The Nigerian Electricity Regulatory Commission, NERC, said on Monday that a new tariff regime on gas supply to electricity producers in the country will to come into effect on Tuesday.
The Chairman of the Commission, Sam Amadi, said in Abuja that based on the new arrangement, manufacturers and other business owners in the country would henceforth be paying higher electricity prices.
The Chairman, who did not disclose what the new tariff would be, said that it would not adversely affect residential electricity consumers who are expecting a hike in electricity bills in line with the Multi Year Tariff Order, MYTO, the template guiding adjustments of electricity tariffs in the country.
The disclosure came as the Central Bank of Nigeria, CBN, signed a N213 billion financing agreement with some deposit money banks, DMBs, to offset their legacy debts that accrued from their past interventions in the power sector, to open new credit lines to old and new investors in the industry.
The CBN, along with key players in the power sector, including gas suppliers, electricity distribution and generation companies, had, on November 18, signed the N213 billion definitive agreement for the implementation of the CBN-Nigeria Electricity Market Stabilisation Facility, NEMSF.
But Mr. Amadi said the pending new gas tariff regime would ensure adequate supply of gas to power plants towards improved and sustained power supply to attract new investors into the sector.
Though the new arrangement would translate to higher cost of business, and producers of goods and services would naturally transfer part of the cost to consumers, he said the impact on consumers, by way of higher prices for goods and services, would not be immediate.
“The objective of this facility and support is to ensure that the power sector is viable and reliable,” the NERC Chairman said. “Essentially, we have our own commitment, which is basically to ensure cost recovery, both the CBN and the banks that are doing this and for other investors, who may want to invest either in upstream and downstream sectors.”
He said NERC would continue to ensure the tariff is cost-reflective, pointing out that the new measure would not constitute a burden on consumers immediately.
“For avoidance of doubt, there will be no increase in electricity tariff for residential consumers for six months until NERC begins to see improvement in electricity supply,” the Chairman said.
According to him, the expectation is that with more gas coming to the power plants, there would be more reliability in power supply in the next two to four months, with the facility and other interventions aimed at increasing capacity.
Besides, he said the ongoing metering plan would ensure that consumers were more comfortable with increased electricity supply, adding that NERC would ensure that the tariff was ready by Tuesday.
“By tomorrow (Tuesday) we will approve a tariff which is already well known to both the CBN and the transaction advisers as well as the participants from the deposit money banks.
“So, essentially the tariff is guaranteed. It is going to come into effect tomorrow and it will allow for full recovery and ensure that there is no risk that is not fully covered in this transaction,” he explained.
As at Monday, the NERC Chairman noted that with about 4,000 megawatts (MW) of electricity worth over N500 billion market, the expectation was that the facility would deepen the market and ensure good business for the banks and reliable power supply to electricity consumers.
The CBN governor, Godwin Emefiele, said over the years the bank had initiated a number schemes to fund government’s power sector reforms.
The latest agreement, follows an MOU between the Ministries of Petroleum Resources and Power, CBN, NERC and key operators in the sector about a month ago. Mr. Emefiele said would positively impact the sector, in terms of investments and improved gas and electricity supplies on sustainable basis.
The governor described the agreement as a bold step by Nigerian banks to demonstrate their commitment to the development of the power sector as well as supporting government’s effort in resolving the country’s power supply problems.
According to him, the deal between the CBN and the DMBs confirmed that both are now ready to work together to disburse funds to clear outstanding legacy debts and ensure the commercial viability of the business for existing and new investors.
“When the legacy debts are cleared, the entire chain becomes cleared,” Mr. Emefiele said, adding that he is optimistic that the arrangement would also encourage Nigerian banks to continue to give support.
He assured that the review of the gas tariff, which was based on earlier investigations by the Bankers Committee, would not unduly affect Nigerians to a point they would not be able to pay their electricity bills.
The decision to review the tariff to $3.30 per standard cubic feet, SCF, was taken by all the stakeholders, including the International Oil Companies, IOCs, investors in the gas value chain and all relevant government agencies.
The new tariff is composed of $2.50 as cost of gas and 80 cents for cost of transportation.
The Managing Director, First City Monument Bank Limited, FCMB, Ladi Balogun, who spoke on behalf of the DMBs, described the agreement as a desirable step for banks in the country to contribute to current effort to ensure uninterrupted electricity supply in the country.
He promised the banks’ commitment to providing the channels for funding by performing their financial intermediation roles in the power sector towards national economic transformation.