With the commencement of the Transitional Electricity Market (TEM) stage on February 1 by the Nigerian Electricity Regulatory Commission, there is a fresh wave of tension among the DISCOS following threat by the commission to punish errant operators in the electricity industry. Under TEM, participants in the market are obliged to commence full trading by contracts while all the institutional and normative structures that define a competitive and efficient electricity market will be institutionalised. Distribution companies for instance, are also expected to activate extant vesting contracts with the Nigerian Bulk Electricity Trading Plc (NBET) for now, while generation companies will activate their Power Purchase Agreements (PPAs) with NBET in addition to their Gas Supply Agreements (GSAs) with gas suppliers.
Under the new regime, the failure of electricity distribution companies to pay for energy bought from generation firms and for deliveries on their privatization performance obligations will now attract sanctions in line with the market rules and contractual obligations.
Information gathered from market sources indicates that liquidity constraint is still a major concern for most DISCOs, as the prevalence of the situation would result in them (DISCOs) breaching contracts entered into with other stakeholders, even in the new market era. Recently, the Central Bank of Nigeria, CBN, in a bid to resolve the liquidity challenges in the power sector, released N18.26 billion as loan to only five power firms.
The order, which was dated December 31, 2014, had directed all relevant market participants, service providers and the Nigerian Bulk Electricity Trading Plc to comply with effect from February 1, 2015. From that date, the market is now governed with the strict application of the terms and conditions of the Multi Year Tariff Order 2.1 (MYTO 2.1) that was approved on December 24, 2014 and became effective from January 1, 2015.
The tariff order, according to NERC, ensures that market participants now have a cost reflective tariff.
One of the implications of TEM, the regulator explained, was that the gas bottleneck which had constrained electricity supply would be reduced as gas would be supplied to electricity generation firms on a legally-binding basis as regards delivery and payment.