Proposed Two-month Free Electricity Supply to Cost FG N109.8bn

The federal government would incur an average cost of N109.83 billion to supply free electricity to Nigerians as proposed by the National Assembly and supported by the electricity distribution companies (Discos), THISDAY’s investigation has revealed.

The Speaker of House of Representatives, Hon. Femi Gbajabiamila, had proposed a two-month free electricity supply to Nigerians to cushion the excruciating effects of the nationwide lockdown occasioned by the outbreak of COVID-19.

The Discos, under the aegis of the Association of Nigerian Electricity Distributors (ANED), supported the scheme but on the condition that the federal government should pick the bill for the two-month free electricity supply.

Data obtained by THISDAY from the Nigerian Electricity Regulatory Commission (NERC) and the Nigerian Bulk Electricity Trading Plc (NBET), better known as the Bulk Trader, showed that it would cost the federal government an average of N109.8 billion for the initiative.

Statistics showed that since January 2019, the electricity supplied to Nigerians cost between N55 billion and N53 billion monthly.

For instance, the least cost of N47,583,048,273. 37 was incurred in June 2019, while the highest monthly cost for the year was N62,252,549,885.43 incurred in December 2019.
In January 2019, NBET sent an invoice of N55,782,765,614.21 billion to the 11 Discos as the cost of power supply for the month.

For the subsequent months, an invoice of N51,034,312,869.58 was sent in February; N54,528,436,650.93 in March; N51,641,432,458.96 in April; N53,964,628,756.61 in May; N47,583,048,273.37 in June; N51,675,945,829.13 in July; N53,007,648,M031.50 in August, and N49,398,129,562.64 in September 2019.

In October 2019, N50,100,668,072.37 was the total invoice; N53,500,536,476.19 in November; and N62,252,549,885.43, bringing the total cost of electricity supplied for the year to N634,471,103,478.91.

A cost of N52,134,588,489.19 was also incurred in January 2020, the data showed.
ANED’s Executive Director in charge of Research and Advocacy, Mr. Sunday Oduntan, had said all the participants in the electricity value chain must be involved for the free electricity supply to work.

He said: “Remember, we (Discos) don’t own the product we sell. The product we distribute does not belong to us. Generating companies own the product and they use raw materials to generate it. The raw material, which is gas, does not belong to them. The federal government has to pay for the gas. We do not transport the product – the Transmission Company of Nigeria (TCN) does. So, all the stakeholders must be involved. We can’t unilaterally provide electricity free of charge for Nigerians.”

Reacting to the proposed scheme, Ikeja Electric said for it to work, the federal government must approve the stimulus package proposed by the National Assembly.
“The ability of the Discos to implement this proposed palliative is subject to the stimulus package being passed by the National Assembly and signed into law by Mr. President.

“We urge all customers to continue to pay their utility bills as usual, while on our part, we shall continue to serve and put our customers first during this difficult period,” the company said in a statement.

However, the Federal Ministry of Power at the weekend said no decision had been reached on the issue of whether to supply free electricity to Nigerians or not.
In a tweet on Friday, the ministry said the government would officially communicate its decision when it arrives at one.

“No decision has been taken by the federal government to provide Nigerians with free electricity for two months.

“If and when that becomes a reality, it shall be announced officially.
“Be rest assured that the federal government is exploring ways to ameliorate any hardship on Nigerians,” the tweet read.

Gbajabiamila, during a recent meeting between the National Assembly leadership and the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, had mooted the idea that the stimulus package was necessary since it would have the highest impact on Nigerians.

“We have the figures. I think we should look very seriously into that as part of our package for economic stimulus because stimulus means something that will stimulate the economy. When you are stimulating the economy, most of it will come from the informal sector.

“When you are saving people their electricity and the fact that they now have stable electricity for two months, you are also saving the monies that would go into the payment of those bills at least for two months,” he had said.

FG Saves $1.8bn from Power Not Evacuated

Meanwhile, despite the fact that the federal government paid over N240 billion between 2015 and December 2019 for power generated but not evacuated, it has nevertheless saved about $1.8 billion as payment for undelivered capacities, a senior government official at the Ministry of Finance told THISDAY.

