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Power firms plan gradual increase in tariff

By on September 9, 2014

Nigerians may continue to pay more for electricity following the recent upward review of gas price.

But the expected increase, according to industry sources, will be spread over an undisclosed period.

“Consumers would likely see a bit-by-bit introduction of the additional production cost spread over a period,” a top source in the Nigerian Electricity Regulatory Commission told our correspondent on Friday.

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

It was learnt that the new benchmark price of $2.50/mcf for gas supply and $0.80/mcf transportation cost would automatically raise the production cost of the power generation companies.

Stakeholders expect that this added cost will be transferred to consumers in the form of higher electricity tariff.

To this end, the Chairman, NERC, Dr. Sam Amadi, told our correspondent that the expected increase in tariff was likely going to be different from one power distribution company to another.

Although power production is expected to increase as a result of the reviewed gas price, Amadi noted that some Discos might postpone their loss recovery.

Though the upward review in the gas price has been announced by the Federal Government, the coast is still not clear on its implementation.

Our correspondent learnt that NERC was waiting to see an 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.

Amadi said although electricity consumers might have to pay more after the gas price had been increased, a cost-reflective tariff had yet to be developed.

He explained that an improvement in the volume of electricity generated could lower the tariff burden for consumers.

The NERC boss said it was not logical to predict the rate at which electricity tariff would rise as a result of the recent upward 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 a number of options to ensure a structured gas market for the power sector and a more realistic tariff arrangement.

Amadi said NERC was already discussing with the Nigerian National Petroleum Corporation, the Central Bank of Nigeria, Nigeria Gas Company, power firms as well as the ministers in charge of power and petroleum, among others, to achieve this.

The Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, had said 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 also said, “NERC is presently concluding the review of Aggregate Technical Commercial and Collection 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 Multi-Year Tariff Order 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.”

The minister also said that the CBN was working towards paying off N25bn of debts owed to gas suppliers; with the apex bank also playing a key role in the financial arrangements that would guarantee payment for gas supply by the power sector.

 

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