ONI: Bad Gas Financing Undermines Power Gains
Ayodele Oni, a partner at Banwo and Ighodalo, is a Shell scholar, who specialises in Energy and Natural Resources Law. In this interview with IKECHUKWU ONYEWUCHI, he argues that Nigeria’s energy woes are due to debts to gas companies, lack of maintenance of power infrastructure and sabotage of the Egbin power plant.
It appears investors are shying away from putting their money in power infrastructure; what should the new minister of power do differently to maximise opportunities in the sector?
THE reasons for investors shying away are not far-fetched and include, lack of bankability, gas challenges and the problem with the grid. There are also issues around the poor and un-integrated gas pipeline network and lopsidedness in power production, with a dearth of transmission facilities to wheel same to where required.
The new minister has his work well cut out and these include, policies, in my view that encourage states like Lagos and Rivers to take the lead in providing electricity without limiting same to institutions and facilities owned by them and also encouraging the utilisation of more energy sources, particularly, renewable sources such that there is a more robust energy mix and different states with different features and endowments can then use the wind and or solar as one of their sources of fuel for power generation. The personnel at the ministry of power also require training. Further, there is the need to reduce the incidence of fraud and corruption and selfish interest amongst personnel at the ministry of power and the regulatory bodies.
Why has the country been unable to bring on stream new investment to meet power demands?
Financing, together with the bankability of such projects as a whole, has been a serious inhibition to the coming on stream of new projects. Drop in oil prices has also meant that the government does not have sufficient funds to bring new plants (assuming it wanted to do so) on stream. Private sector participants face a lot of challenges in the attempt to invest in power generation as there are still serious problems with the grid and gas supply, such that, it is a near impossibility to raise debt financing. Many Nigerian banks have also exceeded their sectorial obligor limits and raising international financing is currently a tough call. Where gas supply arrangements cannot be guaranteed and a licence term of 10 years (with only some hope of renewal or explanation by regulators that renewals/ extensions would be granted) is the rule, then foreign investors and lenders are likely to be wary of investing in such a clime.
Why does it seem metering is an insurmountable hurdle and how best can issues of estimated billing and skyrocketing tariffs be tackled?
It is not quite an insurmountable problem, but I see that there are serious challenges. What I believe we should consider is that for several years such matters were neglected and for a population of almost 200 million people, it would take time for things to stabilise. Furthermore, I understand that the regulators have been a bit slow approving the metering plans of the distribution companies.
The Nigerian Electricity Regulatory Commission (NERC) is working assiduously on the issue of estimated billing, such that distribution companies would now be forced to meter consumers or be allowed to issue estimated bills only up to a particular amount per customer class.
Regarding tariff increase, it is not unusual to have such, when private sector participants initially take over an industry, but as infrastructure and billing improve, prices are likely to drop. It is also germane to note that electricity tariffs have been quite unprofitable, especially, when you consider inputs such as gas price, which itself is denominated in United States Dollars, maintenance costs, costs of upgrading very poor infrastructure, inflation and in many cases the enormous further investments, both the distribution and generation companies need to make.
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