureau of Public Enterprises (BPE), the MD of Gas Aggregation Company of Nigeria (GACN) and the MD of NBET.

APGC had said that On September 11, 2019, GenCos honoured NBET’s invitation to a meeting to discuss gas supply and the outstanding gas payments.

It said the GenCos were surprised to be informed at the meeting by NBET’s managing director that “NBET would be taking over in its entirety, GenCos’ contractual obligation to pay their gas suppliers,” and “That deductions from GenCos would be made at source in order to accomplish this complete takeover by NBET of GenCos’ contractual responsibility to pay their gas suppliers.”

The GenCos also said they were mandated to pay NBET an “administrative charge of 0.75% for paying their gas suppliers.”

They said they attempted to argue against the developments but that the leadership of NBET insisted that it was a directive from the federal government which must be complied with.

NBET subsequently issued letters respectively on September 13, 2019 to the thermal (gas-fired) GenCos directing them to immediately obtain their respective board approvals or resolutions, bequeathing (transferring) responsibility for payment of gas supply and transportation to NBET for an administrative charge of 0.75%.

The letter gave each GenCo three working days’ ultimatum to revert to the board’s resolution (i.e. September 13-18, 2019) and stipulated that the penalty for non-compliance would be non-payment of GenCos’ invoices in the market.

Gas is being sold at a regulated domestic price of $2.50 per standard cubic feet (scuf), plus about 80 cents for transportation which makes it $3.30 (N1,200)/scuf. With the disputed imposition of the 0.75% ‘administrative charge’, GenCos’ operators will pay about 25 cents (about N90) extra for every ‘scuf’ of gas taken to power their plants. Records show GenCos use over 3 million scuf of gas to generate power.

The excess cost has not been factored into the recently reviewed Multi Year Tariff Order (MYTO) 2015 by NERC. Factoring this could increase electricity tariff even as consumers brace up from more electricity tariff increase by January 2020.

GenCos complied once without fee

According to the letter, the GenCos had complied once to NBET request when the agency did not attach any charge to the condition precedent to the disbursement of the first tranche of N701.9 billion Payment Assurance Facility (PAF) which ran from 2017 to December 2018.

“NBET requested for consent from the GenCos to pay their gas suppliers, same was granted on grounds that there was no cost implication from the GenCos and a straight credit from CBN,” it noted.

NERC should intervene – GenCos

The Executive Secretary of APGC, Dr Joy Ogaji, who briefed pressmen recently over the issue, said the GenCos could declare a force majeure – a condition to pull out of operation – if the case was not properly addressed.

Summing their demands from NERC in the letter, the GenCos said, “GenCos seek the intervention of NERC as a regulator as we see the above stated actions of NBET as a threat to the GenCos and the entire NESI.

“Compelling our boards to issue resolutions bequeathing our contractual responsibilities and accepting additional burden of 0.75% administrative charge should not be allowed to stand. We are also concerned about the precedent this would set, if NERC fails to react appropriately, and promptly too,” the GenCos declared.

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