Power Companies Face 171% Surge in Gas Expenses

The rising cost of gas has taken a toll on Nigeria’s power sector, with publicly listed companies Geregu Power and Transcorp Power experiencing a combined gas expense of N174.2 billion for the first nine months of 2024. This represents a significant 171% increase from the N64.2 billion recorded in the same period of 2023.

Transcorp Power accounted for the largest share of this expenditure, with its gas costs rising 203% year-over-year to N118.4 billion, while Geregu Power saw a 121% increase, reaching N55.8 billion.

The spike in gas expenses is closely linked to higher power production levels to meet rising demand, but it has brought financial strain to power producers and raised concerns about broader economic implications.

Despite the surge in costs, both Geregu Power and Transcorp Power saw improvements in their production and revenue, although their financial margins were affected differently. Geregu Power’s gross margin improved slightly from 48.2% in 2023 to 48.6% in 2024.

In contrast, Transcorp Power’s gross margin fell from 48% to 43%, highlighting how rising expenses are beginning to strain profitability. With both companies relying heavily on gas-fired plants, which supply around 80% of Nigeria’s total electricity, the pressure on operational costs is expected to continue.

Debt to Gas Suppliers on the Rise

The increasing gas costs have also impacted both companies’ liabilities. Geregu Power’s debt to gas suppliers grew by N29.8 billion, reaching N76.5 billion, while Transcorp Power’s gas debt rose by N35.9 billion to hit N103.9 billion. This mounting debt reflects ongoing challenges within Nigeria’s power sector, where companies’ outstanding obligations to gas suppliers have reached an estimated $1.3 billion. The accumulating debts present liquidity constraints for gas suppliers, who are struggling to maintain a consistent supply to meet the demands of Nigeria’s gas-powered plants.

Economic Ripple Effects and Investor Confidence

The high cost of generating electricity in Nigeria poses several challenges for the broader economy. With gas prices accounting for much of the rising production costs, the power sector may need to consider raising tariffs, potentially placing a higher financial burden on businesses and households. Increased energy costs also contribute to inflationary pressures across sectors, affecting everything from manufacturing to consumer goods. Rising operational costs could lead to reduced competitiveness for Nigerian industries, with firms increasingly reliant on expensive alternatives like diesel generators.

The instability in Nigeria’s energy landscape, combined with the heavy reliance on gas, could also discourage foreign investment. Investors may view the sector’s growing debt and operational uncertainties as risks, which could hamper foreign direct investment inflows—crucial for economic growth and job creation.

Government Subsidies and Long-Term Solutions

Although the Nigerian government has subsidized natural gas prices to support the power sector, these rising gas debts could put additional strain on government finances. The Federal Government recently paid up about $120 million of the existing gas debt, but sustained subsidies may deepen budget deficits, impacting funding for essential services. To secure a stable power supply, experts suggest that Nigeria invest in alternative energy sources and strengthen regulatory policies. Such measures could provide relief from escalating energy costs, enhancing both economic stability and resilience.

This situation underscores the urgent need for reforms and investments to stabilize Nigeria’s power sector, which is essential for supporting economic development and ensuring reliable, affordable energy access.

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