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Power firms give bulk trader letters of credit

By BusinessNews Staff on March 21, 2015

Eight electricity distribution companies out of the 11 in the country have successfully posted letters of credit to the Nigerian Bulk Electricity Trading Company Plc for the purchase of power.

A letter of credit is a document from a bank guaranteeing that a seller will receive payment in full as long as certain delivery conditions are met. In the event that the buyer is unable to make payment for the purchase, the bank will cover the outstanding amount.

In this context, the NBET is the seller of electricity, buying power from the generation companies and making it readily available to the Discos.

By successfully posting their letters of credit to the electricity bulk trader, the Discos will be efficiently served power based on their sound financial standings with the power trading company.

The Managing Director/Chief Executive Officer, NBET, Mr. Rumundaka Wonodi, told journalists in Abuja that the bank guarantee from the eight Discos was also spurred by the declaration of the Transitional Electricity Market, which commenced on February 1, 2015.

The NBET boss, however, did not disclose the names of the eight companies that had posted their letters of credit.

Asked for the level compliance by the distribution companies, Wonodi said, “Currently, we have about eight of the distribution companies that have posted their letters of credit, which shows that they are comfortable and confident that this market can take off the way it was designed to be.”

On whether the market had fared well in terms of revenue remittance by the Discos after the declaration of TEM, he said, “That is why we have these bank guarantees from the distribution companies; and with that, they are saying to us that they commit to making their payments. And if they do not, we will fall back on these guarantees. We expect the market to go the way it should go.”

Wonodi also noted that the African Development Bank was supporting Nigeria with about N40bn as partial risk guarantee for the generation of power from coal.

He said, “Unfortunately, the World Bank is very reticent and they are not quite committed to giving support to coal because they deem it to be a dirty fuel and not very good for the environment. However, the AfDB understands that Africa needs power from every source that it can get it from. And it is supporting coal.”

[Punch]

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