The Call for Urgent Tariff Review in Nigeria’s Power Sector
Electricity generation companies in Nigeria have raised concerns about the need for an urgent review of electricity tariffs, following a recent increase in the domestic base price of gas. They argue that delays in adjusting these tariffs could exacerbate liquidity challenges and distortions within the power sector.
Joy Ogaji, the Chief Executive Officer of the Association of Power Generation Companies, emphasized that while the rise in gas prices is not the primary concern, the regulatory delay in updating tariffs to reflect the new cost reality is a significant issue. She described gas as a “pass-through cost” that should be transparently included in tariff calculations.
Ogaji explained, “Gas price, whether it is raised to $10, is not really our problem. Gas is a feedstock and a pass-through cost. So if the regulator in the power sector is comfortable with the increase, it is not a problem for us because whatever we are charged, we pass it down to consumers.”
She stressed that the key issue is not the price itself but the payment discipline within the sector. “For us, whether the price is high or low is not the issue. What matters is whether payments are made for what is supplied,” she said. Ogaji highlighted that even when prices were low, many invoices went unpaid, and increasing prices without improving payment habits would not resolve the underlying issues.
Ogaji also called for the establishment of “bankable demand” in the electricity market, arguing that the absence of a clear and reliable payment structure continues to deter investment. “We need to define bankable demand in the market. Until we do that, we cannot determine whether investor confidence will improve or whether new investors can come in,” she added.
Challenges in Payment Discipline and Market Transparency
Adetayo Adegbenle, Executive Director of PowerUp Nigeria, echoed similar concerns, stating that the increase in gas prices would inevitably lead to higher electricity tariffs and rising subsidy obligations. He noted that regardless of whether tariffs are immediately adjusted, the financial implications would still manifest in higher invoices from generation companies.
Adegbenle questioned the government’s preparedness to absorb the fiscal impact of the changes. “We cannot continue to pretend that the electricity market is optimal. This situation also raises concerns about the sustainability of plans to raise bonds to offset debts owed to gas suppliers and Gencos,” he said.
He also criticized the methodology behind the new gas pricing framework, calling it inconsistent and lacking transparency. Kunle Olubiyo, President of the Nigeria Consumer Protection Network, pointed out that the new base price does not reflect the true cost of gas when combined with transportation costs.
Olubiyo argued that tariff increases alone would not resolve the sector’s deep-rooted inefficiencies. He pointed to widespread technical and commercial losses, particularly in metering and energy accounting, as major drivers of inflated costs. “There are significant leakages in how electricity is measured and billed. Many meters are obsolete and lack integrity,” he said.
The Role of Gas in Nigeria’s Electricity Generation
The Federal Government, through the Nigerian Midstream and Downstream Petroleum Regulatory Authority, recently reviewed the domestic base price of natural gas, a benchmark used in pricing gas supplied to power plants under the Domestic Gas Delivery Obligation framework.
Gas accounts for over 70% of Nigeria’s electricity generation mix, making it the single largest cost component in power production. Under the current structure, any increase in gas prices directly impacts the cost of generation, which is expected to be reflected in electricity tariffs unless subsidized by the government.
The latest price adjustment aims to incentivize gas producers to prioritize domestic supply. However, industry experts warn that without corresponding reforms in tariff setting, payment assurance, and market transparency, the policy may further strain an already fragile electricity market.
