On gas debts

The Federal Government has paid over $120 million to offset part of the debts owed to gas companies for electricity generation, Ed Ubong…

The Federal Government has paid over $120 million to offset part of the debts owed to gas companies for electricity generation, Ed Ubong, the director of the Decade of Gas Secretariat, said at the ongoing 7th edition of the Nigeria International Energy Summit in Abuja. He said the arrears gas producers were owed as of last year was about $ 1.3 billion, but the government has paid over $120 million between October 2023 and the end of January. The minister noted that the total debt owed to power-generating companies was ₦1.3 trillion, of which 60 percent is owed to gas suppliers.

If Nigeria were a video game, the power sector conundrum would resemble that challenging level where you earn sufficient points to progress yet struggle to grasp how to achieve all the points required for complete success. It is an unchallenged fact that electricity use and access are strongly linked with economic development, thus, Nigeria’s failure to deal with the issues around inadequate power supply is a major factor in its economic underperformance. Nigeria’s current power master plan, designed about two decades ago, has three interrelated segments — generation, transmission and distribution — each facing significant challenges. From generation to transmission and distribution, there are so many knots within the power sector that untying one does not make the journey ahead easier. Generation companies have to buy gas in dollars, and the transmission and distribution facilities are not efficient enough to distribute the power generated, recover all the funds for the power distributed, or raise tariffs to reflect the cost of generating electricity. A major problem in the value chain is the absence of cost-reflective tariffs due to the policy of subsidies. The key issue is the lack of deployment of prepaid metering by the DisCos, which makes it hard to engender trust in charging cost-reflective tariffs. This translates to the government’s attempts to provide unsustainable subsidies to the players along the value chain, including distribution companies, which means they cannot pay the transmission and generation companies their full bills, nor can they properly service their debts. In turn, the generation companies owe the gas companies huge debts, part of which the FG is trying to pay down. Government facilities — about 86 — across the country (including Aso Rock and CBN) owe an estimated ₦47.1 billion in electricity debt. Additionally, there is the national grid that keeps collapsing every market day. Considering Nigeria’s dire financial straits, especially in obtaining FX, it is no wonder that gas companies are owed this much while Nigeria struggles to meet its obligations. Again, this shows how the country is obsessed with trying to control the price of a commodity it does not fully control. As with petrol, the cost of air tickets and the exchange rate, the subsidies become unsustainable. These subsidies create distortions in the market, leading to inefficiencies that hinder key sectors from attracting investment and realising their full potential. Fresh investments are essential to address the challenges in the power sector. However, it can be difficult to persuade investors to commit when uncertain about their ability to recover their investments. Fortunately, companies like Gegeru and Transcorp Power have shown some interest in the power sector, but there is much work to do. To move forward, the government needs to settle all debts across the value chain and remove electricity subsidies, allowing investments to flow into the industry and lead to growth.