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Power firms, gas producers disagree on dollar-denominated pricing

The denomination of the price of gas sold to electricity generation companies in the United States dollars is sending ripples across the entire value chain of the Nigerian electricity supply industry.

The Gencos have raised concern about the issue , with the distribution companies also worried that it has contributed to a major mismatch between the invoices they receive and the revenue they collect from consumers.
But gas producers said their contracts should be denominated in dollars because their plants were executed in the same currency .

They also said being paid in naira , using the prevailing official exchange rate , had exposed them to significant foreign exchange risk, which was threatening the continuity of their businesses.

About 80 per cent of the electricity generated in the country is from gas-fired power plants, with hydro plants contributing the rest .

The President, Nigerian Gas Association, Mr . Dada Thomas, said the nation could be plunged into darkness if the forex risk remained unresolved amid a debt of over $ 500m owed gas producers by the power sector .

He stated, “ The gas contracts are denominated in US dollars but are paid in naira at the CBN rate . What it means is that gas suppliers are being made to bear the foreign exchange exposure for the entire power sector .

“ We are the ones being punished by the entire electricity value chain for taking a risk in putting down gas plants to feed the Gencos . ”

Thomas, who is the Chief Executive Officer of Frontier Oil Limited , described the situation as unfair , saying gas producers should be paid in dollars , because “ we spend dollars to generate the product . ”

“ My preference is that we get paid in dollars . But if that is not doable , let the central bank provide a platform for gas producers to be able to source dollars at the same rate at which we are paid our gas invoices so that we don ’ t lose any money , ” he added.

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