Business
NERC presses DisCos to buy power directly from Gencos
NERC presses DisCos to buy power directly from Gencos
The Nigerian Electricity Regulatory Commission’s (NERC) recent directive for Distribution Companies (DisCos) to transition away from the single-buyer model contract with energy generation companies (GenCos) has sparked significant controversies in the power sector.
This shift has raised questions about the contract breach and the potential disruptions it may cause within the sector, with implications that could ultimately affect end-user customers.
The order which was introduced in July by the regulatory body is part of the unbundling of the electricity value chain, the Nigeria Electricity Supply Industry, also known as NESI.
Under the new directive, DisCos are now required to establish direct contracts with power Generation Companies GenCos, bypassing the government-owned Nigerian Bulk Electricity Trading Company (NBET).
Although this initiative appears to be a straightforward solution to streamline contract agreements within the power value chain, officials from the DisCos who spoke to Nairametrics believe the issue is far more complex.
Contract Obligations with the FG to be taken up by DisCos
With the elimination of the Nigerian Bulk Electricity Trading (NBET), the Distribution Companies (DisCos) are now expected to take on the responsibility of fulfilling certain contracts originally initiated by the federal government with generating companies.
A source who spoke to Nairametrics revealed that the DisCos will now bear the burden of certain contracts that gas companies had entered into with the federal government. These contracts must be fulfilled by the DisCos, even if there are other available options, the source said.
The source said, for instance, the federal government’s obligatory contract with the Azura power plant will have to be continued by DisCos, which is relatively more expensive than other gas and hydro companies.
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“Azura has a more specific guarantee with the federal government. With its 437 MW capacity, DisCos will have to fulfil the contract with the company, even before turning to other alternatives,” the source told Nairametrics.
Minimum Power Outage Requirements
In the new bilateral power arrangement, Discos will also prioritize purchasing power from GenCos based on a structured approach that begins with their minimum power uptake requirements.
For instance, power generated by hydroelectric plants, which typically offer the most cost-effective electricity, will be the first choice for DisCos.
However, to prevent any single DisCo from monopolizing this affordable resource, each Disco will only be permitted to purchase a proportionate share of the hydroelectric power, corresponding to their grid allocation.
“For example, if a DisCo is responsible for 10% of the total power consumption from the grid, it will only be allowed to purchase 10% of the available hydroelectric capacity, which stands at around 1,500MW,” a top official from a DisCO informed Nairametrics.
This rigid structure might distort the market by limiting Discos’ ability to negotiate better deals or pursue more competitive power sources.
This could reduce operational flexibility and create financial risks for Gencos that are less utilized, such as those with higher costs.
“If you pay close attention to what the federal government, that is, NERC is saying, you’d realize that they’re saying they don’t want to pay for any form of electricity subsidy anymore with this new arrangement,” an official from Ikeja Electricity, speaking on condition of anonymity, told Nairametrics.
Infrastructural Challenges
In addition, the new arrangement could also result in infrastructure challenges, as the existing transmission and distribution systems may struggle to handle the varying power sources efficiently, leading to inefficiencies or power losses.
“This is the most important one if you ask me,” said a source.
“The issue isn’t just about power generation, but whether the grid has the capacity to handle an increased power output. Without significant investment in expanding substations nationwide, the entire system risks collapsing if the Distribution Companies (DisCos) receive more power than the grid can support,” the source said.
Phasing Out of Electricity Subsidy
The gradual elimination of NBET, a government-owned trading company, means the DisCos move to a “take-or-pay” contract, directly dealing with the gas companies.
By “take-or-pay” contract, NERC means the payment for gas will now be cost-reflective with little or no government assistance in balancing the receipt of either party.
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“This is why it is a bilateral agreement. It’s between the two parties only.
“It is near matured because the market is still being supported by FG subsidy and other PSRP funding support which the market will be waned off from time to time,” Babajide Akintoye, an official in Eko DisCo told Nairametrics.
For Akintoye, such a free-market, cost-reflective contract would mean the federal government doesn’t have to step in to cover the loss of DisCos, which currently struggles with operational losses as well as inadequate revenues.
“Ordinarily, this arrangement wouldn’t have been a concern for the Discos in view of the subsidy portion of Disco revenues that the FG intends to provide to partially support monthly invoices issued to Discos from GENCOS with activated PPAs.
“But with the government finding ways to reduce its current electricity subsidies, this new agreement means whether DisCos current escrowed revenues will be sufficient to pay the invoices issued under proposed bilateral arrangements,” he added.
Electricity Subsidy no Longer Sustainable
Indeed, the government still has a huge influence in the power sector paying a huge bailout of subsidy to DisCos to help cover operational loss and poor billing of customers.
According to recent data from the new tariff plan for the eleven DisCos across the country, the federal government is projected to provide N1.7 trillion in electricity subsidies to the DisCos in 2024.
