Gencos on the Verge of Closure Due to Critical Gas Supply Shortage

Electricity generation companies, known as Gencos, operating in Nigeria are currently facing a severe operational crisis due to the acute shortage of natural gas needed to power their plants. Despite Nigeria having a total installed capacity of 22,000 megawatts (MW) across its 28 electricity generation companies, the average electricity transmission in the country remains stagnant at approximately 4,000 MW. The primary culprit behind this significant shortfall is the lack of adequate gas supply.

The primary challenge crippling Nigeria's power sector is the insufficient supply of gas to thermal plants. Despite having a collective installed capacity of over 20,000 MW, Gencos have consistently struggled to generate more than 5,000 MW. This limitation is largely due to the reluctance of gas suppliers to provide gas without upfront payments and the clearance of an outstanding legacy debt amounting to $1 billion (approximately N820 billion).

Currently, around 1,800 MW of Independent Power Plant (IPP) capacity lies idle due to gas shortages, and a significant portion of the N1.68 trillion debt owed by electricity consumers to power companies is attributed to gas suppliers.

Dr. Joy Ogaji, the Executive Secretary of the Association of Power Generation Companies (APGC), supported claims, asserting that the unresolved debt issue dates back to 2015. She also accused the Nigerian Bulk Electricity Trading Plc (NBET) of failing to meet its obligations outlined in the Power Purchase Agreements (PPA), which has contributed to the liquidity crisis in the power sector.

The non-availability of gas has consistently plagued Gencos, hindering them from reaching their full generation capacity. Problems related to gas volume, quality, pressure, and transportation have repeatedly disrupted power generation, exacerbating the ongoing challenges faced by Gencos.

While Nigeria boasts the largest natural gas reserves in Africa and ranks ninth globally with an estimated 210.8 trillion cubic feet (Tcf) of reserves, only a fraction (1.2 billion standard cubic feet) is extracted daily. Gas producers remain hesitant to invest significantly in gas infrastructure due to low gas prices and concerns about payment reliability from Gencos.

Additionally, approximately 41% of the nation's daily gas production is exported, 48% is allocated for domestic consumption, and the remaining 11% is wasted through flaring.

The gas scarcity issue has become so critical that some foreign technical partners of Gencos are contemplating terminating their contracts and exiting Nigeria. For example, General Electric (GE), a U.S.-based energy giant, has threatened to withdraw from its contract with TransAfam Power due to the unavailability of gas required to test its newly installed plant. This situation underscores the urgent need for comprehensive solutions to address the gas supply challenges and revitalize Nigeria's power sector.