Industry Gets Fair Deal With 40 Cent Per Unit Gas Price
 16th SEP 2006

Great opportunities appear on the way for consumers, operators and prospective investors in Nigeria’s power sector when the ongoing reform programme is complete.

One issue that was a critical disincentive for investors interested in participating in the development of the sector was the unattractive price of natural gas, which provides the fuel for the turbines used in electricity generation. Though the Nigerian Gas Company (NGC) supplied gas to the erstwhile National Electric Power Authority (NEPA) at a subsidised rate of about N15 per unit of 1000 standard cubic feet (scf), the real market price was as high as N143 per 1000 scf.

For years, NGC, which is a Nigerian National Petroleum Corporation (NNPC) subsidiary, maintained negotiations with NEPA to ensure that the price paid for gas was raised to at least N70 per 1000scf to enable maintain its facilities and still break even. The negotiation did not make much progress before it crashed. The result was threats of hike in electricity tariffs, which private sector operators feared was capable of worsening the nation’s industrial capacity utilisation level. The fear was that firms, as a result of the hike, may be forced to scale down their production and even lay off workers. Indeed, industrial capacity utilisation declined to about 43 per cent in the first one and half months of 2006. But, Minister of Power and Steel, Liyel Imoke, said in Lagos that as part of the ongoing reform of the power sector the issue of inappropriate price for gas has been resolved to create an attractive environment for prospective investors.

According to Imoke, who was providing an update on the progress of power sector reform, this is the first time the Federal government has evolved a pricing policy for gas, which fixes a defined cost at 40 cents per unit of 1000 scf of gas. “We never had that before. That is something that gladdens all our hearts, because the private sector now knows how much gas costs. Gas is a fairly subsidised commodity. It costs a lot less now. We now know that gas is 40 cent per unit. That has been defined now for the first time in the history of the country. So, investors can plan, and government can also plan with the consumers,” he said.

However, the minister said one issue that has posed a challenge to government was trying to dissuade multi-national joint venture oil operators in the country to de-emphasise their focus on export-oriented gas development infrastructures to the detriment of servicing the domestic market. The minister said the new gas pricing policy would help establish the balance since, according to him, the high price of gas and crude oil at the international market, made it more attractive to export gas than develop the local industry.

Saying the new price is applicable to both the new power companies that are coming up in the country and private sector operators, Imoke noted: “That is the price for gas that we have been fighting for. For government, and as a nation, gas remains for us that fuel for our industrialization. We must be able to get the appropriate price that would be available to everybody”.

On the impact of the National Integrated Power Programme (NIPP), the minister expressed the belief that “it will dovetail seamlessly into the reform programme of the power sector.” Said he: “The sector has not been viable, and because of that private capital has not been coming in. When private capital ventures to come in, they want guarantees to back up their investments. So, you have them demanding all sorts of guarantees from the Federal government before they make any investment. And without these guarantees, they can constitute some encumbrances on the revenues of the government. “That is why government has been trying to make the sector much more effective for investors. The first thing is that all the power projects that are being constructed under the NIPP, including the four stations –Geregu, Papalanto, Omotosho and Alaoji will all be operated, managed and eventually owned by the private sector. That is why we are creating an enabling and attractive operational environment in the sector for prospective investors.”

In embarking on the restructuring programme to revamp the sector, he said government ensured that efficiency was not only brought to the system, but the capacity of the system had to also be expanded. “Private sector money does not look dispassionate. It does not say: ‘Nigeria has no light, let us go there, even though there is no profit, let us go to Nigeria. Private capital is extremely dispassionate. It goes where there is profit. Our tariffs are regulated. The sector is inefficient and as such private sector would not be attracted to Nigeria. So, we need to restructure it to make it more effective. That is what we have done.

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