However, the Minister of Power, Adebayo Adelabu, has consistently stressed that this level of government subsidy is unsustainable.
He has advocated for the sector to transition from a subsidy-driven model to a more cost-reflective approach.
“What most people fail to realize is that while DisCos are responsible for the collection of electricity tariff, a huge bulk of it still goes to the GenCos and TCN. Only about 20% of all tariff collected is given to DisCos to run its operations.
“Another misconception is that we set tariffs, which we don’t. People easily blame us for an increase in their tariff because we’re the ones they see. But it’s the federal government that sets the tariff,” a top official in Abuja DisCo said.
“With this new order, DisCos will have to depend on its own meagre revenue and loans from banks to fund its own contract with the gas companies,” Olumide Jerome, another official from Abuja DisCo said.
More Customers to pay more for Electricity
The federal government has already excluded about 15% of electricity end-user customers from any form of subsidy.
These end-users, dubbed Band A customers, now pay a cost-reflective tariff on their electricity, paying N206.80/kWh from the N66/kWh, a more than 250% increase in tariff.
According to NERC, the federal government would have budgeted about N3.2 trillion to subsidise electricity in 2024 without a tariff hike.
But this is not the end of the increase in tariffs for customers. The goal is to extend the tariff to more and more customers who the federal government believes need to pay their fair share of electricity usage.
“I think both NERC and federal government are putting the cart before the horse. You see, most of the people under Band A and even most of the customers do not have a meter.
“How then do the government determine what they consume? They use an estimated billing model which is not always reflective.
“What I think the government should do is to meet the metering gap first then unbundle NBET. You can’t ask DisCos to get power from say Zungeru power plant without any assistance from the government and not expect them to increase tariffs or their revenue collections.
“It simply means you want people to pay more. I’m not just talking about Band A customers, but everyone will eventually start paying more if the DisCos have to balance their books,” energy expert, Oni said.
NERC presses DisCos to buy power directly from Gencos
nairametrics
Auto
FG deploys Lanre Shittu CNG buses as airport shuttle
FG deploys Lanre Shittu CNG buses as airport shuttle
The Federal Government has commenced the deployment of Lanre Shittu Motors (LSM)-branded Compressed Natural Gas (CNG) buses in the nation’s airports for passengers shuttle.
The first batch of the CNG-powered buses has been launched at the Murtala Muhammed Airport, Lagos, at a ceremony attended by the Minister of Aviation and Aerospace Management, Festus Keyamo, and Managing Director, Federal Airports Authority of Nigeria (FAAN), Mrs Olubunmi Oluwaseun Kuku.
Speaking during the unveiling at the Lagos airport, the minister said the deployment was in line with the directive of President Bola Tinubu.
He said it was part of Nigeria’s commitment to reducing carbon emissions and meeting global climate targets.
‘’What you see here today is a fleet of CNG buses for FAAN to commence passenger movement at all our airports immediately,” the minister said.
He said the newly acquired CNG-powered LSM buses unveiled at the Lagos airport are eco-friendly with zero emission and designed with accessibility features for persons with disabilities.
The deployment, he added, was in compliance with the President’s goal of reducing reliance on traditional fossil fuels of petrol and diesel and promoting sustainable use of CNG to power vehicles in the country.
The introduction of the CNG to power automobiles is one of the Federal Government’s initiatives to ease the impact of fuel subsidy removal on the masses.
The CNG buses, according to the Managing Director of Lanre Shittu Motors, Taiwo Shittu, come in two specifications: a 31-seater for airport shuttle services and a 54-seater for mass transit city buses.
He said they had been equipped with modern amenities, including air conditioning, viewing screens, and charging stations.
With the introduction of the CNG buses, he said LSM aimed to provide a more sustainable and efficient transportation solution not only to Lagos but other parts of the country.
Auto
LSM MD extols founder’s qualities after latter posthumous industry award
LSM MD extols founder’s qualities after latter posthumous industry award
*He left us a good name, says son
Founder and late Chairman of Lanre Shittu Motors (LSM), Alhaji Olanrewaju Shittu, has been honoured with a Nigerian auto industry posthumous award.
This was announced in Lagos at the 2024 edition of the annual
Nigeria Auto Journalists Association (NAJA) announced this in Lagos at the 2024 recently industry awards.
The prestigious award was received by one of his sons, Mr Taiwo Shittu, who is also the managing director of the auto company.
NAJA said the award was in acknowledgement of the leading role of the LSM founder in the development of the automotive business in Nigeria, describing him as a silent achiever.
Speaking on the honour, Taiwo Shittu, who was also declared the Nigeria’s Auto Personality of the Year, praised his father for painstakingly building the LSM brand and leaving behind a good name to the delight of the children and the entire family members.
He described this as a legacy accounting for the success of the company so far since his father’s demise over a year ago.
He said, “I must thank my late father, Alhaji Razaq Olanrewaju Shittu, for building the brand name. There is nothing like a good name.
