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

Electricity tariff hike imminent as FG raises domestic base gas price for power firms
April 02
08:43 2024

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.

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The NMDPRA also pegged the cost of commercial gas at $2.92mmbtu, up from the previous cost of $2.5 MMBTU.

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.

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Announcing the new prices 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.

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“(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”.

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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”.

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

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