In what has been described as a “pragmatic and creative” short-term approach to address the issue of inadequate gas supply to thermal generation plants across the country, the federal government, through the Nigerian Electricity Regulatory Commission (NERC) has approved a new gas-to-power pricing benchmark of $2.50/mcf and $0.80/mcf as transportation costs for new capacity.
The benchmark, according to Diezani Alison-Madueke, minister of petroleum resources, would equally increase with the United States annual inflation statistics.
Following the announcement, it was explained that the new price regime would not affect long-term Gas Supply Agreements (GSAs) already signed but new agreements that will be signed by power producers and gas suppliers from the time the new price regime took effect on January 1, 2015.
But operators see the gas business as complex, having viewed gas sales contracts as long term of about 10 to 15 years, with a starting price and a price escalation formula. So to them the new price prescribed by the minister of petroleum can only come into effect for new contracts or by mutual agreement of the two parties to an existing contract.
However, Sam Amadi, chairman of NERC, recently maintained that the new price regime would be applicable to every new gas supply, no matter when the contract was signed.
“New gas price takes effect from January 1, 2015 and it applies to every new gas supply, no matter when the contract was signed,” he said.
The new price regime was expected to have hiked electricity tariff by about 40 per cent but NERC halted any tariff increase until June 2015, insisting that the distribution companies should improve power supply before increasing tariffs.
The price of gas-to-power was earlier increased from $0.5 cents per mcf to $1 in 2010.
It was further increased to $1.50 by 2011 and $2 by the end of 2013, and $2.5 in 2014
The government, in a recent inter-ministerial press briefing involving the ministries of petroleum resources, power, NERC, Central Bank of Nigeria (CBN) and Nigerian National Petroleum Corporation, said collective effort was being made to find a lasting solution to shortages in gas supply to power plants in the country.
Alison-Madueke stated that following the challenge of inadequate gas supply, successes had been recorded in sorting out outstanding issues around current gas pricing regime as well as fast-tracking additional development of gas supply sources which will in the short term will result to an addition of at least 370 million metric cubic feet per day (mmscf/d) of gas to the power plants.
She said as part of the new intervention, the CBN and the Bankers’ Committee had agreed to setup a Special Purpose Vehicle to offset about N25 billion outstanding legacy gas related debts owed to gas suppliers by the defunct Power Holding Company of Nigeria, while also working out further financial aid to the power sector.

Johnson Alabi
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