The impact of domestic natural gas pricing on electricity tariffs in Nigeria

Management of a nation´s natural resources for its economic growth can be complex and challenging, especially in developing countries. Inconsistent or uncoordinated policies may hinder the infrastructural development, resulting an unsatisfied economic outcome. The analysis in this paper is confined to the effect of domestic natural gas pricing on electricity tariff for the economic development of Nigeria. In this paper, the growth of the electricity supply industry is analyzed, which is limited by the short to medium-term availability of natural gas. Results show that the current MYTO structure does not reflect the indicative market-based cost of supply of natural gas. Furthermore, the study shows that the calculated cost-reflective electric tariff is economically feasible, favorable to investment, affordable and is significantly less than the current cost of private electricity generation paid by all customers´ levels for private captive generation. The outcomes of the research can be seen as an initial effort to address the long-standing challenges in the natural gas and power industry of Nigeria. The findings and remarks are obtained based on the research under a number of assumptions such as political stability, efficient market/management, rationalities of stakeholders, and reliable infrastructures in natural gas and power sectors, etc. Although some of the assumptions may not be valid given the current situation of the country, the findings reported still highlight the complexity of the challenges in both the domestic gas market and power sector. Also, the findings can be used as a reference and benchmark for a further in-depth analysis when certain assumptions are relaxed for a better understanding of the issue. In addition, charting a successful way forward with the scientific method developed in this research is achievable with enabling government policies that encourage investment. The proper implementation of sustainable reforms under informed decisions- - in the domestic gas and electricity sectors, as well as a robust legal, financial and regulatory framework and human capacity development is paramount to its success and crucial in the successful development and growth of both sectors.