ENERGY CRISIS: More troubles for GENCOs as FG increases gas price by 11%

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. 

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 Authonty in the notice titled “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. 

“In line with Section 167, the Third and Fourth Schedule of the PIA 2021, the Nigerian Mdstream & Downstream Petroleum Regulatory Authority (NMDPRA) is mandated to determine the Domestic Base Price (DBP) and the marketable wholesale price of natural gas supplied to the strategic sectors”

It added: “The Domestic Base Price at the marketable gas delivery point under Section 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 pnce shail 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, 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”.

Reacting to the hike in gas price to power plants, the Executive Director, PowerUp Nigeria, Mr. Adetayo Adegbemle said the increase would raise the cost of power generation as gas was a major fuel for power plants. 

Adegbemle in a note to Vanguard Energy  wrote: “The major fuel stock for our  power generation is gas, and increment in gas pricing will definitely impact cost of production of electricity. Federal Government just use to hike its (unpaid) ‘subsidy ticket’, it was already battling Foreign Exchange floating policy impact and now just decided to increase price of Gas.

I think the works of the Power Minister is cut out for him now, as the subsidy the Federal Government now has to cover just increased, unless they allow the market to charge a full cost reflective tariff.

“This further brings back our argument that the subsidy on electricity tariff is unsustainable. When the Minister of Power was insisting on subsidy on electricity tariff, he was taking the “easy path” out of the problem.

“When he was proposing the idea of paying for gas in Naira, you will recall we called him out, even the gas does not belong to the Federal Government. But now, we all need to face the reality”, he added.

 



Source: Vanguard

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