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FGN Awards $2.8bn to the Implementation of the Akk Gas Pipeline - Impact on Power

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Wednesday, April 11, 2018 /10:10AM /FDC  

Background
Gas power plants contribute approximately 70% of Nigeria’s total electricity on the national power grid. However, gas constraint remains a critical issue as it pre-vents power generation on a daily basis. Since the start of the year, gas constraints account for 74.25% (186,331MWH/H) of total constraints (250,967MWH/H) despite the underutilization of over 192 trillion standard cubic feet of gas reserves. This was primarily due to the GenCos defaulting on the terms of payment for gas, and not accepting the required volume of gas needed to generate more electricity.

In a bid to reduce the gas constraint in the national power grid, the Federal Government on the 13th of December 2017, awarded $2.8bn to the implementation of the Ajaokuta-Kaduna-Kano (AKK) Gas Pipeline and Stations. The 614km 40-inch gas pipeline is a 100% contractor-financing model awarded to the Oando Consortium.

This marks the beginning of the first phase of the gas master plan, Trans-Nigeria Gas Pipeline project, approved in 2016. The main aim by the FGN is to enable the industrialization of the Eastern and Northern parts of Nigeria.

Impact
The proposed gas pipeline will be sup-plied with quality gas sourced from various gas projects. It is expected to improve electricity distribution, jumpstart Nigeria’s power industry, maximize gas utilization (domestic and export use), ensure long term energy security as the country’s energy demand is growing rap-idly, and reduce environmental hazards associated with gas flaring. In turn, this will boost industrialization thereby driving economic activity and spur growth at the re-tail level (Small & Medium Enterprises (SMEs & the labor market). In addition, steady gas supply will reduce the bottlenecking of stranded power to the DisCos which could increase GDP by approximately 2%.

However, the power situation could worsen as the total power sector indebtedness is now in excess of N1trn. Nigeria needs to attract more investment in its power sec-tor. Recently, the World Bank endorsed an International Development Association credit of $486mn towards rehabilitating Nigeria’s electricity transmission lines. Furthermore, the Nigerian Electricity Regulatory Commission (NERC) introduced Meter Asset Providers (MAPs) which are a set of operators that will help distribution companies provide electricity meters. The plan is expected to attract N200mn in in-vestments.

Provided the funds are disbursed effectively, it would help solve the structural problems faced in the industry, curb the frequent shutdowns of power plants, and the high losses incurred at the distribution stage. This will ensure the provision of reliable and affordable electricity service.

Proshare Nigeria Pvt. Ltd.

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