12 January 2014, Lagos – Contrary to the concern raised that the recent increase in the price of domestic gas from $1.5 per thousand cubic feet (mcf) to $2.5 per mcf would not apply to existing long term Gas Supply Agreements (GSAs), investigation has revealed that both existing and future GSAs are affected by the new price.
In what it described as a “pragmatic and creative” short term approach to address the issue of inadequate gas supply to thermal generation plants across the country, the federal government, through the Nigerian Electricity Regulatory Commission (NERC) had approved a new gas-to-power pricing benchmark of $2.50/mcf and $0.80/mcf as transportation costs for new capacity.
Following the announcement, concern was raised that the new price regime would not affect long term GSAs already signed but new agreements that will signed by power producers and gas suppliers from the time the new price regime took effect on January 1, 2015.
Chief Executive Officer of Frontier Oil Limited, operator of Uquo Marginal Field, first marginal gas field in Nigeria, Mr. Dada Thomas had told THISDAY at the weekend that gas business was a complex one.
According to him, gas sales contracts are long term of about 10 to 15 years, with a starting price and a price escalation formula.
“The new price prescribed by the Honourable Minister of Petroleum can only come into effect for new contracts or by mutual agreement of the two parties to an existing contract. It will therefore, take time for it to be felt in the market,” Thomas said.
He described the increase as a right step by the government to fuel the growth of Nigeria’s power sector.
However, the Chairman of NERC, Dr. Sam Amadi told THISDAY at the weekend that the new price regime would be applicable to every new gas supply, no matter when the contract was signed.
“New gas price takes effect from January 1, 2015 and it applies to every new gas supply, no matter when the contract was signed,” Amadi said.
The new price regime was expected to have hiked electricity tariff by about 40 per cent but NERC halted any tariff increase until June 2015, insisting that the distribution companies should improve power supply before increasing tariffs.
The price of gas-to- power was earlier increased from $0.5 cents per mcf to $1 in 2010.
It was further increased to $1.50 by 2011 and $2 by the end of 2013, and $2.5 in 2014
The government, in a recent inter-ministerial press briefing involving the ministries of petroleum resources, power, NERC, Central Bank of Nigeria (CBN), Nigerian National Petroleum Corporation (NNPC), said collective effort was being made to find a lasting solution to shortages in gas supply to power plants in the country.
Alison-Madueke stated that following the challenge of inadequate gas supply, successes had been recorded in sorting out outstanding issues around current gas pricing regime as well as fast-tracking additional development of gas supply sources which will in the short term result to an addition of at least 370 million metric cubic feet per day (mmscf/d) of gas to the power plants.
She said as part of the new intervention, the CBN and the Bankers’ Committee had agreed to setup a Special Purpose Vehicle (SPV) to offset about N25 billion outstanding legacy gas related debts owed to gas suppliers by the defunct Power Holding Company of Nigeria (PHCN), while also working out further financial aid to the power sector.
– This Day