Minister of Finance, Mrs. Kemi Adeosun, has insisted that the federal government has not cancelled the Power Purchase Agreements (PPAs) with power sector investors.
A statement issued yesterday by Special Adviser, Media & Communications to the Finance Minister, Oluyinka Akintunde, explained that the clarification became necessary in view of media reports that the PPAs signed by the Federal Government with Project Developers in the power sector, had been cancelled.
“It must be emphasised that the role of negotiating with Project Developers and signing PPAs is domiciled with the Nigerian Bulk Electricity Trading (NBET) Plc and not the Federal Ministry of Finance.
“However, as the primary obligor of all forms of guarantees issued by all governments of the federation and their agencies, the Federal Ministry of Finance, through the Debt Management Office, must estimate the size of obligation that it is willing and able to accommodate in relation to the power sector.
“Furthermore, the ministry is required to evaluate the country’s repayment capacity for current and contingent debt obligations as part of its Debt Sustainability Analysis (DSA), which is a key requirement for sound public debt management practice. These liabilities have wider implications for the country’s debt and overall fiscal position in the medium to long-term”, the Minister said.
She further explained that a default would, therefore, have a detrimental effect on the development of the country as it would scare investors away.
After its meeting with the Debt Management Office, the Federal Ministry of Power, Works & Housing, the Nigerian Bulk Electricity Trading Plc and Bureau of Public Enterprises mid-last year, agreed that the federal government will bear foreign exchange rate risk and make termination payments in dollars.
Part of the agreement was that “NBET is required to work within a contingent liability exposure limit of US$10 billion (US$5bn for PCOAs and US$5bn for NIPPs).
“It is expected that NBET would negotiate with project developers to ensure that Nigerians are getting the best quality of service within costs aligned to global standards.
“The Federal Ministry of Finance is focused on achieving market sustainability in the long-term and requires that 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 (NERC), and NBET must ensure that meters are rolled out to improve billing accuracy and also improve DISCO 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.
“It should also be noted that no multilateral agency would continue to issue guarantees where it is cleared that the requirement for steady cash flows within the sector to meet regular payment obligations, does not exist,” she said.