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The two publicly listed power companies, Geregu Power and Transcorp Power, incurred N174.2 billion in gas expenses in the nine months ending September 30, 2024 (9M 2024). This marks a 171 percent year-on-year increase from the N64.2 billion expense incurred during the same period in 2023.
Transcorp Power contributed the bulk of the expense with a gas expense of N118.4 billion during the nine months. It marked a 203 percent year-on-year growth form the N39 billion expense incurred in the corresponding period of 2023. For Geregu Power, the gas cost during 9M 2024 was N55.8 billion, marking a 121 percent year-on-year growth from N25.2 billion as of 9M 2023.
The increase in gas costs for these companies had a minimal impact on their bottom lines, as both power generation and revenue grew in tandem. A review of both companies’ gross margins suggests that the significant rise in gas supply and transportation costs is linked to increased power production from both plants during the nine months.
Geregu Power’s gross margin in 9M 2024 was 48.6 percent, representing a 60 basis points year-on-year increase from 48.2 percent as of 9M 2023. However, for Transcorp Power, the situation is a bit contrasting, as its gross margin for 9M 2024 declined to 43 percent, marking a 5 percentage-point decline from the 48 percent gross margin recorded in the corresponding period in 2023.
Read also: Gas cost cuts Transcorp Power’s operating margin by 700 bps
Nigeria currently has around 60 power plants with a total generating capacity of approximately 16,385 MW. About 80 percent of this capacity comes from gas-powered plants, with Transcorp Power and Geregu Power being fully dependent on gas. Transcorp Power Plc operates the Ughelli power plant, which has a generating capacity of 900 MW. Geregu Power Plc on the other hand, operates the Geregu I Power Plant, which has a generating capacity of 414 MW.
Nigeria is a net exporter of natural gas, the key raw material for these power companies. However, in recent years, the main supplier, NLNG, has faced challenges with feed gas supply due to frequent pipeline vandalism in the Niger Delta. In the face of challenges faced by NLNG, other natural gas companies such as Shell Nigeria Gas (SNG), Nigerian Gas Company, and Heirs Energies have stepped up.
Geregu Power receives gas from Nigerian Gas Company and Transcorp Power receives gas from Heirs Energies.
In line with the increased gas expense, a review of both companies’ balance sheet show that their debt to their gas suppliers is also increasing. For Geregu Power Plc, the trade payable to gas suppliers increased by N29.8 billion to N76.5 billion at the end of the nine months, marking a 64 percent increase during the year.
Transcorp Power’s debt to its gas suppliers also increased during the year, as the company’s trade payables increased by N35.9 billion during the nine months to N103.9 billion, from N68 billion at the start of the year.
Read also: Subsidy boosts Geregu Power’s cash flow by 95%
A review of the cashflow statements by both companies shows that they have increased spending on their debts to the gas suppliers. In 9M 2024, Geregu Power spent N34.8 billion on its liabilities to its vendors, representing a 516 percent year-on-year increase from the N5.6 billion spent in 9M 2023. Although, there is no distinction between the gas debts and other debts, gas debts represent about 84 percent of the company’s total trade payables. Transcorp Power also spent N59.2 billion on its trade payables during the nine months under review, a significant improvement from the N4.9 billion spent during the corresponding period in 2023.
Debts owed to gas suppliers have long been a significant challenge in Nigeria’s power sector, with generating companies’ liabilities to gas providers reaching an estimated $1.3 billion. These outstanding debts have hindered the steady supply of gas to the country’s gas-fired power plants, as gas processing companies face liquidity constraints that limit their ability to ensure consistent delivery.
Notably, the FG subsidises the price of natural gas. In March 2024, Ed Ubong, the director, Decade of Gas Secretariat, noted that the Federal Government had paid up about $120 million of this debt.
