…Industry failed to move an inch under
The role of the government’s gas-to-power programme in enhancing the viability of the domestic gas market appears to have stalled with growth impasse in the Nigerian electricity supply industry where capacity redundancy and commercial losses impose a lethal impact on viability.
Industry players whose business outlook has been dimmed by worsening policy, commercial and operating crises in the industry thus demand urgent regulatory intervention to salvage the fate of investments in the programme.
The Oracle Today reports that the viability profile of the full power sector value chain has plunged, threatening big ticket investments in the upstream section of the industry with piling debts and capacity sub-optimization.
Under the gas-to-power programme, the petroleum industry players are compelled under domestic supply obligation (DSO) to supply gas to the generating companies whose output is wheeled via grid facilities of the Transmission Company of Nigeria (TCN) to distribution companies that play in the downstream end of the business.
Supply invoices from the generation companies are processed by the Nigerian Bulk Electricity Trading Company (NBET) which brokers transactions between producers and marketers under pricing templates regulated by the Nigerian Electricity Regulatory Commission (NERC).
However, investments in the commercial arrangements are now trapped in huge debt overhang that defied policy and regulatory interventions, inflicting commercial losses and debts that currently weigh down firms in the sector.
According to records industry players hold with the NBET, the upstream industry suffers unpaid invoices amounting to nearly a trillion Naira. Out of the amount, 60 percent of the debt in the upstream power sector is owed to gas producers.
Also, capacity optimization in the generation segment of the industry has been also crippling. With installed capacity of over 12000 megawatts and available capacity of over 7000 megawatts, transmission capacity has not grown beyond 5500 megawatts while actual distributable electricity volume merely breaches 4000 megawatts.
Actual consumption, according to the body of electricity generation companies, creates about 8000 megawatts of generation redundancy. And plant redundancy has since been the main cause of friction between generation companies and system control operators that protect the grid from collapse.
The overall high redundancy, according to producers, creates default commercial losses. This is compounded by the traditional technical, commercial and collection losses that plague the operations of the power marketing companies that operate distribution systems.
The commercial impasse in the gas-to-power industry has posed a huge challenge to investments in the parallel domestic gas commercialization programme in which mainly indigenous oil and gas producing companies sunk huge investments. And growth in the full gas-to-power chain has also stalled due to weakening capacity of the upstream power sector to deepen the market for investors in domestic supply.
Prominent industry investor and thought leader, Mr Austin Avuru, said that whereas the investors are not averse to DSOs, their contribution in driving growth in the power sector must be appreciated first as a profitable business.
Mr Avuru is the founding Managing Director of Platform Petroleum Limited, and later the cofounder and Managing Director of London listed Seplat Petroleum Development Company Plc. Both companies are eminent players in the domestic gas industry with substantial investments in development of supply infrastructure.
“We are proud to be suppliers to the domestic gas market but we are doing that as a business and we make money out of it,” stated.
He blamed the piling debt in the power sector on flawed commercial arrangement, warning that the situation would remain unresolved until the government mustered the political will to make the system financially independent.
“The only reason why the power sector has stagnated is that we do not have the political will to enable the power sector to be financially independent. As long as the distribution companies do not collect enough revenue to finance the entire chain, we would not have enough money to pay those who are generating electricity, and therefore those generating electricity do not have enough money to pay for gas, then you won’t see any progress in that sector.
In order to overcome stagnation in the industry, optimize capacity and propel growth; Mr Avuru called for strong regulation that would strengthen the commercial structure and enable businesses to survive in the power sector.
“Once the regulatory framework has the courage to put up a structure that enables businesses to survive in the power sector, then there will be growth. But it is stagnated! That is where we are today. Unless those bottlenecks are taken away so that we can accelerate as we did from 1500 megawatts to about 4000 megawatts of sustainable generation and distribution in about 5 years, we can go from current 4000 megawatts to 10000 megawatts in another five years if regulation does the right thing. And when that happens, the same thing will happen to gas production.”
On the fate of investments in domestic gas supply to the power sector, Mr Avuru stated that viability of operations would sustain on the market growth which, according to him, has stagnated since 2015 when the present administration of federal government came to power.
Mr Avuru said that “domestic consumption has stagnated for five years because the power sector has stagnated for five years.”
According to him, “The power sector has not taken one step forward since 2015. We are still at 4000 megawatts where we were before Fashola took over as power minister. Nothing has happened since then.
“If it had gone from 4000 megawatts to 10000 megawatts by now, domestic gas consumption would have jumped from the current 1.0 billion cubic feet per day to about 1.8 Bcf/d. So, if we do the right thing, no matter what happened over the next 10 years even if we supply 3.0 Bcf/d into the domestic market, the power sector will take about 70 percent of it. So, expansion of the power sector will also expand the domestic gas market.”
“Today there is not a single company signing up to build a new power plant. There is not one! That is how the power sector has stagnated. There was a rush of investment capital to build power plants, hoping that the fiscal syetm would be right for them to make money. Today, if not for the partial risk guarantee that Azura secured before building that power plant, they would have been out of business,” he pointed out.
Even though Seplat has been posting strong returns from its gas business, Mr Avuru still laments that the company has been slowed down by weak domestic demand. He is however happy at the company’s frontline position in the domestic marketplace.
“So, for us in Seplat, we have run it as a business and we have succeeded so far; but our projection has been stunted because our projection is that by now, the country would be consuming about 2 Bcf/d of gas. We are still at 1 Bcf/d out of which Seplat supplies between 300 and 350 MMscf/d. Fortunately, while we were investing nobody else was investing. So,whatever you do, you have to rely on our 300 to 350 MMscf/d of steady supply than you can get from anywhere else because we have facilitates that are functional and so our take off contracts are all working.
“It is not just Seplat. Platform that I left behind is the only company producing LPG into the domestic market other than the supplies from NLNG. People don’t know that; and I have been waiting for the past seven months for one section of the OB3 to be commissioned. Then Platform would become the first indigenous company to completely flare out because they will be supplying 30 MMscf/d into the OB3 pipeline as well as producing LPG.
“So, it is not just a producer. Even as a small marginal field company, Platform is fully integrated; selling gas, LPG condensate and crude oil from their business.”
