Electricity generation companies have called on the Nigerian Electricity Regulatory Commission to urgently review electricity tariffs following the Federal Government’s recent increase in the domestic base price of gas, warning that delays could worsen liquidity challenges and distortions across the power sector.
The Chief Executive Officer of the Association of Power Generation Companies, Joy Ogaji, said operators were less concerned about the increase in gas prices itself, but more worried about regulatory delays in adjusting tariffs to accommodate the new cost reality.
Ogaji, speaking in an interview with our correspondent on Monday, described gas as a “pass-through cost” that must be captured transparently in tariff computations.
She said, “Gas price, whether it is raised to $10, is not really our problem. Gas is a feedstock and a pass-through cost. So if the regulator in the power sector is comfortable with the increase, it is not a problem for us because whatever we are charged, we pass it down to consumers.
“All we want is for NERC to acknowledge the new base price and input it into tariff calculations. There is now a clear difference between what we used to pay and the new price, and that gap must be recognised.”
Despite the push for tariff adjustment, Ogaji stressed that the core challenge in the sector remained poor payment discipline rather than pricing. “For us, whether the price is high or low is not the issue. What matters is whether payments are made for what is supplied.
Even when the price was low, what percentage of invoices were settled? If you increase the price and payments are still not made, what difference does it make?” she queried.
She further called for the establishment of what she described as “bankable demand” in the electricity market, arguing that the absence of a clear and reliable payment structure continues to deter investment. “We need to define bankable demand in the market. Until we do that, we cannot determine whether investor confidence will improve or whether new investors can come in.
“Nigeria has over 200 million people, but how many are actually paying for electricity? And even among those who are paying, do we have transparency to verify those payments? There is no transparency anywhere,” she added.
Ogaji warned that without structural reforms, including stronger political will and enforcement, the sector risks stagnation. “If we are not careful and do not change the dynamics, we will still be discussing the same issues in two years. The President needs to take decisive action, possibly declare a state of emergency in the sector and give clear marching orders on what must be achieved,” she said.
Also speaking, the Executive Director of PowerUp Nigeria, Adetayo Adegbenle, said the increase in gas prices would inevitably translate to higher electricity tariffs and rising subsidy obligations. “Since the price of gas, which is the major fuel for Gencos, has increased, it is expected that electricity tariffs will also increase,” he said.
Adegbenle added that regardless of whether tariffs are immediately adjusted, the financial implications would still manifest in higher invoices from generation companies. “Whether electricity tariffs are reviewed or not, it is bound to affect invoices from Gencos. What we need to understand, however, is what the government’s plan is to absorb the shock of these expected changes.
“Subsidies, or market shortfalls, are expected to increase since invoice values will increase. I have no idea yet, but this is the point. I hope the government will encourage full market deregulation and implement a fully contract-based electricity market. I had planned to make this a national discourse at some point, because we cannot continue to pretend that the electricity market is not optimal,” he explained.
He, however, questioned the Federal Government’s preparedness to absorb the fiscal impact of the changes. “We cannot continue to pretend that the electricity market is optimal. This situation also raises concerns about the sustainability of plans to raise bonds to offset debts owed to gas suppliers and Gencos. This is also another major argument against the bond being raised to pay off market exposure in terms of debt to gas suppliers and generating companies,” he added.
On his part, the President of the Nigeria Consumer Protection Network, Kunle Olubiyo, criticised the methodology behind the new gas pricing framework, describing it as inconsistent and lacking transparency. “The new base price is a bit confusing. The Nigerian Midstream and Downstream Petroleum Regulatory Authority had, from July last year, approved $1.13 as transport cost. So how do you now arrive at a figure that does not reflect the full pricing model?” he asked.
Olubiyo noted that when previous base prices are combined with transportation costs, the effective gas price should already be above $3 per unit. “It was around $2.15 last year, and when you add the $1.13 transport cost, it should be about $3.63. So whatever figure is being quoted now does not reflect the true cost,” he said.
He added that Nigeria’s power sector currently enjoys one of the lowest gas pricing regimes due to domestic supply obligations, despite global market pressures. “Gas is a commodity, just like petrol. In the international market, buyers are willing to pay up to $12 due to geopolitical tensions, especially in the Middle East. So why would any producer prefer to sell to Gencos locally, where they are often asked to be patriotic and even sell on credit?” he queried.
Olubiyo, however, argued that tariff increases alone would not resolve the sector’s deep-rooted inefficiencies. “Even before privatisation, we warned that tariff increases are not a silver bullet. There are fundamental issues affecting efficiency across the value chain,” he said.
He pointed to widespread technical and commercial losses, particularly in metering and energy accounting, as major drivers of inflated costs. “There are significant leakages in how electricity is measured and billed. Many meters are obsolete and lack integrity. If we fix these issues and ensure accurate measurement, most of the claims by Gencos could drop by 40 to 50 per cent. What consumers are paying for today includes inefficiency and systemic leakages,” he added.
The Federal Government, through the Nigerian Midstream and Downstream Petroleum Regulatory Authority, last week reviewed the domestic base price of natural gas, a benchmark used in pricing gas supplied to power plants under the Domestic Gas Delivery Obligation framework.
The domestic gas pricing regime was originally designed to ensure an affordable and reliable gas supply to the power sector, with prices historically set below international market rates to support electricity generation. However, persistent payment shortfalls, mounting debts to gas suppliers, and rising global gas prices have triggered calls for a cost-reflective pricing model.
Industry data shows that gas accounts for over 70 per cent of Nigeria’s electricity generation mix, making it the single largest cost component in power production. Under the current structure, any increase in gas prices directly impacts the cost of generation, which is expected to be reflected in electricity tariffs unless subsidised by the government.
The latest price adjustment is aimed at incentivising gas producers to prioritise domestic supply, but warns that without corresponding reforms in tariff setting, payment assurance, and market transparency, the policy may further strain an already fragile electricity market.
punch.ng
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