A Review of the Nigerian Energy Industry

Reviewed gas price may lead to higher electricity tariffs

Meter11 September 2014, Abuja – A renowned energy expert, Mr. Dan Kunle, has said the recent upward review of the price of gas supplied to the electricity sector by the Nigerian Electricity Regulatory Commission (NERC) from $1.50 to $3.30 per metric cubic feet (MCF) will likely see Nigerians pay more for electricity services.

Kunle told THISDAY in Abuja that the price of electricity tariff may rise from the current rate of N14 per kilowatt hour (kh) to N40/kh for domestic consumers and even more for industrial users who now pay about N25/kh in the next review of the Multi Year Tariff Order (MYTO) by NERC.

NERC reviews its MYTO framework twice in a year; December and June, putting into consideration changes in certain components like inflationary and exchange rates, cost of gas as well as the Aggregate Technical Commercial and Collection (ATC&C) loss figures of the distribution companies among  others.

The next review of MYTO is scheduled for December this year. THISDAY however gathered from sources in the NERC that the new tariff would likely come in with the commencement of the Transitional Electricity Market (TEM).

These sources also noted that the recent ATC&C loss studies conducted by the distribution companies suggested that both NERC and Bureau of Public Enterprises (BPE) may have under estimated the actual ATC&C losses figures in the sector, hence, a gap that would affect the next MYTO review.

While offering his knowledge of what may likely play out with the new gas price in the emerging electricity market, Kunle said: “If care is not taken the reflective cost of the increase per kilowatt hour could be N40; which domestic consumer will pay that in this country.

“If what we are paying currently for gas is $1.50 and consumers are paying about N14 and N25 depending on their classes, by the time it is escalated to $3.30 what will be the price that domestic consumer will pay?

“Will the distributors be asked to pass the cost or will they be asked to take the cost and sell electricity at the old price?”

He further asked the NERC to tell Nigerians how it wants to transparently pass the rising cost across the value-chain, saying: “I haven’t seen the arithmetic but if what we are paying with the current price of gas is anything to consider, what will be the price that domestic consumer will pay with the escalation of the price of gas.
“The sector is currently in a financial deficit that is in excess of about $2.2 billion and that is scientifically. How will this be underwritten for the industry to be free of the deficit and when that is done, you have cut the curtain and then the sector can grow but how do you avoid further accumulation of such financial deficits.”

He also criticised the recent submission of the Managing Director of Total, Mrs. Elisabeth Proust, on the new gas price, saying she was only doing a ‘firework’ in the interest of her company and other international oil and gas companies in Nigeria.

“The issue of gas supply is historical; there has been no law governing gas, the law provided only for oil exploration and mining, because as at that time gas was not a phenomenal commodity as it is today.

“It was until 1999 that a specific law was signed for gas production and processing and that is what created the Bonny LNG through a decree, so the joint venture we have been operating is largely oil exploration and mining and the IOCs know that there is no exact legal framework that guides gas exploration, processing, utilisation and monetisation with respect to the Nigerian economy,” he added.

While requesting the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, to follow-up on the country’s success in its local content law with a realignment and modification of extant gas production and supply framework, Kunle said: “We need an executive window from the presidency to work hand-in-hand with the oil companies in Nigeria. Those windows are there; the Associated Gas Framework Agreement (AGFA) was created for such purposes and Shell, Agip have taken advantage of that to build power plants. The enforcement we need now to flow from the presidency and concerned entities is to realign and modify such window since the Petroleum Industry Bill is not yet in place.”

He equally said that Proust’s call for further review of Nigeria’s gas price should not be heeded to because it will be detrimental to the development of Nigeria’s domestic economy.


– This Day

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