Electricity Tariffs Hike Imminent As FG Jacks Up Gas Prices

From Lateef Taiwo

The Federal Government on Monday announced that the new price of natural gas for power generation companies is now $2.42 per metric million British thermal unit, higher than the previous rate of $2.18mmbtu.

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.

Therefore, going by the latest cost of the commodity, there is a high tendency for an upward review of power tariffs, as gas is a major component used in power production.

Gas producers including international and domestic oil and gas companies, have repeatedly called for the upward review in the price of the product, stressing that this would be an incentive to ramp up production.

In the announcement on Monday, Ahmed said the Petroleum Industry Act 2021 assented to by the President on August 16, 2021, and gazetted in August 2021, provided a clear regulatory framework for the determination of a market-based pricing regime for the domestic gas market.

The NMDPRA boss further stated that the latest action was taken in line with section 167, the third and fourth schedule of the PIA 2021, which mandated the regulator to determine the Domestic Base Price and the marketable wholesale price of natural gas supplied to the 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.”