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FG supports power generating firms with N50bn

By on December 5, 2013

The Federal Government on Tuesday endowed N50bn in escrow accounts of three Nigerian banks to support the efforts of power generation companies.

The Director-General, Bureau of Public Enterprises, Mr. Benjamin Dikki, who signed the agreement with the three banks in Abuja, said the money would be a buffer for losses that the GenCos could suffer in the process of power transmission.

The N50bn was part of the proceeds from the sale of 14 successor companies carved out from the Power Holding Company of Nigeria.

While the First City Monument Bank Plc would serve as the lead escrow agent, United Bank for Africa and First Bank of Nigeria Limited are the other banks participating in the process for the release of the funds deposited in their escrow accounts.

Dikki said the accounts would be managed by the Electricity Bulk Trader while the generation companies must meet certain conditions before they could withdraw from the accounts.

Dikki explained that the fund was not an endowment to the GenCos but an incentive to the power plants’ owners to invest in expanding the capacity generation of the nation.

He said, “This N50bn is not a dash. There are certain conditions that must be met before funds can be drawn from these escrow accounts. The market and systems operator must confirm the quantum of power put on 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 a 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 be able to invest in expansion of their capacities.”

Dikki said the country needed about 29,000 megawatts of power to stabilise the power needs of the country, which he put at 40,000MW.

At an average cost of $1.3m for installing a megawatt of power, he said an investment of $7.5bn was required for 5,000MW.

He added, “We need to make sure that we create the atmosphere that will enable these generation companies to make investments in power generation without looking back or worrying whether they will be able to recoup the monies they have invested. That is why this escrow account was created.

“The essence is to induce efficiency in the market. If somebody is penalised for losing power in the system, that person will sit up and ensure that he does not lose power and money. Whatever that is already drawn from the escrow account cannot be clawed 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 to see a clear horizon of their investments,” he added.

The BPE boss said the three banks would serve as the custodians of the money while the relevant government agencies would establish the process for drawing down on the money.

 

[Punch]