Hike in Electricity Tariff Looms as FG Increases Price of Gas

The Nigerian Midstream Downstream Petroleum Regulatory Authority (NMDPRA) has announced a significant increase in the price of natural gas for strategic sectors, sparking concerns of an imminent electricity tariff hike.

In a statement released by the NMDPRA’s chief executive, Farouk Ahmed, it was revealed that the price of gas for power Generation Companies (Gencos) has risen to $2.42 per cubic feet, up from the previous rate of $2.18 since 2021. Similarly, the price of commercial gas has surged from $2.50 to $2.92 per cubic feet.

This adjustment in gas prices has direct implications for the electricity sector, potentially rendering the Multi-Year Tariff Order (MYTO) calculated for Distribution Companies (Discos) obsolete.

The MYTO, formulated by the Nigerian Electricity Regulatory Commission (NERC) in January of the current year, was based on the previous gas price of $2.18 per cubic feet.

Farouk Ahmed pointed to the Petroleum Industry Act (PIA) 2021, signed into law by the President on August 16, 2021, and gazetted shortly after, as the framework guiding this decision.

He cited Section 167 and the Third and Fourth Schedule of the PIA 2021, which empower the Authority to determine the Domestic Base Price (DBP) and the wholesale price of natural gas supplied to strategic sectors.

The statement partly reads, “The Domestic Base Price at the marketable gas delivery point under Section 167 (1) and other provisions of the PIA shall be determined based on regulations which incorporate among such other matters, the following principles: the price must be of a level to bring forward sufficient natural gas supplies for the domestic market on a voluntary basis by the upstream producers; the price shall not be higher than the average of similar natural gas prices in major emerging countries that are significant producers of natural gas; lowest cost of gas supply based on three tier cost of supply framework; market related prices tied to International Benchmarks.

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“Accordingly, after due consultation with key stakeholders and taking into cognisance the provisions of the PIA, as well as the gazetted Gas Pricing and Domestic Demand Regulations, the NMDPRA hereby establishes the Year 2024 Domestic Base Price as $2.42 / MMBTU and wholesale prices of natural gas in the strategic sector, and $2.92 for commercial gas,”the statement added.