Nigeria’s Gas Price Hike “The bulk of the debts accumulated by Gencos arose post privatization of PHCN” - Africa’s premier report on the oil, gas and energy landscape.

Nigeria’s Gas Price Hike “The bulk of the debts accumulated by Gencos arose post privatization of PHCN”

The establishment of a new pricing framework for natural gas for strategic sectors such as Power is considered a win for upstream gas producers, but that in itself, doesn’t tell the whole story.

In the aftermath of the price announcement, Africa Oil+Gas Report caught up with Eberechukwu Oji, Chief Executive Officer of ND Western, the Nigerian independent firm whose Joint Venture with NNPC E&P Ltd (NEPL) is the largest supplier of natural gas to Nigeria’s domestic market.

Excerpts from the short conversation between Oji and Toyin Akinosho, publisher of AOGR …

AOGR The Government’s increase of the Domestic Base Price (DBP) to $2.42 per Million Metric British Thermal Units (MMBTU). This means increased price of the commodity for power Generation Companies (Gencos) to $2.42 per thousand cubic feet. The price of gas sold to Gencos had been at $2.18 since 2021. Is this good? Plus, no one said anything about willing seller willing buyer. This is still “Price Control”. Is it good or am I getting it all wrong?

Oji: The increment in the Domestic Base Price (DBP) from $2.18/MMBTU to $2.42/MMBTU for the power sector is indeed a positive development for upstream gas suppliers. While the price may not fully reflect the true cost of gas production, it indicates a positive response from the government and regulatory bodies to the concerns of upstream producers. With thermal energy accounting for a substantive portion of Nigeria’s power generation, incentivizing gas production is crucial for meeting the country’s energy needs. 

Regarding the concept of willing buyer and willing seller, it is our view that we need to be deliberate, as a country, to attain a free gas market as quickly as possible. That being said, the DBP directly applies to the regulated strategic sectors in line with PIA. Thus, agreements based on willing buyer/willing seller principles may not be directly affected by the DBP.

You are right, this is still price control. We need to move to willing buyer willing seller as quickly as possible.

Is it possible for you to put yourself in the shoes of Transcorp Power, or, say, Geregu Power? Is this not a little too high for these electricity generation companies?

Considering the perspective of Gencos, it’s understandable to anticipate potential challenges from the price increment, especially from electricity consumers. It’s crucial to recognize that the affected Gencos operate within a regulated value chain, with a tariff model that allows approved fuel cost as a pass-through. Thus, the gas price increment may not necessitate an adjustment to the Gencos’ cost component in the tariff model. However, the gas price increment may warrant an upward review of the consumer electricity tariff.

There is a lot of talk of Legacy debts (and Transcorp owes you a lot of that). Were these debts owed by the old PHCN before the takeover by the Private Gencos? Or were these debts incurred in the course of the last 11 years post privatisation?

The bulk of the debts accumulated by Gencos arose post privatization of PHCN. For most of our own customers, these debts dates as far back as 2014, post the privatization of PHCN.

This increase, which is really an incentive, is coming less than a month after the incentives rolled out on Non-Associated Gas, by the President. Wouldn’t you then call this a month of good tidings?

The recent increase in the DBP, coupled with incentives for Non-Associated Gas, reflects a positive trend in the Nigerian government’s prioritization of the gas sector. However, the gazette by the FGN on incentivizing Non-Associated Gas (NAG) production speaks to greenfield developments in onshore and shallow water locations. There is a need to seek clarity from the regulators on what this means for brown fields as we expect to have access to these incentives in order to fulfil the aspiration of the FGN in increasing the nation’s gas production. These efforts are warmly received by gas producers, underscoring the pivotal role of the gas sector in ensuring energy security, driving electricity generation, and fostering economic development.

As we have always advocated without incentivising upstream gas production, all the beautiful gas plans of the government collapses.

Editor’s note: The Nigerian government announced, the day after the gas price hike, that it had approved an increase of 300 per cent electricity tariff for Band A consumers in the country. Accordingly, power distribution companies (DisCos) will be allowed to raise electricity prices to ₦225 ($0.15) per kilowatt-hour from ₦68 for urban consumers this month effectively from April 1, 2024.

 

 

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