Oil and gas operators have kicked against the call for the government to pay gas suppliers to Generating Companies (GenCos) in the local currency, to stem high naira volatility.
Their reaction is coming on the heels of the call by some experts in the power sector canvassing that the government should consider paying gas suppliers in the local currency, as part of the efforts to reduce the high electricity tariff.
The power stakeholders had argued that selling gas in the United State dollars to supply generating companies is what is responsible for the high tariff as the exchange rate is not stable and keep fluctuating.
According to them, by the time the dollar is converted to Naira it pushes up the electricity tariff.
A member of the Federal Government and Labour committee on Electricity Tariff told Business Day that they would like to impress it on the government on the need to explore the option of Naira payment for gas supplies to the power generating companies.
“We cannot be pricing gas in the United States Dollar here and selling it ourselves. So, if we remove the price of the dollar and if the government is able to decide the volume of gas to be allocated to the power sector, even if we are going to export gas, we should at least set aside the gas to be used for power generation. It would help a lot. You keep building more power plants and you are charging at a dollar rate. This is not acceptable,” he said.
The ultimate goal of the committee is to further reduce the tariff in such a way that it would be more affordable for consumers to pay, the source told BusinessDay.
He said: “Even the law setting up the tariff stated that it must be reasonable.”
But some oil and gas operators have countered them saying that the Naira is not a stable currency as its volatility is very high. They also said such a situation portends danger for the power sector because when the Naira runs into a problem it might be difficult for a gas supplier to meet his financial obligations appropriately
Abiola Ajayi, managing director of Energy and Mineral Resources Limited (EMR) said paying for gas in Naira would be a tricky one because all the investments to explore, discover and produce the gas are made in the United State dollar, including the dollar debts to overseas investors and financiers.
Another oil and gas industry analysts told BusinessDay said that loans are taking in dollars to build infrastructure to deliver gas for power generation. However, if the entities supplied pay us in Naira. Then they have to convert this Naira to buy dollars to repay their lenders. But they might not able to repay their loans as and when due because they don’t have access to dollars due to scarcity. He said assuming they are paid in dollars, they wouldn’t have issues getting dollars to repay o their loan
Another person who spoke on the condition of anonymity said Naira is not a stable currency. “You and I know the volatility. So imagine a gas sale contract of N100 per BTU signed ten years ago. Today, Naira exchanges for N470 to the US dollar. That contract will be worthless today. It will not work. The only thing sustainable is to denominate it in dollars especially when the investor has taken foreign loans to invest in the infrastructure”.
