During the eighth edition of the Africa Energy Market Place (AEMP) Nigeria in Abuja, Minister of Power Adebayo Adelabu announced that the Nigerian government has given the approval for the payment of ₦130 billion to settle outstanding debts with gas companies (GasCos) in the country. He explained that the president has given his approval for the Minister of State for Petroleum Resources (Gas) to proceed with settling the overdue debts owed to gas supply companies by power sector operators. They have two separate payment streams, one for the legacy debt and one for the current debt.
The Federal Ministry of Finance has approved cash payments of approximately ₦130 billion from the gas and stabilisation fund for the current debt. It is uncertain whether these payments have already been made, Mr. Adelabu explained. In February, Mr. Adelabu announced that the country’s power sector owed more than ₦3 trillion to electricity-generating companies (GenCos) and gas companies (GasCos). Currently they have a significant debt of ₦1.3 trillion to power generating companies, with 60 percent of this amount owed to gas suppliers.
Transparency is needed in addressing this issue.
Before 2014, the legacy debt to gas companies was $1.3 billion, which is equivalent to nearly ₦2 trillion in today’s currency. When combining these two debts, the total owed to gas companies amounts to a substantial sum. Mr. Adelabu expressed concern about the sector’s mounting debt of over ₦3 trillion owed to GenCos and emphasised the importance of transparency in addressing this issue. Moving forward, it is crucial for Nigerians to be informed about the steps being taken in the energy sector.
Ed Ubong, the Director of the Decade of Gas Secretariat, revealed in late February that a payment of more than $120 million was made to reduce a portion of the outstanding debts. The total amount owed to gas producers from the previous year was about $1.3 billion. During his address at the 7th Nigeria International Energy Summit (NIES 2024) in Abuja, Mr. Ubong expressed satisfaction that the government has allocated more than $120 million from October 2023 to the end of January to help alleviate financial burdens.
Gas companies will be incentivised to establish solid supply contracts.
Mr. Adelabu announced recently that the legacy debt payment would be covered by future royalties and income streams within the gas subsector. This news has been well-received by gas supply companies. The estimated amount of $1.3 billion is expected to incentivise these gas companies to establish solid supply contracts with power-generating companies. The current situation operates on the best endeavour model, indicating a lack of a solid contract between gas companies and most power-generating companies.
Also, gas will be supplied on days when it is available, and there will be no consequences for not supplying. However, once a contract is in place, they will be required to consistently supply gas to power plants to ensure reliable power generation. The model they aim to implement for the gas segment in the power sector value chain involves setting the debt for the power generating companies,” he explained. He stated that both parties have approved the payment and are working on getting everyone on board to achieve full approval from power producers. He described the payment process, mentioning it would involve two methods, including an instant cash infusion.
Related Article: Nigeria, others spend $441b on debt servicing
Moreover, the government does not have enough funds to pay off the entire ₦1.3 trillion debt at once, so only a portion will be paid in cash. The rest will be paid through a guaranteed debt instrument like a promissory note to assure companies that the government is committed to settling these debts. He mentioned that increasing incentives for power-generating companies will boost their motivation to invest more in increasing generation capacity. This will help elevate our current generation output to meet the rising demand, both locally and internationally, which can potentially increase foreign exchange earnings.