The federal government Tuesday took steps to fulfill its pledge of supports to new buyers of electricity generation companies (Genco)created from the unbundling of defunct state power utility company, the Power Holding Company of Nigeria (PHCN) with its decision to escrow about N50 billion in form of insurance for capacity growth in the generation assets.
This follows its earlier promise to provide such incentives to the new owners of the generation companies which had accordingly made payments for their assets on such basis through the Bureau of Public Enterprises (BPE) and Nigerian Bulk Electricity Trading Company (NBET) Plc, as the government thus signed an escrow agreement on power with three Nigerian banks in Abuja.
The N50 billion lifeline funds are to be drawn from proceeds from the sale of PHCN successor companies.
The three participating banks are United Bank for Africa (UBA), First Bank Plc and First City Monument Bank (FCMB) Plc which is the lead escrow agent that will take custody of the N50 billion lifeline funds which will be practically administered by the NBET.
The fund as learnt by THISDAY would serve as a buffer for improved power generation by the new investors, especially in the absence of the World Bank provided Partial Risk Guarantee (PRG) which seems to have so much procedure in accessing.
The Director-General of BPE, Benjamin Dikki, who spoke after the documents signing ceremony with participating parties however stated that such form of financial guarantee from the federal government should not be taken as just an endowment considering already established processes required for any generation company to benefit from it.
“This N50 billion is not a gift, because there are certain conditions that must be met before funds can be drawn from this escrow account. The market and systems operator have to confirm the quantum of power that was put in the national grid.
The market operator has to confirm that because of system defects and inefficiencies in the transmission network, certain amount of power was lost, so there has to be due process before any Genco can draw from this amount. It is not a gift because certain conditions have to be met.
“It is actually the generation companies that are left on the high end, and we need to guarantee that whatever power they generate will be paid for if not, they will lose their capital and not able to invest on expansion of their capacities,” Dikki said.
The director-general of BPE further stated that: “We have a deficit of about 29,000 megawatts of basic power needed to stabilise our power needs of 40,000MW and the average cost of installing a megawatt is about $1.3 million and that will mean an investment of $7.5 billion for 5000MW, and so we need to make sure that we create the atmosphere that will enable these generation companies to make investments in power generations without thinking about whether they will be able to recoup money invested, and that was why this escrow account was created.”
He further clarified that the whole essence was to induce efficiency in the market, adding that: “If somebody is penalised for losing power in the system, that person will sit up and ensure that it does not lose power and money.
“Whatever that is already drawn from the escrow account cannot be brought back, it is the insurance that the federal government is giving to ensure that we have stable power.
Something must come at a cost, at this initial stage of the development of a private sector driven power market, there has to be some guarantees that will enable investors see a clear horizon of investments; if they see any chances of them losing money in the process, they won’t invest and so in this transition market, government must provide some sort of guarantees that will give the Genco owners some confidence to invest $1.5 million per megawatts to give us the level of stability that we want.”
On the roles of the banks, Dikki said: “The banks are the custodians of the money which is deposited in them and we want to establish a process through which this money will be drawn and not just drawn frivolously, that is why the BPE, bulk trader and the banks signed the agreement to follow a process to withdraw this money otherwise there will be penalties; the lead bank is FCMB which is the lead escrow agent, others are UBA and First Bank, the money is coming from the proceeds of the sale of PHCN successor companies.”
He noted that the distribution companies are not covered by this escrow account because they have committed to reducing the Aggregate Technical Commercial and Collection (ATC and C) losses of the distribution companies.
“If you recall, they (distribution companies) were not given to the highest bidder but to those who committed to reducing ATC and C losses by a certain percentage and so they have committed and have given a technical proposal with a business plan cataloguing the level of investments that they would make every year in this regard,” Dikki added.