“If you don’t leave anything for your children other than a good name, the sky is the limit for them.
“In our own case, he left us money and the good name. We can’t thank him enough for leaving us with a good name.
“You can imagine that everywhere we turn to in the country, once we mention we are Lanre Shittu’s sons, we are ushered in immediately.
“People would say ‘Your father was a good man. He won’t cheat you if you did any business with him. His word was his bond; he never broke his promises’. I have heard this many times. And the only thing we can do is to build on this legacy.”
Taiwo Shittu also noted that the unity existing among the 20 surviving children of the late LSM founder was part of his father’s legacies and something for other family businesses in Nigeria to emulate.
He said, “A lot of businesses collapse after the death of their owners. Once a business founder is dead, the next you hear is that a fight has broken out and while one person is taking the arm, another is claiming the leg, the other is going for the body. And in six months, the whole empire is gone down.
“In our case, we have 20 siblings that are cooperative and believe in my ability to lead the business with my other brothers.
“We had a father who never spoiled us. He taught us sincerity, commitment and accountability.”
He also spoke about the lifestyle of the late father, saying even though he was a car dealer and loved cars, he would only change his main car after every 10 years.
“Yes, he loved cars. He used to have a Rolls Royce. But he no longer had it before he died. What he had was a Mercedes-Benz Maybach. His car garage was not packed full. Even though he was a car dealer, he changed his main car every 10 years.
“He was a very prudent man. At the beginning of his adult life, he had many cars; in the middle, he was prudent. It was at the end that he bought some flashy cars such as Lexus L600, MayBach 650 engine – at that time only he and ex-President Muhammadu Buhari had that car. He bought the car then because the family was preparing for three weddings. By time he died, the MayBach had only run 600 miles.”
The LSM chairman, according to him, started the auto business in the late 1970s as a car dealer with three vehicles.
He said he was so creditworthy that many were willing to release their vehicles to him on credit, adding that this helped the business to grow faster.
He recalled how he would travel to Ogbomosho, Oyo State, and Kaduna to buy cars and returned to Lagos with double the number he could readily paid for.
“Sometimes, he would travel as far as Kaduna to buy 12 cars from PAN, he would be the person driving the last vehicle while others were ahead driving all the way to Lagos,” he stated.
Before delving into automobile assembling, he also recalled that Daewoo and Rolls Royce were the two brands that gave the LSM a real breakthrough.
Business
Nigeria remains oil/gas investment destination with $5bn shell FID – TDF
Nigeria remains oil/gas investment destination with $5bn shell FID – TDF
The Democratic Front (TDF) has announced that Shell’s $5 billion Final Investment Decision (FID) for the Bonga North Deep Offshore field further highlights the investment-friendly approach of the Tinubu administration.
This was disclosed in a statement signed by the Chairman, Mallam Danjuma Muhammad, and Secretary, Chief Wale Adedayo.
The group explained that the investment demonstrates how International Oil Companies (IOCs) still see Nigeria as an attractive destination for investments.
“We join President Bola Tinubu in celebrating the Final Investment Decision (FID) by Shell on Bonga North Offshore Field.”
“It is a thing of pride for us that the investment is the outcome of reforms introduced by the President through the Presidential Directives numbers 40, 41, and 42 to fast-track regulatory approvals, reduce operational costs, and promote competitive fiscal incentives in the oil and gas sector.”
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“We have a conviction that the pertinence of the fresh investment in the sector and indeed the larger Nigeria economy is not only limited to the $5 billion value of the investment but also extends to the field’s potential volume of 350 million barrels of crude oil. It is a development that is bound to further raise the nation’s oil output and revenue as well as bolster its position as Africa’s largest oil producer.”
The group noted that this and other strategic investments, such as TotalEnergies’ $500 million in the Ubeta gas field, are driven by President Tinubu’s fiscal incentives, showcasing the success of his reforms in attracting foreign direct investment to Nigeria’s oil and gas sector.
“The Ubeta upstream field is estimated to produce 350 million standard cubic feet of gas per day when operational and will go a long way to raise the country’s profile as a major gas producer. This remarkable economic feat was unarguably achieved under the economic reform of President Bola Tinubu.”
“It is instructive that since its discovery in 1996, the Bonga deepwater field, located in OML 118, at a water depth exceeding 1000 meters, has not witnessed such a humongous investment as the $5 billion coming from Shell and this is an attestation of President Tinubu’s pro-business approach to governance.”
“Furthermore, this extraordinary display of confidence in Nigeria’s investment ecosystem is a confirmation of the success of the current reforms in eliminating investment encumbrances and the risks of doing business in Nigeria.”
TDF is confident that more IOCs will key into the fiscal incentives introduced by the Tinubu administration to make fresh investments in Nigeria’s oil and gas sector.
Nigeria remains oil/gas investment destination with $5bn shell FID – TDF
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