News

Electricity tariff hike imminent as FG raises domestic base gas price for power firms

The Nigerian Midstream and Downstream Petroleum Regulatory
Authority (NMDPRA) says the new price of natural gas for power generation
companies is now $2.42 per metric million British thermal units (MMBTU).

 

The agency announced the new domestic base price and
wholesale prices of natural gas for 2024 in a statement on Monday.

 

The domestic base price is the minimum amount at which
natural gas can be sold to the domestic market.

 

The review, which is a raise from the previous rate of $2.18
MMBTU, could lead to a tariff hike as Nigeria generates over 70 percent of its
electricity from power plants that are powered by gas.

 

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.

 

The adjustment comes amid calls by oil and gas companies for
a migration to cost-reflective tariffs to attract investment.

 

Objecting to the move, President Bola Tinubu had insisted
that a stable electricity supply must be achieved before the implementation of
a cost-reflective tariff, said Adebayo Adelabu, minister of power.

 

Announcing the new price on Monday, Farouk Ahmed, NMDPRA,
chief executive officer, 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”.

 

he said the latest price adjustment aligned 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.

 

“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,” NMDPRA
boss said.

 

“(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.”

 

Accordingly, the NMDPRA set the 2024 domestic base price at
“$2.42/MMBTU and wholesale prices for natural gas in strategic sectors”.

 

The agency explained that the decision followed
consultations with stakeholders and complies with the PIA and gas pricing
regulations.

 

On March 11, the federal government disclosed plans to
gradually move towards a cost-reflective electricity tariff for a “fairer
pricing”.

 

Nigeria currently subsidises electricity for its citizens
and owes huge debts to power generation and gas companies.

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