Gas, Forex Stall New Electricity Tariff Take Off

 FG promises 4,000mwh/h daily from 2018

Multiple constraints in the power sector including low gas supply, foreign exchange rate, and inflation rate crushed the Multi Year Tariff Order (MYTO) 2015 implemented in 2016 causing a shortfall of ₦450 billion in the electricity market.

Daily Trust report continues:

The federal government said it has identified this problem and is working to resolve it through a tariff review by the Nigerian Electricity Regulatory Commission (NERC) and improved technical and operational capabilities captured in the Power Sector Recovery Programme (PSRP) launched earlier this year.

With this, government said it is promising to give Nigerians 4,000 megawatts hour per hour (mwh/h) daily from year 2018. This will mean an average electricity supply of 15 to 20 hours across urban and city centres.  

Challenges with gas since 2011

A seven year data on gas supply to GenCos obtained from NERC during its recent tariff consultation in Abuja showed that inadequate gas supply to the 23 gas-fired power Generation Companies (GenCos) has been denying Nigerians of 3,400 megawatts (MW) electricity since 2011.

The GenCos were expected to generate 24,300MW in the seven years but they generated 20,900MW and lost 3,400MW to inadequate gas supply.

It was only in 2016 that generation from gas soared to 3,750MW averagely, above the 3,600MW target. It was also when the power sector witnessed the highest hike in gas price from US$2.30 to US$3.50.

In 2017 so far, there is a target of 3,900MW from gas but data for the first three quarters show that the thermal GenCos have done 3,750MW.

During this period, gas pricing has been an issue that impeded more supply to the gas-fired stations. According to Domestic gas demand record from the Gas Aggregation Company of Nigeria (GACN), gas price GenCos bought gas for US$1.80 per one million British Thermal Units (MMBTU) in 2011 and 2012. The price rose to US$2.10/MMBTU in 2013 and to US$2.30 in 2014 and 2015. After another review, gas price rose to US$3.20 since 2016.

Forex, Inflation Aided ₦450bn Shortfall

Apart from the price of gas, risen foreign exchange (forex), and the inflation rate were other constraints that impacted on the huge electricity market shortfall since 2015.

Forex jumped from N198.97 to a dollar in 2016 even when the ₦198.97 projection in the MYTO was unchanged. It started from ₦234.08 in June 2016 and rose to ₦308 by December 2016. Today, it is over ₦360 but the MYTO 2015 projection still remains unchanged, causing a difference of ₦162 to a dollar.

Fluctuation in the inflation rate since 2016 dealt another huge blow to the sector. While actual projection for the MYTO was 8.80% for the year, inflation rose to 9.6 per cent in January and more than doubled to 17.9% by December. It shows a negative and upward difference of 9.1%.

Recovery Options

The constraints identified have caused a huge ₦450 billion shortfall in the electricity market between February 2015 and December 2016 with a direct implication of more outages recorded across households and industries.

An Executive Summary of the federal government’s Power Sector Recovery Programme (PSRP) obtained yesterday said, the interventions in the programme include clearing the ₦450bn shortfall of which ₦26bn has been approved to offset electricity bills of the federal Ministries, Departments and Agencies (MDAs). Others are restoring cost reflective tariffs in the period while assuring the GenCos through a ₦701.9bn facility to pay their energy invoices promptly.

Government is also looking up to the World Bank for funding with a prospect of a loan of up to US$2.5bn to the sector.