Nigeria: Is The Gas Master Plan A Master Plan?

Last Updated: 26 January 2017
Article by Perchstone & Graeys

The Nigerian Government in its bid to become a major international player in the international gas market as well as boosting the domestic market and realize maximum revenue possible from gas initiated the Gas Master Plan. The three components of the Gas Master Plan are: the Domestic Gas Supply Obligation, the Gas Pricing Framework and the all important Gas Infrastructure Blueprint. After approving the master plan, the Federal Government embarked upon a road show aimed at sensitizing the stakeholders on the investment opportunities it portends. The current stage of the master plan is the submission and compilation of bids from consortiums of firms interested in investing in the development of the Infrastructure blueprint. The components of the master plan are aimed at addressing issues that have plagued the domestic gas market as well has leveraging gas for the economic growth of the country. However, to what extent can the effective implementation of each component bring a change to the economy? Can these components put the domestic market on a sustainable growth path while still promoting the export market?

A critical analysis of the gas master plan will reveal that the absence of a proper legal, regulatory and policy framework will be a stumbling block in the achievement of its objectives. The Federal Government needs to pass into law relevant bills and implement proposed polices formulated in respect of the gas industry. The two major bills that could go a long way in aiding the realization of the master plan's objectives are the Downstream Gas Bill and the Gas Fiscal Reform Bill. The former is a bill for an Act to provide for the regulatory regime for the Downstream Gas Sector, including open access principles and when passed into law will lead to the creation of a regulatory commission and establish a gas regulator to oversee investments and operations of the domestic gas sector. The latter bill is a bill intended to remove the consolidation of gas investment with oil and provide for non discriminatory fiscal regime for all upstream players. Interestingly, these bills which will invariably boost the domestic gas sector are still pending before the National Assembly.

There are also specific polices which will aid the implementation of the master plan. One of them is the National Domestic Gas Supply and Pricing Policy. This policy aims to fully bring the gas sector in line with the economic growth aspiration of the nation by providing solutions to the issue of gas pricing; addressing domestic gas supply availability in a manner that delicately balances the need for domestic economic growth and revenue generation from export. It would also implement an approach for the gas sector that enables full participation of all gas suppliers in the country in a way that ensures sustained gas supply to the domestic market.

In a typical scenario of putting the cart before the horse, the Regulation which this policy has to operate with has already been passed into law. The National Gas Supply and Pricing Regulations came into force in 2007. This Regulation establishes the Department of Gas and Domestic Gas Aggregator. It also prescribes the procedure for gas supply obligation and the penalties of the payment of $3.5 per mcf, a restriction on exportation or both as decided by the Minister of Energy for non compliance with the supply obligation. It is suffice to say that these penalties as prescribed in the Regulation are grossly inadequate as a mechanism for enforcing compliance of the gas supply obligation. The decision to restrict exportation operations is entirely at the discretion of the Minister. As is the case where oil companies got Ministerial certificate to continue flaring and operating licenses never ceased, restriction on operation may never happen and where it does it might be for a short period. This measure can therefore not radically bring about the desires of the Government to boost the domestic market. It is advisable that the penalty be stiffer so that it would make more economic sense for the companies to comply with the obligation than to pay the penalties.

Another challenge that may hinder the success of the master plan especially the Infrastructure Blueprint is the unrest in the Niger Delta region. The image of the region depicts violence; there have been series of disturbances on the operations of oil companies particularly the vandalism of capital intensive oil pipelines and kidnapping of key officials and family members. With the continued disorder in the Niger Delta, the Infrastructure Blueprint development might not be practicable. The questions remain what efforts are being made to settle the unrests and ensure that acts of infrastructural vandalism cease? What are the guarantees for investors who are aware of the debacle of the region that their investments will be sustainable?

It is no longer news that the Government of President Yar'adua established a Ministry of Niger Delta Affairs to tackle the Niger Delta debacle, but how far has this ministry gone in carrying out its objectives? The resolution of the crisis in the Niger Delta has to be from the grassroots as the problems hinge on years of marginalization in terms of infrastructure development and political insincerity at all levels of government. One of the strategies for resolving the Niger Delta crisis may be having an all stakeholder participatory approach: the State government, local government, host community leader, youth groups, multinational companies, organized labour association, and influential entrepreneurs to invest and participate in the development and implementation of the master plan.

Finally, though the efforts by the government are applauded, the gas master plan can only be effective if all the challenges highlighted above are properly tackled.

(Published in BusinessDay Newspaper of Thursday, November 27, 2008)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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