ENERGY CRISIS: FG's 11% hike in gas prices means more problems for GENCOs


Power production businesses now bear additional costs as a result of the Federal Government’s 11% rise in the wholesale price of gas to power plants yesterday, from $2.18 per MMBTU to $2.42/mmbtu (million British thermal unit).

After years of unpaid payments totaling more than $1.2 billion, the gas providers cut delivery to power plants starting in January of this year. As power supplies across the nation decreased last month, the government stepped in and paid the corporations $120 million.

The government also increased the price of commercial wholesale gas from $2.42/mmbtu to $2.92/mmbtu in a notice sent to Engineer Farouk Ahmed, Chief Executive of the Nigerian Midstream and Downstream Petroleum Regulatory Authority, or NMDPRA.

The Petroleum Industry Act of 2021, according to the Authonty’s notification titled “Announcement on establishment of the 2024 domestic base price and applicable wholesale price of natural gas for strategic sector,” gave it the authority to determine domestic base prices for the regional market.

“The Nigerian Midstream & 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 in accordance with Section 167, the Third and Fourth Schedule of the PIA 2021.”

According to Section 167 (1) and other PIA rules, “the Domestic Base Price at the marketable gas delivery point shall be determined based on regulations which incorporate among such other matters, the following principles:” (a) The price must be set at a level that encourages upstream producers to voluntarily supply enough natural gas for the domestic market.(a) The price should not exceed the mean of comparable natural gas prices in prominent emerging nations that are substantial natural gas producers. (c) The lowest gas supply cost determined by using a three-tier cost of supply structure. (d) Prices linked to international benchmarks in the market.

Consequently, following thorough discussion with important parties and consideration of the PIA’s provisions as well as the gazetted Gas Pricing and Domestic Demand Regulations. The NMDPRA hereby sets the wholesale pricing of natural gas in the strategic sector and the domestic base price for the year 2024 at USD 2.42 per MMBTU.

The Executive Director of PowerUp Nigeria, Mr. Adetayo Adegbemle, responded to the increase in gas prices for power plants by stating that the price increase would increase the cost of power generation because gas was a key fuel for power plants.

“The primary fuel stock for our power generation is gas, and increment in gas pricing will definitely impact the cost of production of electricity,” Adegbemle wrote in a message to Vanguard Energy. The Federal Government recently agreed to raise the price of gas while also raising its (unpaid) “subsidy ticket” and combating the effects of the Foreign Exchange Floating Policy.

"I believe the Power Minister’s job is now cut out for him because, barring the market from charging a full cost reflective price, the Federal Government must now pay a higher amount of subsidy.

This strengthens our case that the electricity pricing subsidies is unsustainable. The Minister of Power was taking the “easy path” out of the issue when he insisted on an electricity pricing subsidy.

You will remember that we called him out when he suggested paying for gas in Naira because even the gas itself is not federal government property. However, we must all now accept reality, he continued.