Delayed gas sales agreements threaten power supply

Nigerians may continue to bear the burden of constant power outages if the problems hindering adequate supply of gas to power plants are not solved, DAYO OKETOLA writes

Apart from pipeline vandalism, which is always cited as the reason for inadequate gas supply to power plants in the country, investigations have shown that the delay in the implementation of two separate Gas Sales and Aggregation Agreements signed between gas suppliers and the electricity generation companies is also contributing to the problem.

According to experts, the absence of long-term gas supply arrangements has been one of the main causes of power shortages in the country.

Hence, Chevron Nigeria Limited and Shell Petroleum Development Company signed two separate GSAAs with the Gas Aggregation Company Nigeria Limited, Power Holding Company of Nigeria and Egbin Power Plc.

The GSAA, which was negotiated and executed among the gas buyers, sellers and the Gas Aggregation Company Nigeria Limited, is aimed at ensuring adequate gas supply to the power plants in order to boost electricity supply to Nigerians.

Under the GSAA, Chevron and Shell will supply gas to Egbin and PHCN power plants now under a private ownership arrangement, thereby giving an assurance of gas availability and reliability for power generation.

To jumpstart the arrangement, the World Bank extended its first Partial Risk Guarantee worth $145m over 10 years to Chevron’s GSAA with the Egbin power plant in April 2013. In all, the bank has earmarked $400m for PRGs on gas.

The World Bank Country Director for Nigeria, Marie Francoise Marie-Nelly, said the PRG, provided under the IDA-financed Nigeria Electricity and Gas Improvement Project, was key to enabling long-term gas supply arrangements.

But a senior official of one of the gas suppliers, who asked not to be named because he was not authorised to speak on the issue, said the GSAA was being threatened by the Federal Government.

According to him, there are certain conditions that must be fulfilled by the government for the agreement to be effective. The conditions, he said, remained unmet and without them, long-term gas supply to the power plants would remain a mirage in the country.

He said, “There are two agreements. Chevron signed an agreement with GACN, PHCN and Egbin. The other agreement is between Shell, GACN, Egbin and the PHCN. The two agreements are identical because they are based on the GSAA template developed by GACN. Under these agreements, Shell and Chevron are obliged to supply a particular amount of gas to Egbin and the PHCN. But for the agreement to be effective, certain conditions have to be fulfilled by the Federal Government.”

Under the GSAA, the gas suppliers will be penalised if they default in their supply obligation to the power plants and the power investors will also be penalised if they fail to pay for the gas supplied.

Experts have described the arrangements as pure commercial pacts that would enable the power plants to procure gas under long-term arrangements.

The Managing Director, Egbin Power Plc, Mr. Mike Uzoigwe, who corroborated this during a recent tour of the 1,320 Megawatts power plant, said, “By the end of March, if you have to supply me gas and you fail, there will be a penalty. If you supply me gas and I don’t pay you, there will be a penalty. These are embedded in all the agreements we signed prior to the privatisation such as the Gas Supply and Aggregation Agreement and the Power Purchase Agreement. These agreements are going to be effective.”

But the source insisted that without the conditions that must be met by the Federal Government, the GSAA would not be effective; adding that this would frustrate the country’s gas-to-power aspirations.

On the conditions, the source explained that some of the Oil Mining Leases the International Oil Companies are producing from had expired over five years ago and the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, had not refused to renew them.

He stated that over 10 OMLs belonging to Shell and Chevron had expired  for  over five years now without being renewed by the government. This, he argued, remained a critical condition precedent for the GSAA to be effective and for adequate gas supply to power plants in the country to be guaranteed.

The PUNCH had on May 12, 2013 reported that SPDC was producing from five shallow water offshore oil blocks since the leases expired on November 30, 2008.

Royal Dutch Shell, in its 2012 annual report, confirmed that it had been negotiating with the Federal Government since then over the expired leases but no resolution had been reached.

The Federal Government has also put for sale 10 power plants built under the National Integrated Power Project by the Niger Delta Power Holding Company.

The plants are located in Omotoso, 450MW; Sapele, 450MW; Geregu, 434MW; Olorunsogo, 750MW; Ihovbor, 450MW; Gbarain, 225MW; Alaoji, 450MW; Calabar, 561MW; Egbema, 338MW; and Omoku, 225MW.

Although the power plants are expected to be fully privatised by the end of the second quarter of this year, analysts say for over 60 per cent or more of their overall installed capacity of 5,280MW, gas was not assured.

Already, about 1,761MW of the NIPP plants’capacities are said to be unutilised due to gas shortage.

 “There is an unutilised generation capacity of 1,761MW, which is off grid due to gas and transmission constraints from the NIPP power plants,” the Director-General, Bureau of Public Enterprises, Mr. Benjamin Dikki, said.

In spite of the country’s 180 trillion (standard) cubic feet of gas reserves, 80 per cent of the power plants, which are gas-fired, are deprived of regular gas supply and this has largely been responsible for the current drop in electricity supply, according to experts.

The Managing Director, Korea Electric Power Nigeria Limited, the technical partner and managers of the Egbin Power Station, Mr. Gyoo Chull Yeom, who recently underscored the dire gas supply situation to the power plants, said, “Gas is not coming, and without this, the power plants cannot operate optimally. Gas supply is very important to the Nigerian power sector because almost 80 per cent of the power plants in the country are gas-fired.

“Inadequate gas supply is a big problem for Nigeria. Even with the private sector investment, if there is no enough gas supply, there will still be problems.”

According to him, Egbin currently generates about 600MW of electricity per day out of an available capacity of 1,080MW, leaving 480MW unutilised.

With a total installed capacity of 10,396MW, the country can only boast 6,056MW available, with actual supply fluctuating between 2,000MW and 4,200MW over the last two years due to inadequate gas supply to the power plants.

Copyright PUNCH.