Power Sector Faces Tariff Surge Over Gas Price Increase

Stakeholders in Nigeria’s power sector have warned that higher generation costs would drive up electricity tariffs and increase subsidy obligations.

They disclosed that even without an immediate tariff review, generation companies will issue higher invoices, putting more pressure on government finances and further exposing long-standing inefficiencies across the electricity value chain.

THE WHISTLER recalls that the Nigerian Midstream and Downstream Petroleum Regulatory Authority had last week reviewed the domestic base price of natural gas, a benchmark used in pricing gas supplied to power plants under the Domestic Gas Delivery Obligation framework.
Speaking on the development, the Executive Director of PowerUp Nigeria, Adetayo Adegbenle, said the increase in gas prices would inevitably translate to higher electricity tariffs and rising subsidy obligations.

“Since the price of gas, which is the major fuel for Gencos, has increased, it is expected that electricity tariffs will also increase,” he said.

Adegbenle added that regardless of whether tariffs are immediately adjusted, the financial implications would still manifest in higher invoices from generation companies.

“Whether electricity tariffs are reviewed or not, it is bound to affect invoices from Gencos. What we need to understand, however, is what the government’s plan is to absorb the shock of these expected changes.

“Subsidies, or market shortfalls, are expected to increase since invoice values will increase. I have no idea yet, but this is the point. I hope the government will encourage full market deregulation and implement a fully contract-based electricity market. I had planned to make this a national discourse at some point, because we cannot continue to pretend that the electricity market is not optimal,” he explained.

He, however, questioned the Federal Government’s preparedness to absorb the fiscal impact of the changes.

“We cannot continue to pretend that the electricity market is optimal. This situation also raises concerns about the sustainability of plans to raise bonds to offset debts owed to gas suppliers and Gencos.

“This is also another major argument against the bond being raised to pay off market exposure in terms of debt to gas suppliers and generating companies,” he added.

Also, the President of the Nigeria Consumer Protection Network, Kunle Olubiyo, criticised the methodology behind the new gas pricing framework, describing it as inconsistent and lacking transparency.

“The new base price is a bit confusing. The Nigerian Midstream and Downstream Petroleum Regulatory Authority had, from July last year, approved $1.13 as transport cost. So how do you now arrive at a figure that does not reflect the full pricing model?” he asked.

Olubiyo noted that when previous base prices are combined with transportation costs, the effective gas price should already be above $3 per unit.

“It was around $2.15 last year, and when you add the $1.13 transport cost, it should be about $3.63. So whatever figure is being quoted now does not reflect the true cost,” he said.

He added that Nigeria’s power sector currently enjoys one of the lowest gas pricing regimes due to domestic supply obligations, despite global market pressures.

“Gas is a commodity, just like petrol. In the international market, buyers are willing to pay up to $12 due to geopolitical tensions, especially in the Middle East. So why would any producer prefer to sell to Gencos locally, where they are often asked to be patriotic and even sell on credit?” he queried.

Olubiyo, however, argued that tariff increases alone would not resolve the sector’s deep-rooted inefficiencies. “Even before privatisation, we warned that tariff increases are not a silver bullet. There are fundamental issues affecting efficiency across the value chain,” he said.

He pointed to widespread technical and commercial losses, particularly in metering and energy accounting, as major drivers of inflated costs.

“There are significant leakages in how electricity is measured and billed. Many meters are obsolete and lack integrity. If we fix these issues and ensure accurate measurement, most of the claims by Gencos could drop by 40 to 50 per cent. What consumers are paying for today includes inefficiency and systemic leakages,” he added.

-Tope SUNDAY and Aisha BELLO

Power Sector Faces Tariff Surge Over Gas Price Increase is first published on The Whistler Newspaper