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How FG is shortchanging Gas-to-Power investors with exchange rate dichotomy

There are strong indications that Nigerian government may have been shortchanging investors in Gas-to-Power sub sector using official exchange rate of N305 while all needed infrastructure and operational expenditure are done with forex sourced at the parallel market.

In Nigeria, parallel market rate which otherwise, known as Nigerian Autonomous Foreign Exchange Rate (NAFEX) hovers between N363 and N365 per dollar while government rate stands at N305.

Considering the observed steady loss which has risen to about N109.5bn annually to dollar transaction differentials, Gas producers for Nigeria’s power sector have asked the Nigerian Bulk Electricity Trading Plc (NBET) to pay for gas supplied for power generation at the Nigerian Autonomous Foreign Exchange Rate (NAFEX) of N360 –N365 per dollar, which according to them, is the real market rate.

The gas producers supply power plants about 1.5 billion-2 billion cubic feet of gas per day (bcf) via the domestic market arrangements.

The key trouble of the gas dealers stemmed from the fact that while NBET pays the gas suppliers in naira at the exchange rate of N305 for the gas supplied to the generation companies, the gas investors pay N360-N365 to access dollar to embark on gas projects, which are largely denominated in dollar as against the naira.

At the average price of $3 per 1,000 standard cubic feet per day (scf/d), domestic gas producers supply 1.5 bcf of gas to the domestic market at a cost of $4.5 million daily.

The gas suppliers were paid the $4.5 million in dollar until 2016 when the Central Bank of Nigeria (CBN) enforced the law, which provides that transactions in the country must be in sovereign currency.

However, the CBN failed to situate the challenge of accessing forex by gas producers side by side with the rate government is paying them after supplies.

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