Electricity tariff to increase as Nigerian government raises gas prices for power firms

The Nigerian government has increased the wholesale price of gas-to-power generating companies (GenCos) by 11 per cent, from $2.18 per million British thermal unit (MMBTU) to $2.42/MMBTU.

Nigeria generates over 70 per cent of its electricity from thermal power plants that are fired by gas. Therefore, the rise in the cost of the commodity may lead to a hike in the tariff payable by power consumers once the Nigerian Electricity Regulatory Commission carries out another tariff review.

The Nigerian Midstream and Downstream Petroleum Regulatory Authority, an agency of the Federal Government, unveiled the new domestic base price and wholesale prices of natural gas for 2024 in an announcement on Monday.

The NMDPRA also pegged the cost of commercial gas at $2.92mmbtu, up from the previous cost of $2.5mmbtu. The announcement was signed by the Chief Executive, NMDPRA, Farouk Ahmed.

Recall that the Multi-Year Tariff Order released by NERC in January 2024 for the electricity distribution companies was calculated based on the previous price of natural gas.

Based on the current cost of gas, there is a strong possibility of an increase in power tariffs, as gas is a crucial component in electricity generation.

Gas producers, both domestic and international, have been advocating for a price hike, believing it would encourage higher production levels.

In the announcement made on Monday, Ahmed referred to the Petroleum Industry Act 2021, which was signed into law on August 16, 2021, and gazetted the same month. This act provides a clear regulatory framework for establishing a market-based pricing system for domestic gas.

Ahmed also mentioned that the recent decision aligns with section 167 and the third and fourth schedules of the PIA 2021.

These sections mandate the regulator to determine the Domestic Base Price and the wholesale price of natural gas supplied to strategic sectors.

He said, “The DBP at the marketable gas delivery point under Sector 167(1) and other provisions of the PIA shall be determined based on regulations which incorporate among such other matters, the following principles.

“(a) The price must be of a level to bring forward sufficient natural gas supplies for the domestic market on a voluntary basis by the upstream producers.

“(b) The price shall not be higher than the average of similar natural gas prices in major emerging countries that are significant producers of natural gas.

“(c) Lowest cost of gas supply based on three-tier cost of supply framework. (d) Market-related prices tied to international benchmarks.”

The NMDPRA, therefore, emphasised that it had set the “2024 Domestic Base Price at $2.42/MMBTU and wholesale prices for natural gas in strategic sectors, following consultations with stakeholders and in compliance with the PIA and Gas Pricing Regulations.”

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