TCN accuses Manitoba of management contract failure
Nationwide blackout likely over disagreement between power firms, gas producers
Simon Ugwu
Manitoba Hydro International, the Canadian firm that was awarded the management contract for the Transmission Company of Nigeria (TCN) for four years, has been accused of failure of meeting the target given to it by the Federal Government, as it could not reinvigorate or pull out the TCN from its inefficiencies.
According to the Interim Managing Director, TCN, Usman Mohammed, instead of repositioning the firm, the MHI left the transmission company worse than it met it.
Mohammed made this accusation in a presentation he made at one of the technical sessions on the National Council on Power.
The TCN is the arm of the power value chain that transmits the quantum of electricity generated by power generation companies to distribution firms across the country. The TCN boss also stated that an investment appraisal study done by the company on the 11 distribution firms’ networks showed that the electricity distributors would need $4,262,816,005bn worth of investment on feeders and injection substations to bring their capacity up to parity with that of the TCN.
The Discos, he explained, would need $3,747,262,289bn for feeders and $515,553,717m for injection stations. Mohammed noted that within the four years of Manitoba’s management of the transmission company, the firm witnessed a sharp rise in its top level workforce, in addition to a procurement process that was far from meeting standard practices. Following the privatisation of the successor generation and distribution companies of the defunct Power Holding Company of Nigeria, the FG contracted Manitoba to manage the TCN for an initial period of three years.
The contract, which was first signed between the government and MHI in 2012 for a base period of three years, expired in 2015; and was subsequently renewed for another term of one year, before it eventually expired in 2016. It was not renewed thereafter.
But Mohammed, who was recruited from the African Development Bank (AfDB) by the federal government to manage the TCN, told participants at the council meeting that since taking over, he had discovered that the situation of the company became worse under Manitoba.
Meanwhile, a wide gulf has appeared between the Nigerian power firms and gas producers over issues bordering on dollar-dominated pricing. Consequently, the denomination of the price of gas sold to the electricity generation companies in the United States dollars is sending ripples across the entire value chain of the Nigerian electricity supply industry.
The Gencos have raised concern about the issue, with the distribution companies also worried that it has contributed to a major mismatch between the invoices they receive and the revenue they collect from consumers. But gas producers said their contracts should be denominated in dollars because their plants were executed in the same currency.
The Discos include Ikeja Electricity Distribution Company; Port Harcourt Electricity Distribution Company and Benin Electricity Distribution Company, among others.
The President, Nigerian Gas Association, Mr. Dada Thomas, said the nation could be plunged into darkness if the forex risk remained unresolved amid a debt of over $500m owed gas producers by the power sector.
He stated, “The gas contracts are denominated in US dollars, but are paid in naira at the CBN rate. What it means is that gas suppliers are being made to bear the foreign exchange exposure for the entire power sector. “We are the ones being punished by the entire electricity value chain for taking a risk in putting down gas plants to feed the Gencos.”
“We lose N60 for every dollar sale we made. That means the business will go bankrupt; it is just a matter of time. We are drowning,” Thomas said. He further said,“If that happens, Nigeria will be plunged into darkness because we will all stop supplying gas.
It means that no new gas project can be undertaken because the investors know that they cannot get their dollars back.” The Nigerian Electricity Regulatory Commission (NERC) in 2014 approved a new gas-to-power pricing benchmark of $2.50 per thousand cubic feet from $1.5 per mcf, and $0.80/mcf as transportation costs for new capacity.
The Executive Secretary, Association of Power Generation Companies, Dr. Joy Ogaji, said the Gencos would like the price of gas being sold to them to be denominated in naira.
“Why should we pay for gas in dollars? Don’t you see the challenges of foreign exchange? You have to go to the black market to be able to change naira to dollars before you can buy gas.
“We pay the naira equivalent and some of the companies expect that we pay in dollars,” she said.
The government-owned Nigerian Bulk Electricity Trading Plc buys electricity in bulk from the generating companies and sell to the Discos, which then supplied it to the consumers.
“Clearly, it (dollar-denominated gas pricing) has an impact on the retail end of the value chain,” the Chief Executive Officer, Association of Nigerian Electricity Distributors, an umbrella body for the Discos, Mr. Azu Obiaya, said.
“You have gas prices in dollars but you have your electricity tariff in naira, which is not reflecting the devaluation of the naira. There is a major mismatch, which is contributing significantly to the inflated invoices that the Discos are receiving,” Obayi stated.
“We have always agreed with the Gencos’ position that the government needs to give consideration to pricing gas in naira, because it will do two fundamental things.” According to the ANED CEO, it will make the market more aligned and minimise the impact of price increase on the consumers at the retail end.
The regulator, NERC, said in February this year that it had proposed to the government the option of pricing gas in the local currency in order to mitigate the foreign exchange risk, which it described as the major cause for the gap in tariff. “But we haven’t heard anything specifically in terms of government’s position on this proposal,” Obiaya said.
