A Review of the Nigerian Energy Industry

New gas price may lead to increased electricity tariff

Power transformerOscarline Onwuemenyi 14 August 2014, Sweetcrude,, Abuja  – There are fears that the projected new increase in the price of gas supplied to power generating companies may ultimately lead to an increase in electricity tariff paid by consumers, with the ongoing review of the Multi-Year Tariff Order, MYTO, by the National Electricity Regulatory Commission, NERC.

NERC recently announced its approval of a new benchmark price of $2.50/mcf for gas supply, and $0.80/mcf as transportation cost for new capacity, from 2014. The new benchmark is expected to rise with US inflation annually.
The increase in gas prices was disclosed by the Chairman of NERC, Dr. Sam Amadi, during a recent briefing in Abuja, where he noted that the price review was done to reflect the current cost of gas production.
Amadi noted that the new gas price and the Central Bank of Nigeria, CBN, expected intervention in gas supply in the power sector are contingent on and have been captured in the Multi-Year Tariff Order. The MYTO is a five-year tariff recovery plan, which is based on capturing the real cost of power production.
He argued that the $2.50/mcf for gas was based on the real cost of production of gas or other sources of power, which is benchmarked against the prevailing global market rate.
“The price of $2.50/mcf is deemed to be a reasonable price when you consider the cost of gas processing and what other industries pay for gas. The price was arrived at through consultation with both the gas producers and the generators, and the power people are prepared to pay a cost that will ensure a much more sustainable supply of gas,” Amadi stated.
With the DISCOs already agitating for a hike in tariff due to operational challenges that had reportedly seen them cup up heavy in their first six months of operation, the hike in gas price could see them raise the tempo of their agitation, leading to a possible hike in tariff by NERC.
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