The cost of gas remains one of the key determinants of the electricity tariff in Nigeria and it was high time the government found a way to help bring down the price in the interest of the sustainability of the power sector.
This was contained in a statement by the Executive Director, Research and Advocacy of the Association of Nigerian Electricity Distributors (ANED), Barr. Sunday Oduntan, issued on Friday.
“Most of Nigeria’s power generating plants are thermal plants. They use gas as their fuel and as long as the price of gas is high, the cost of generation – and the eventual tariff to the end user – will also be high.
At present, the energy generation mix is around 80% thermal and 20% hydro.More so, the cost of gas is also affected by fluctuations in forex. So while the cost of gas (and generation) will rise due to forex fluctuations, the tariff is fixed in Naira and may not account for this difference especially because of the absence of a commitment to adhering to periodic tariff reviews.
“As we all know, today, the price of gas for local power production is a little over three dollars for one million British Thermal Units (mmbtu). Meanwhile, in this same country, the cost at which LNG exports gas is less than half the same amount. If you also consider that some of these IOCs are still flaring this much-needed gas into the atmosphere, you will realise that there are many options available to the government to intervene through in the quest to make electricity more affordable.
“This cost of gas presently accounts for almost 70% of all the input the plants utilise to generate power. Except we begin to consider solutions from that angle, we may not make much headway in providing the cheap electricity Nigerians need to move the country to an industrial giant,” Oduntan said.
The absence of a market-reflective tariff has continued to bedevil the sector and is presently responsible for most of the N1.5tn liquidity gap that has been threatening to derail the power sector reforms for years. Also, with effect from July 1, a new performance driven increased tariff structure is set for implementation as a step towards narrowing the liquidity gap.
“If the cost of the major input in any production process is reduced, it will have a ripple effect across the entire chain. That is what we are advocating for. It will be in the interest of the end users and by implication, the Nigerian economy as a whole,” Oduntan concluded.
