3 August 2014

Nigeria: FG Approves New Price for Gas

Abuja — Federal Government on Saturday increased the price of gas from $1.50 to $3.30 per metric cubic feet, a move that would certainly lead to further hike in electricity tariff.

With the new gas price, the government is targeting an additional 5,000mega watt to the national grid as gas would hopefully become more available, all things being equal.

The government also announced a new initiative that would see the Central Bank of Nigeria (CBN) lead an effort to pay off about N25billion owed to gas suppliers by the power generation companies.

Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, who unveiled the new initiative in Abuja at a briefing attended by the Minister of Power, Chinedu Nebo, CBN Governor, Godwin Emefiele, and the Nigerian Electricity Regulatory Commission (NERC) Chairman, Dr. Sam Amadi, said government expects power supply to stabilise by October this year.

NERC had on June 1, announced a new tariff regime as it adjusted the Multi-Year Tariff Order (MYTO II) to incorporate recent changes affecting the sector's supply chain.

Also, Nebo had in the past complained that gas suppliers preferred to sell gas to the manufacturing sector than to power companies because of the large price differentials.

The new arrangement brings the gas supply price for both sectors at par.

Alison-Madueke explained that following government intervention plans, "NERC has approved a new benchmark price of $2.50/mcf for gas supply, and $0.80/mcf as transportation costs for new capacity, from 2014. This benchmark will rise with US inflation yearly.

"In addition to new price, NERC will require firm commitments from gas suppliers, that they will supply the agreed quantities of gas to generation companies as long as payment terms are met".

She noted that in the medium to long term, "it is anticipated that this new price regime should trigger additional investment in the infrastructure for gas to power".

The minister disclosed: "NERC is presently concluding the review of Aggregate Technical Commercial and Collection (ATC &C) losses studies submitted by the distribution companies.

"This will be followed by a review of the revenue requirement for the power sector that is to be covered by a revised MYTO path.

"While the detail of the tariff is being worked out, NERC reaffirms its commitment to ensure cost recovery for all prudent and efficient operators".

On government plan to pay off legacy debt to gas suppliers, the minister stated that "the CBN is looking at banking sector led measures to pay off N25b of debts owed to gas suppliers.

"This will be subject to reconciliation efforts and adequate provision for this support in a revised MYTO that ensures repayment within five years.

"The CBN will also play key role in financial arrangements that guarantee payment for gas supply by the power sector".

Alison-Madueke stressed that with the new pricing regime and government efforts in revamping and expanding gas production and processing facilities, government expects to achieve at least 370million metric cubic feet of gas to power before the end of the year.

This, she noted would translate into about additional 5,000mw of power to the national grid.

Elaborating on gas debt pay off, Emefiele said CBN will establish a special purpose vehicle to settle the debts.

He said the CBN wants to ensure that "the gas suppliers are given some confidence by ensuring that the existing debts are paid off.

"The CBN as well as the deposit money banks will be seeking ways to set up an SPV where this N25billion will be paid to existing gas suppliers, give them confidence to continue to produce gas which is badly needed to continue to power our generation plants".

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