There are strong indications that the Nigerian federal government is contemplating a new subsidy for electricity generation companies (GenCos) to mitigate the impact of the recent surge in gas prices. Approximately 80% of Nigeria’s power plants rely on gas, prompting the government to address the challenges faced by GenCos.
GenCos are currently burdened with over N1 trillion owed by electricity distribution companies through the Nigerian Bulk Electricity Trading (NBET). The Niger Delta Power Holding Company (NDPHC), the largest generation company in Nigeria, alone owes a substantial sum of N198 billion.
Sources suggest that the Nigeria Electricity Regulatory Commission (NERC) and key industry players are finalizing details for the proposed subsidy. The government’s subsidy to the electricity sector has seen an 80% decline between 2019 and 2022, according to the latest report from NERC.
Chiedu Ugbo, Managing Director of NDPHC, highlighted the major challenge faced by GenCos, emphasizing the impact of the fluctuating exchange rates on gas prices. The recent unification of exchange rates led to an increase in the cost of gas, denominated in dollars, used to power plants.
Ugbo appealed for a reconsideration of pricing domestically produced natural gas in foreign currency, stating that the current practice contributes to the financial strain on power companies. He urged a collaborative effort between the gas regulator and electricity regulator to harmonize interests.
In its third-quarter report, NERC revealed a significant reduction in government support for the Nigerian Electricity Supply Industry (NESI), falling from N49.50 billion in 2019 to N10.17 billion as of the fourth quarter of 2022. The support largely goes to NBET, the operator responsible for paying all others in the electricity value chain.
Despite the push for a tariff increase by power companies, industry sources indicate that such an increase is not feasible, given the potential burden on consumers. The NERC report also argued that the end-user tariff subsidy in Nigeria benefits the top-income group more than the lower-income group.
As the government explores options to address the challenges faced by GenCos, there is anticipation for an official statement from the regulator. The discussions reflect the ongoing complexities in the Nigerian power sector and the need for strategic interventions to ensure sustainability and affordability.
