Electricity Tariff May Rise As FG Raises Gas Price For GenCos

The federal government yesterday bowed to pressure from gas producers and announced an increase in 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.

The gas companies have been clamouring for an increase in the wholesale gas-to-power prices in view of the rise in the price of gas in the international market.

The increase would raise the cost of power generation as gas is a major fuel-for-power plants in the country as thermal power plants currently account for 80 per cent of the power generation.

Also, the increase will also raise the subsidy the federal government will now have to pay for electricity consumers unless they allow the market to charge a full cost-reflective tariff.

The gas companies had since January this year reduced supply to power plants following years of unpaid invoices amounting to over $1.2 billion. The government intervened last month by paying $120 million to the companies, as power supply across the country dwindled.

However, the federal government said the adjustment in gas prices aligns with the Petroleum Industry Act, empowering regulatory authorities to set prices for the local market based on international benchmarks and cost considerations, ensuring adequate gas supply for domestic needs

The government in a notice issued the chief executive, Nigerian Midstream and Downstream Petroleum Regulatory Authority, NMDPRA, Engr Farouk Ahmed, also raised the commercial wholesale gas price from $2.42/mmbtu to $2.92/mmbtu.

The Authority in the notice entitled “Announcement on establishment of the 2024 domestic base price and applicable wholesale price of natural gas for strategic sector”, said the Petroleum Industry Act, 2021, gave it the powers to set domestic base prices for the local market.

“Accordingly, after due consultation with key stakeholders and taking into cognisance the provisions of the PIA, as well as the gazetted Gas Pricing and Domestic Demand Regulations, the NMDPRA hereby establishes the Year 2024 Domestic Base Price as USD 2.42 / MMBTU and wholesale prices of natural gas in the strategic sector,” it said.

Rising Cost Of Electricity Subsidy

With the increase in gas price, the amount of subsidy to be borne by the federal government will also increase.

The minister of power, Adebayo Adelabu, had said the federal government already had an outstanding subsidy obligation of N3 trillion, a situation that stakeholders say is unsustainable.

Electricity subsidy in Nigeria grew by 22.16 per cent from N528 billion in 2019 to N645 billion in 2023, latest figures from the Nigerian Electricity Regulatory Commission, NERC, have shown.

The Commission projects N1.6 trillion as electricity subsidy for 2024.

The NERC data also indicated that electricity subsidy in January and February 2024 was N264 billion, and with Chief Adelabu acknowledging that the government was yet to pay  the subsidies for last year and the first two months this year to the market, the liquidity challenge facing the Nigerian Electricity Supply Industry, NESI, is set to escalate.

Adelabu who pointed out that while continuing payment of subsidies was unsustainable given the financial state of the government, ending it at this time was also impossible due to economic hardship faced by Nigerians following the removal of petrol subsidy and floatation of the local currency, the Naira.