Minister of Finance, Kemi Adeosun, has issued a statement with regards to recent reports by two fake news websites that the Federal Government was canceling the Power Purchase Agreements it signed with project developers in the power sector.
In the statement which was issued on 16th March, by her Media Adviser, Mr. Oluyinka Akintunde, the Finance Minister explained that the role of negotiating with the project developers and signing the PPAs was domiciled with the Nigerian Bulk Electricity Trading Plc. and not the Federal Ministry of Finance.
Mrs. Adeosun also explained that it was the responsibility of the Ministry of Finance, as primary obligor of all forms of guarantees issued by all governments of the federation and their agencies, to estimate the size of the obligation it was willing and able to accommodate in relation to the power sector. And this evaluation had to be done through the Debt Management Office.
She also disclosed that the Ministry, in doing the above, was required to evaluate the country’s repayment capacity for current and contingent debt obligations as part of its debt sustainability analysis. Basically implying that the Ministry of Finance had to confirm its capacity and willingness to bear the debt that may be accrued from the agreements.
The debt sustainability analysis, according to her, is a key requirement for sound public debt management practice.
Debunks “media” reports that the Federal Government canceled the deal
Mrs. Adeosun debunked the media reports making rounds that the Power Purchase Agreements had been canceled.
One of such reports appears on thescoopng.com on the 15th of March and states two reasons for the FG’s backing out: (1) That other countries pay a lower tariff (2) That the government will not be able to recoup the costs in the North.
Sahel Standard is another news platform that ran the headline that the Federal Government had backed out of the deal and that the project investors were threatening to quit in retaliation.
Reasons for the delay and perceived pull out
Mrs. Adeosun explained that the reason for the delay which was eventually perceived and interpreted as a withdrawal was the need to properly structure the agreements and provide the necessary environment for the new power structure to thrive.
“The Federal Ministry of Finance is focused on achieving market sustainability in the long-term and requires that the NBET has a comprehensive plan to manage these exposures to avoid a drawdown on the PRGs.
“It is imperative that the Federal Ministry of Power, Nigerian Electricity Regulatory Commission, and the NBET must ensure that meters are rolled out to improve billing accuracy and also improve distribution companies’ collections in order to increase cash flows to the power sector value chain.
“If the market cannot pay for power distributed, the situation will remain unsustainable.
“It is unhealthy for the Federal Government of Nigeria to build an entire sector based on sovereign guarantees without simultaneously addressing key challenges inhibiting financial sustainability across the value chain.”
Her statement basically means that the Ministry is testing the agreements to check for the possibility for it to be sustained effectively.
Importance of the Agreements
The agreement signed in July 2016 between the Nigerian Bulk Electricity Trading (NBET) Plc. Federal Ministry of Power, Works and Housing (FMPWH) and the project developers was the first of its kind in Nigeria which traditionally relies on gas-powered power generation projects.
Power Minister, Babatunde Fashola said at the signing event:
“It is the determination of the Federal Government of Nigeria to ensure that the country’s power sector is no longer dependent on the vulnerability of one energy source,”
He announced that the country’s target is to achieve 30% renewable energy generation in the next decade.
