Electricity generation in Nigeria has suffered many challenges, from poor infrastructure to gas constraint to water management. Recent issues surrounding gas supply resulted in the inoperability of eight (8) power plants and the drastic reduction in the amount of electricity generated (to below 3,000MW).
Gas transport and supply issues have always affected power generation in the country. Recent policies in the gas supply industry, such as the gas network code that was launched in August last year, rather than help the situation, may worsen it, denying GenCos access to gas supply. Ideally, before this code was implemented, the transportation of gas by the gas transportation agreements made provisions for the delivery of gas at delivery points via dedicated gas transportation and distribution infrastructure.
However, with the recent Nigeria gas transportation code, several conditions have hindered the smooth operations of the gas supply for GenCos. The first is the requirement of a GenCo to obtain a license as an ‘offtake shipper’ from the Department of Petroleum Resources (DPR) to enable them to receive transported gas. This is in addition to increased license fees and transportation charges they are also expected to pay. Many GenCos have stated that they cannot fulfil the requirement of the code.
Why GenCos cannot meet this requirement
It is pertinent to understand the challenges GenCos undergo in meeting the conditions in the gas network code.
- Market Liquidity Crises: There is a liquidity challenge in the sector as DisCos are often unable to remit the full payment for the electricity supply.
- Delayed payment: The market shortfall, which is often being paid by the government, is often not paid when due, meaning the GenCos cannot meet their financial obligation when due.
How can this challenge be addressed?
The Nigerian government and policymakers tend to have a system of shoot first; think later. Often times, new policies are implemented that do not take into account the effect on other policies being implemented. One of such has been the increase in import duties for meters that delayed the implementation of the MAP last year.
The President has declared that this is the decade of gas in Nigeria and has promised to increase domestic gas consumption. However, the government the implementation of the Nigeria gas transportation code will severely hamper GenCos’ ability to access gas for power generation.
There have been recent meetings between the GenCos and the DPR to try to resolve the challenges posed by the code. This meeting is quite often common as, more often than not, the coordination that is needed before the implementation of policies is sought after the fact.
It will be a shame if Nigeria’s self-professed ‘Decade of Gas’ is stifled by policies such as these.