NERC Wants Review of Gas Pricing for GENCOs

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The Nigeria Electricity Regulatory Commission proposes review of gas pricing policy to enable power generation companies remain in business

By Anayo Ezugwu  |  Feb 20, 2017 @ 01:00 GMT  |

THE Nigerian Electricity Regulatory Commission, NERC, has proposed to the federal government to review gas pricing for electricity generation companies, GENCOs, from dollar to naira-denominated. The commission said such a review is necesssary to relieve the electricity market of the pressure arising from the scarcity of foreign exchange, following Nigeria’s current economic challenges, which it said impacted on electricity production by GENCOs, which pay for gas in dollars.

A statement from Usman Arabi, head of public affairs of the commission, published on its website, also unveiled the agency’s plan to commission 10 new forum offices across the country to boost customer service deliveries by the 11 electricity distribution companies, DISCOs.

The NERC said it was saddled with the job of protecting the interest of both consumers and investors as regards electricity pricing and supply in Nigeria, hence its desire to ensure the growth of the sector. It, however, said that the country’s current economic condition was a huge challenge to the sector and its regulatory job, adding that it was looking for ways to overcome the challenges.

“As Nigerians are fully aware, the macroeconomic indices such as the rate of inflation and exchange rate have steadily gone up over the last one year. This increase has affected the prices of all other commodities in the country. The purchasing power of naira has crashed to all time low within the last couple of months. The MYTO methodology (pricing methodology) mandates the commission to carry out a minor review of the tariff bi-annually and adjust these exogenous factors that are beyond the control of the investors and the regulators.

“The official exchange rate in the country has risen from N198.97 to over N305.05 to a dollar. Kindly note that the unofficial (black market) exchange rate is about N500 to a USD. This alone is bound to trigger an increase in electricity tariff given the fact that all equipment, spare parts, meters used for the generation, transmission and distribution of electricity in Nigeria are imported. Electricity is therefore a product like any other product that is affected by changes in micro economic indices.

“Secondly, the rate of inflation has risen to 18.55 percent as at 1st February 2017 as against the 8.3 percent used in the tariff computation. Similarly the available electricity generation has dropped from the projected 7,199MW in 2017 to under 4,000MW. The drop in power generation is due to vandalism of key facilities.

“It is also a known fact that over 80 per cent of the electricity generated in Nigeria is from gas fired power plant. The gas price is indexed to the US$ as the generators pay the gas suppliers in dollars. The commission has proposed to the government the option of pricing gas in local currency to mitigate the foreign exchange risk which is the major cause for the gap in tariff,” it said.

The NERC is not oblivious of the economic hardship faced by Nigerians and will undertake a tariff review at an appropriate time and manner with the aim of ensuring that the electricity market remains operational. On the 10 new forum offices it said it would open, NERC said it was important to continue to give electricity consumers the opportunity to hold the DISCOs accountable to their jobs through an unbiased umpire.

“The commission in recognition of the importance of protecting the interest of electricity customers has rapidly set up 19 Customer Complaints Forum Offices nationwide with over 10 more in the pipeline to be opened this year. The monitoring and enforcement actions have been intensified by the commission to ensure that the electricity industry operators, especially the DISCOs comply with the rulings of the NERC Forum Offices and other regulations. A lot of the defaulting DISCOs, including the TCN, some GENCOs have been sanctioned by the commission.

“Most of these defaulters have either fully paid the fines or applied for reconsideration. These regulatory oversights of the commission have tremendously increased the rate of voluntary compliance by the electricity industry operators, especially on issues bordering on customer complaints,” it stated.

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