The official also stated that the presidency was concerned about the funds being paid monthly for power but not evacuated and had directed the Ministry of Finance and NBET to give an update on the current liabilities.

THISDAY’s findings revealed that between September 2016 and December 2017, NBET migrated to the issuance of ‘’energy-only PPAs,” ensuring that future contracts should be based on the payment of actual electricity energy delivered to Nigeria.
‘’This saved our country significantly funds it needs to pay for contracted electricity but which due to transmission and distribution challenges may not be delivered to Nigeria.

‘’In the overriding public interest, NBET did not execute additional default agreement between September 2016 and May 2019, in spite of pressure placed directly on NBET Chief Executive Officer (CEO).

‘’If NBET CEO has executed five of the PPAs that were on her table when she resumed on August 2016 and the contracts had attained commercial operation by May 2019 at the minimum, the federal government would have had to provide about $1.8 billion monthly for generated electricity that will not be evacuated,’’ the source added.

The official said the breakdown of the funds would have been $165 million monthly payment for contracts and possible tested capacity, at the minimum of $33 million per month; $495 million – revolving payment security that covers three month-invoice; $600 million payment for Partial Risk Guarantee (PRG) and N5 billion for Annual Take-or-Payment for the natural gas for the plants that may be due at the end of each year.

THISDAY reported recently that N240 billion payment for generated power not evacuated was for five power plants: AGIP, Shell, Olorunsogo, Omotosho and Azura, with 25 power plants in the federal government’s portfolio power plants.

The source explained that the huge financial burden was “already telling on the federal government’s financial management,” especially with the gas supply agreement (GSA) between the Calabar Generation Company Limited and Accugas Limited being threatened over $66 million unpaid invoices.

Under the controversial GSA signed in May 2017, Nigeria is obliged to pay Accugas over “$10 million monthly with or without gas supply” to Calabar Genco.

In a letter, late last year, signed by the Managing Director, Accugas, Mr. Ian Brown-Peterside, he was quoted as saying that the company was invoking “clause 18.5.1 of the Natural Gas Sales Agreement dated 12th May 2017 between Accugas Limited (the Seller) and Calabar Generation Company Limited (the Buyer) and also to Clauses 3 and 4.1 of the Support Agreement dated 12th May 2017 between the Niger Delta Power Holding Company Limited (NDPHC), the Buyer, Seller and Nigerian Bulk Electricity Trading Plc (NBET).

“Terms defined in the Support Agreement have the same meaning in this letter. (1) A Monthly Invoice of US$3,887,293.84 dated 18th February issued by the Seller and received by the Buyer on 14th March 2019, of which the undisputed balance of US$643,332.03 is outstanding and overdue for settlement (the Invoice); payment in respect of the Invoice was due on 13th April 2019.

“A Dispute Notice has not been received in connection with the invoice by the expiration of the Due Date; the following Guaranteed Payment is required to be paid into account details provided below.”

Brown-Peterside added that “in the event that the above guaranteed payment is not paid into the aforementioned account within seven days, we shall have the right pursuant to Clause 1 of the Support Agreement to make a withdrawal under the IDA PRG L/C.

“This notice of non-payment does not include a demand in respect of interest or any sums other than the Guaranteed Payment.”

At the preparation stage of the gas sales agreement (Calabar, Accugas) and other related deeds of amendment, NBET Board had requested the management of NBET to advise on the risk associated with the transaction.

In its reply, NBET warned that the electricity market was facing an existential threat, with rapidly declining payment by distribution companies that were the revenue collectors for the market – with the payment level less than 25 per cent of invoices issued to the distributors by NBET and the market operators.

NBET had warned that unless significant improvements were made in revenue collection and remittances by Discos, the entire remittances being received by NBET would barely be sufficient to pay only the company for its power generation, to enable it to pay for the gas volumes it has nominated to run the full plant capacity of Calabar Electricity Generation Company (CGCL).

But in spite of the resistance by NBET, Accugas and the World Bank in February 2017 approached the federal government to sign the PRG agreement.

The then Acting President, Prof. Yemi Osinbajo, had approved the signing of PRG and President Muhammadu Buhari endorsed it in less a week on his sick bed in London.

Faced with the current challenges associated with the agreement, the source said Buhari would not have signed the agreement if he had been properly advised.

<<Thisday>>