The Minister of Finance, Budget and Planning, Mrs Zainab Ahmed has lamented the N1.3 trillion electricity intervention fund provided by the Nigerian government did not make significant impact.
Five years ago, the Federal Government approved N701 billion as a power assurance guarantee fund for the Nigerian Bulk Electricity Trader (NBET) to pay for two years the electricity produced by the generation companies (GenCos) to the national grid.
The fund was provided to tackle the monthly liquidity challenges faced by the GenCos, as the distribution companies (DisCos) repeatedly defaulted in the payment of the monthly invoice of electricity received.
According to TheCable, a 19th November 2021 letter to President Muhammadu Buhari, provided details of how funds could be raised through the sale of make-up gas to address the financial challenges in the sector.
‘The industry requires N85 billion per month to pay for gas, generation, transmission and distribution operations’, the Minister wrote.
‘Recent intervention (between 2017-2019) towards addressing the power sector problem includes the N701 billion and N600 billion payment assurance facilities secure from Central Bank of Nigeria to take care of some of the FG contingent liabilities within the sector and which have not yielded significant result.
‘Shortfalls caused by the large difference between allowed tariffs and what is required for cost recovery cost the FGN a total sum of N1.249 billion between 2017 to 2019. These resources are more needed for human capital development and infrastructural investment. The above includes some projects like the World Bank loan (up to $3 billion) for tariff shortfall and the Euro 2.6 billion for the Presidential Power Initiative is considered to support Nigerian Electricity Supply Industries (NESI)’.
The Minister also explained how Nigeria paid $137 million in two years for gas and electricity that were never used in the “take or pay deal” that Nigeria entered into with some investors in the power sector.
The amount was to cover payments for 2018 and 2019 under the gas supply agreement deals reached with the firms. According to the terms of the agreement, with or without gas supply, Nigeria must pay for the product.
Owing to the multifaceted constraints in the power sector, the take-or-pay clause in the sovereign guarantee has continued to hurt the power sector financially as the Transmission Company of Nigeria (TCN) does not have enough capacity to wheel the energy produced.
Nigeria currently has the capacity to generate about 12,000MW but the national grid — which transmits power from plants (GenCos) to distribution companies (DisCos) — cannot take more than roughly 5,000MW.
To avoid a system collapse, some GenCos are asked to reduce their production.
