How Nigerian GenCos can address gas supply challenges

Nigeria's power generation companies have been grappling with persistent gas supply challenges, which have significantly impacted the country's power generation capacity. Gas accounts for about 80 percent of the power generated in Nigeria, making it a critical component for both consumers and power generation companies. Despite efforts by the government to address these challenges, there are still some endemic issues that need to be resolved. One of the main challenges facing the sector is the liquidity crunch, with many payments remaining unpaid and no concrete guarantees in place. This has affected both thermal power plants that rely on gas and hydroelectric plants that use water for power generation. In a recent interview with CNBC Africa, Dr. Joy Ogaji, Executive Secretary of the Association of Power Generation Companies, shed light on the current situation in the sector. She emphasized the need for a sustainable solution to the gas supply challenges to ensure reliable power generation in Nigeria. Dr. Joy highlighted the commercial intervention involving entities like NNPC and NPDC to address some of the challenges faced by power generation companies. While she commended the move, she clarified that it was a private arrangement aimed at leveraging gas supply for specific power plants in the Western axis. However, she stressed that this was not a universal solution for all power generation companies in the sector. Dr. Joy also raised concerns about the complexities in the gas supply value chain, including issues such as escalation factors and pass-through costs. Gas suppliers often include escalation costs in their invoices, which are not recognized by regulatory bodies, making it challenging for power generation companies to pass on these costs to consumers. Additionally, the burden of paying value-added tax on gas purchases has further strained the finances of thermal power plants. Despite these challenges, Dr. Joy remains hopeful that a middle ground can be reached through transparent and collaborative efforts between power generation companies and gas suppliers. She emphasized the need for clear gas supply agreements and regulatory support to ensure a sustainable and efficient gas supply chain for the power sector in Nigeria. Moving forward, stakeholders will need to work together to address these challenges and pave the way for a more reliable and resilient power generation industry in the country.