NERC’s PPA Order: Achievable or not?

Today, the electricity supply in Nigeria continues to worsen, and stakeholders in the Nigerian Electricity Supply Industry (NESI) have their own opinions on ways to improve the situation. The most recent of these ways is the Nigeria Electricity Regulatory Commission’s (NERC) move to activate a new Power Purchase Agreement (PPA). However, there are concerns about whether NERC’s PPA order is achievable or not.

According to the letter sent to one of the Generation Companies (GenCos) by the NERC secretary, Ada Ozoemena, the PPA is expected to be activated today between the Nigerian Bulk Trading Plc. (NBET) and the GenCos. The Power Purchase Agreement conditions GenCos to produce a minimum of 5,000 MW (5 GW) to improve the country’s electricity supply situation. However, Generation Companies have come up with reasons why the order would not be achievable.

GenCos have stated that to produce 5,000 MW, firstly, gas supply must be guaranteed. Gas availability has for long been a hindrance to electricity production in Nigeria. According to the National Control Centre, post-privatisation, the thermal GenCos have only gotten about 13 per cent of the 28,000 MW of gas equivalent required for electricity generation. Despite the federal government’s (FG) attempt to address the gas supply challenge to GenCos, it is still a huge factor contributing to the poor generation capacity. And this is a factor in determining whether NERC’s PPA order is achievable. GenCos have also mentioned that they are still owed about 1.64 trillion nairas from the previous agreement. They stated that discrepancies in the previous agreement led to the federal government paying 701 billion nairas to the gas suppliers, but the rest is on their account.

Again, it was further agreed under clause 13.4.1 of the Agreement that: ‘for each billing period during the delivery term, seller shall invoice buyer for the capacity payment, energy payment, take or pay payment, and start-up cost payable to seller for such billing period upon receipt of the final settlement statement from the market operator following the applicable billing period.’ The payment shown in such invoice as due to seller shall be paid by buyer on or before the 15th business day following the day the invoice is delivered to sector whether buyer disputes the invoiced amount.

Despite the GenCos’ claims, the NBET insists that payment was made to the generators when due. She stated:

To put in context, NBET makes payment to GenCos as and when due, and has never defaulted on any payment cycle till date. Furthermore, the percentage payment made to GenCos has continually been on the increase, with the N701.9 billion PAF payment, which ensured a minimum of 80 per cent of GenCos invoices for 2018 and 2019, as well as the second PAF of N600 billion that ensured an average of 95 per cent payment of GenCos invoices for 2020. Also, with the current Power Sector Recovery Operation (PSRO) programme that caters for tariff shortfall, GenCos have continued to receive over 90 per cent payment of their generating invoices for the 2021 payment cycle.

To determine if NERC’s PPA order is achievable or not, firstly, strategic efforts must be made to ensure gas availability for power-generating companies. Also, all parties should be involved in drafting agreements to encourage mutual clarity on outstanding debts. Finally, if GenCos succeed in producing 5,000 MW of electricity, will the NESI’s current infrastructure be able to accept this capacity?