The Oil Producers Trade Group (OPTS) of the Lagos Chambers of Commerce says that Nigeria’s new gas policy will fail to achieve the disired increase in gas production except there are enabling commercial and fiscal terms, a repayment of outstanding gas invoice arrears and a guarantee of adequate funding for gas development.
Other conditions that must be fulfilled by the new policy, the OPTS say, include the development of adequate infrastructure, promotion of a conducive business environment, and gas prices and fiscals which must be competitive to appropriately cover development, production and transportation costs, enabling commercial returns.
Clay Neff , chairman and managing director of Chevron Nigerian Limited, gave these conditions while speaking on behalf of the OPTS during the Nigerian Gas Association Conference and Exhibition which held in Abuja recently.
Neff further said an effective gas policy which addresses all the issues raised above would unlock Nigeria’s gas potential.
He however suggested possible solutions that could help the policy to achieve the targeted objectives.
According to him, the policy must contain provisions for the implementation of gas supply aggregation agreements contract regime, as well as transition to a willing buyer / willing seller gas market and ensure a power tariff that provides commercial returns.
He added that globally competitive fiscals terms to help the gas industry to move forward must also be put in place.
He said infrastructure is needed along the value chain and urged government to put in place a policy that would attract investments in pipelines to deliver gas to off-takers such as power generating plants and others.
He frowned at the level of indebtedness to the gas producers by off-takers saying that if the problem was not resolved it would be difficult to make further investment in gas.
“When outstanding debts are not paid, it is not reasonable to expect investors to commit additional investments to grow domestic gas supply”, he said. He therefore urged the government to resolve outstanding debts and also establish bankable credit support facilities for future gas sales.
In Aug 2014, the Central Bank of Nigeria (CBN) introduced a mechanism for partial repayment of gas invoice arrears. However, gas invoice arrears have grown. The reconciliation that was carried out in December 2014 put the debt owed gas producers at N40 billion of undisputed arrears but by May 2016 this has grown to N100 billion and it continues to grow.
The government, according to OPTS, must complete critical National Integrated Power Project (NIPP) transmission lines so that there would be enough capacity to evacuate power generated to consumers with ease. This would also open another window for gas business.
Persistent shortfalls in funding he said, constrain growth, as a significant number of viable projects cannot progress. He further said the NNPC and its JV partners are working together to implement sustainable solutions which will fully fund JV budgets, to ensure on-schedule completion of projects. “Once multi-year projects are approved, annual budget provisions should take full account of funding needs over the project life,” he stated.
A conducive business environment, other industry operators say, is essential to attract investments and to maintain reliable operations.
This, they say would entail maintaining stable policies, laws and regulations, as well as efficient and effective regulatory bodies, honouring contracts and maintaining access to an independent and fair mechanism for timely resolution of conflicts arising from contracts and ensuring security of lives and property and eliminate structural factors that increase operating and capital cost.
Olusola Bello
