Senate frowns at NDPHC’s handling of gas contracts….says management lacks capacity/competence

By Lateef Taiwo

The lingering problems in the power sector in Nigeria may not be solved soon as the Niger Delta Power Holding Company (NDPHC), one of the major players in the sector has been described by the Senate Committee on Power as lacking capacity and competence to enter into gas supply contracts on behalf of the country.

Recently the Senate Committee on Power launched investigation into the make up gas (MUG) titled “Need to investigate the controversial Make Up Gas (MUG) processing deal involving the Federal Ministry of Finance, Niger Delta Power Holding Company (NDPHC), Calabar Generation Company Limited and ACUGAS Limited”.

The Senate committee members expressed displeasure at the way and manner the Niger Delta Power Holding Company (NDPHC) handled gas supply contracts that left huge liabilities for the nation.

During the proceeding, the Managing Director, Niger Delta Power Holding Company (NDPHC), Chiedu Ugbo said NDPHC has been taking gas from ACU Gas, which they used to generate power from the Calabar Power Plant to the national grid

According to him, in terms payment, there are two issues: payment for what was consumed and payment for Make Up Gas (MUG), which he called “undisputed and disputed”.

He said they were not able to pay for the gas that was consumed because EMBET receipt from the market doesn’t cover what they have generated and NDPHC passed their invoices to the guarantor, which is the Federal Ministry of Finance (FMF).

He said it was clear “we generated this amount of energy using this amount of gas; however, Nigerian Bulk Electricity Trading (NBET) Plc has not been able to pay. So, you are the guarantor, pay and whenever NBET pays we will pay you back”. That is payment for what was actually consumed.

Taking this year, for example, he said “in January, we got 9.43% of our invoice paid. That invoice has about 65% gas cost. In that situation, we passed it to the FMF as a guarantor to pay because we have utilized the gas to generate the energy and sold to EMBET, but due to liquidity issues NBET is unable to pay, same with February and March”.

On MUG, Mr. Ugbo said because of the dispute on it between NDPHC and ACUGAS, FMF came up with the initiative that all the electricity generation companies’ MUG be taken and “repurposed”.

At this point, haven listened to him, the Senate couldn’t hide its disenchantment with NDPHC and the vice chairman of the committee, Senator Lola Ashiru (Kwara South) said one thing they have discovered was that they were not sure if NDPHC has the capacity to purchase gas for your Generation Companies (GenCos).

“If the Federal Ministry of Finance is not there in the background, there is no way you could perform. There are so many things you are not sure of. You are not sure how you are going to off load the energy you are generating. You are not even sure the TCN will transmit neither are you sure there will be payment for whatever you are selling out.

“Looking at all these things, there is issue of capacity to enter into contract. When there is no capacity to enter into contract, what it means is that the existence of your business is in doubt.

The only way we can get out of this is a total renegotiation and when you are doing total renegotiation, you must be sure of your own capacity to do business. If you are not sure of it, we will just be going round and going deeper into debt. I advised that you should do a clear study of your own position.

“The world is going private. We were with Dangote at the weekend. It is a private enterprise and we were so amazed. He has thrown in almost $22bn into his business and he is very sure that he will succeed.

Now we are talking of our own GenCos and every day of our lives we are going deeper and deeper into debts. I don’t know what we should do at this stage, but I think it is important for you to carefully to carefully restructure your business, to carefully restructure yourself and repackage all these indices into a new contract renegotiation.

Speaking further, another senator said “the matter has become “a naughty issue”, adding that he was getting confused.

Chairman of the investigative committee, Senator Enyinayya Abaribe asked the MD, NDPHC if the have the right to go into contract negotiation that involves the Federal Ministry of Finance and therefore the country without the involvement of the Federal Ministry of Justice. He said the committee has a letter from the Attorney General of the Federation that the Federal Ministry of Justice was not involved in any MUG agreement.

“It is very surprising for us that you commit the country to this amount of money without the involvement of the Ministry of Justice”, Abaribe said.

However, the MD, NDPHC said this agreement was signed with take or pay provision in 2011, adding that at that time nobody anticipated the liquidity problem in the sector. The Attorney General, when it went to them for the gas supply agreement, reviewed it, took it over. Before we signed the PRG, the Attorney General’s office cleared it for everybody, for Federal Ministry of Finance, for us, i.e for gas supply agreement as at 2016, 2017; the renegotiated one.
Mr. Ugbo said the MUG was purely a Federal Ministry of Finance affair and NDPHC was only informed about it.

Dahiru Moyi, Special Assistant to the Minister of Finance and Coordinating Minister of the Economy, while answering a question from the senators on the outstanding volume of the MUG said “there are many lapses as I said. If we start to go deep into this things we will never end. So, the Ministry of Finance, to say at least, let’s put aside all things and find solution.

He said the outstanding MUG as at December 2022 is about 26 billion cubic of gas (bcf). That will bring $300 million to the Ministry of Finance, if it is Liquefied and sold as LNG. That was the idea and it’s growing by the day.

“We believe in 13 years, the Ministry of Finance will stop this hemorrhage, at least be able to get something to pay and support other projects. We cannot use money appropriated for a project to do this. It will cause a lot of disruption in the whole fiscal environment.

According to Mr. Moyi the MUG today may be 30 or 40 bcf, only ACU Gas may give us exact figure, adding that “the problem is that NDPHC contests and disputes everything unilaterally as you heard ‘force majeure’ without getting Ministry of Justice involved.

But Mr. Ugbo said they have done a lot of things. “We said we could use the gas in Alaoji and Calabar. As we speak, NDPHC have finished the pipeline from ACU Gas to Alaoji.

However, this seemed not to impress the committee members who felt that the country’s scarce resources were not being properly utilized to solve the problem


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