Following the increase in the price of gas from $1.50 to $3.30 per metric cubic feet, strong indications have emerged that Nigerian electricity consumers will have to pay more for the product going forward.

The new benchmark price of $2.50/mcf for gas supply and $0.80/mcf transportation costs for new capacity from 2014 automatically will raise the production costs of power generation companies.

This, according to stakeholders, will be transferred to consumers in form of higher electricity tariff.

Despite the gas price increase and the attraction it holds for the oil and gas companies, the nation may still struggle with the shortage of the product for the rest of the year.

Though the upward review of gas price has been announced by the Federal Government, the coast is still not clear for its implementation as our correspondent learnt that the Nigerian Electricity Regulatory Commission was waiting to see improvement in the volume of gas supplied to the power sector and the signing of new gas supply contracts between the producers and the power generation firms.

The Federal Government, which expects to get additional 5,000 megawatts of electricity to the national grid courtesy of the new price regime, believes that gas will now be more readily available to the power generation companies.

The Chairman, NERC, Dr. Sam Amadi, told our correspondent in a telephone interview on Saturday that in spite of the new gas price, a cost-reflective electricity tariff had yet to be developed, but he did not rule out the fact that consumers would be on the receiving end.

He said an upward review of the tariffs was imminent, but explained that an improvement in the volume of electricity generated might lower the tariff burden for consumers, while retaining the current generation status meant higher tariffs for consumers.

The NERC boss said it was not logical to predict the rate at which electricity tariffs would rise as a result of the recent review of gas price, pointing out that the interplay of multiple market parameters would determine the new tariff structure.

The commission, according to him, is exploring new possibilities with the Nigerian National Petroleum Corporation, Central Bank of Nigeria, Nigeria Gas Company, power firms as well as the ministers in charge of power and petroleum, among others, to put in place a structured gas market for the power sector and a more realistic tariff arrangement.

As to when Nigerian should expect the tariff review, Amadi said discussions among stakeholders would continue till September, adding that before the end of the year, an informed tariff decision would be reached.

With the 120 per cent increase in gas price and the backlash that may greet the expected rise in electricity tariff, our correspondent gathered that the Federal Government was considering some of form of subsidy. Amadi, however, did not confirm this.

This, analysts said, would no doubt, add to the existing subsidy liability owed the power sector by the Federal Government.

Out of the N100bn electricity subsidy, which was to be released to the industry between 2012 and 2013, only N5bn was received, our correspondent gathered.

The money, which was supposed to have been released by the Ministry of Finance, covered the N12 subsidy per kilowatt/hour of electricity said to be currently enjoyed by consumers.

The Federal Government, as part of its efforts to provide stable power to Nigerians had, in 2012 announced that it had set aside N100bn to subsidise electricity supply for that year and 2013.

Commenting on the rise in gas price, the Chief Executive Officer, Egbin Power Plc, Mr. Mike Uzoigwe, told our correspondent on the telephone that a rise in gas price would prompt power generation companies to request tariff adjustment from the Nigerian Electricity Regulatory Commission, explaining that the request would be targeted at recovering some of the costs of production.

“We don’t know whether the government wants to bear the cost in form of subsidy or otherwise. We are still watching. But the point is that we have to recover the additional costs,” Uzoigwe stressed.

In the same vein, the Chief Executive Officer, Ikeja Electricity Distribution Company, Mr. Abiodun Ajifowobaje, said the increase in the price of gas would automatically result in rise in the cost of production as far as power generation was concerned.

He said, “If the cost of production is high, what do you expect? But there is a solution here! If the government says it is going to absorb the increase in cost, there is no problem. Then the old tariff can remain.

“But if otherwise, there will be an increase in electricity tariff.”

Stakeholders in the power sector had in the past complained that gas suppliers preferred to sell to the manufacturing sector because of the price differentials, stressing that the new arrangement would now bring the price for both sectors at par.

The government also announced a new initiative that would see the Central Bank of Nigeria and Deposit Money Banks lead an effort to pay off about N25bn owed to gas suppliers by the power generation companies.

The NERC had on June 1, 2014 announced a new electricity tariff regime as it adjusted the Multi-Year Tariff Order to incorporate recent changes in supply chain.

The new price arrangement brings the gas supply price for the manufacturing and power sectors at par.




http://www.punchng.com/business/financial-punch/electricity-tariff-to-rise-by-year-end/

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