The Nigerian power sector has received a significant boost with the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) slashing the price of natural gas for power generation companies (GenCos). This move comes as a welcome relief for the GenCos who are grappling with a staggering N2 trillion debt owed to gas suppliers, a consequence of the persistent illiquidity plaguing the power sector. The new price of $2.13 per million British thermal units (MMBTU), effective from April 1, 2025, represents a reduction from the $2.42 per MMBTU implemented in March 2024, and is expected to alleviate some of the financial pressure on the GenCos, allowing them to continue operations and contribute to the nation’s power supply.
The NMDPRA’s decision to reduce the gas price is in line with the Petroleum Industry Act (PIA) 2021, which mandates the regulator to determine the Domestic Base Price (DBP) and wholesale price of natural gas for strategic sectors. The DBP is determined based on the principle that it should not exceed the average price of natural gas in major emerging gas-producing nations. Through consultations with stakeholders and considering the provisions of the PIA and current market conditions, the NMDPRA arrived at the revised DBP of $2.13/MMBTU for the power sector and $2.63/MMBTU for the commercial sector. This revised framework aims to provide clarity and structure to the domestic gas market, encouraging increased gas supply and stimulating industrial consumption.
The Nigerian Gas Association (NGA) has lauded the NMDPRA and the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) for championing the commercialization of the gas sector and implementing the revised pricing framework. The NGA acknowledges the sensitivity surrounding gas pricing, highlighting the potential of this move to unlock more domestic gas supply and boost industrial usage if implemented effectively. This positive reception from a key industry player underlines the potential benefits of the revised pricing structure for the entire gas value chain.
The debt burden on GenCos is a serious concern, with the total debt reaching N4.7 trillion. This financial strain has created operational challenges, particularly for gas-fired thermal plants, which constitute over 70% of Nigeria’s power generation capacity. The inability of GenCos to pay their gas suppliers threatened to disrupt gas supply, potentially leading to widespread power outages. The Federal Government’s intervention in December 2024, prompted by the threat of gas suppliers halting supply due to the N2.7 trillion owed by GenCos, highlights the criticality of the situation. This intervention underscores the government’s commitment to ensuring the continued operation of power plants and preventing a national power crisis.
The Association of Power Generation Companies (APGC) has been vocal about the financial struggles of its members, emphasizing the urgent need for pragmatic solutions to address the liquidity crisis. The fear of power plant shutdowns due to mounting debts and potential disruption of gas supply loomed large. However, the Minister of Power has provided assurances of ongoing government intervention, promising payment to all players in the power value chain and preventing any disruptions to the power supply that could negatively impact the economy. This commitment from the government provides a degree of reassurance and suggests a concerted effort to resolve the financial woes of the power sector.
The reduction in gas prices is expected to provide some breathing room for the financially strained GenCos. While the price cut alone may not entirely solve the deep-seated liquidity issues, it represents a positive step towards stabilizing the power sector. The government’s commitment to addressing the debt crisis and ensuring the continuous operation of power plants is crucial for maintaining a stable power supply and preventing a potential national economic disruption. The combined efforts of the NMDPRA, the government, and other stakeholders are crucial in navigating the complex challenges facing the Nigerian power sector and ensuring its long-term sustainability.
