Fashola’s new directive on direct power purchase to ease Gencos’ liquidity

The new policy directive to the Nigerian Electricity Regulatory Commission (NERC) by Babatunde Raji Fashola, Nigeria’s minister of power, works and housing, declaring four categories of eligible customers in the Nigerian Electricity Supply Industry (NESI) to access power directly from the generating companies has been described as a move to ease liquidity for the Gencos. 

This major policy shift, according to market watchers, is a reaction to the issue of illiquidity across the entire value chain of the power sector, which has been attributed to the failure of the successor distribution companies (Discos) to adequately collect tariffs from end-users, and remit payments to other participants along the value chain.

Specifically, payment details published by the Nigerian Bulk Electricity Trading Plc (NBET) for the month of February 2017, indicates that the Disco with the highest remittance rate paid only 50% of its February invoice to NBET; whilst the Disco with the lowest remittance rate paid 16% of its February invoice to NBET, representing average market remittance of the Discos to NBET as at February 2017 at 33.29%.

According to Lagos-based Details Commercial Solicitors, the current liquidity squeeze has made the sector unattractive for investment, as potential investors aim not just to recover capital costs but also to make a return on their investment.

It has also led to two major financial interventions by the government through the Central Bank of Nigeria’s (CBN) Nigeria Electricity Market Stabilization Facility of N213 billion, and the proposed CBN-NBET Payment Assurance Facility of N701 billion.

The categories of customers who can now buy power directly from the Generation Companies (Gencos) as stated by the minster are:

(a) Eligible customers comprising of a group of end-users whose consumption is no less than 2MWhr/h, and are connected to a metered 11kV or 33kV delivery point on the distribution network, subject to a distribution use of system agreement for the delivery of electrical energy;

(b) Eligible customers who are connected to a metered 132kV or 330kV delivery point on the transmission network under a transmission use of system agreement for connection and delivery of energy;

(c) Eligible customers with consumption in excess of 2MWhr/h on monthly basis and connected directly to a metered 33kV delivery point on the transmission network, under a transmission use of system agreement. Eligible customers in this category must have entered into a bilateral agreement with the distribution licensee licensed to operate in the location, for the construction, installation and operation of a distribution system for connection to the 33kV delivery point;

(d) Eligible customers whose minimum consumption is more than 2MWhr/h over a period of one month and directly connected to the metering facility of a generation company. Such eligible customers must have entered into a bilateral agreement for the construction and operation of a distribution line with the distribution licensee licensed to operate in the location.

Based on the above classifications, eligible customers have been conferred with the legal right to have direct bilateral relations with power generators, and would not rely on a Disco for procurement of power, except for the requirement to connect to the distribution or transmission lines (as may be applicable) for the wheeling of power.

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By Business a.m. live staff