This article appeared in the 4th edition of The International Comparative Guide to PFI / PPP Projects 2007 published by Global Legal Group Ltd, London.
1 Overview of Natural Gas Sector
1.1 A brief outline of the country’s natural gas sector, including a general description of: natural gas reserves; natural gas production including the extent to which production is associated or non-associated natural gas; importation and exportation of natural gas, including liquefied natural gas (LNG) liquefaction and export facilities, and/or receiving and re-gasification facilities ("LNG facilities"); natural gas pipeline transportation and distribution/transmission network; natural gas storage; and commodity sales and trading.
Nigeria, the largest sub-Saharan country with a population exceeding 130 million people, has the largest gas reserves in Africa and is ranked 7th in terms of global gas reserves. Its natural gas reserves are estimated to be twice its crude oil reserves. According to the Department of Petroleum Resources (DPR), the regulator of the Nigerian Petroleum Industry, Nigeria’s current proven natural gas reserve is estimated at 124 tcf. The estimated proved plus proven reserve is 158 tcf and a combined total of proved, probable and possible reserve is 300 tcf. In 2003, the total gas production for Nigeria was estimated at approximately 187.44 tcf, with approximately 85% of the total gas produced as associated gas.
Prior to 1999, exploration for gas in Nigeria was limited and much of the gas was flared. Approximately 42.6% of associated gas was flared in 2004 as against 70% in 1999. Recognising the huge financial loss resulting from the flaring of associated gas and the resultant environmental damage, the Federal Government of Nigeria (‘the Government’) promulgated the Associated Gas Reinjection Act 2004 and the Associated Gas Re-Injection (Amendment) Act 2004 which obligated all oil producing companies in the country to submit detailed plans for gas utilisation. It also prohibits the flaring of associated gas without the written permission of the Minister of Petroleum Resources (‘the Minister’). The Government’s aggressive target to attain zero flaring by 2008 in order to reduce pollution and monetise its gas reserves has resulted in several gas projects (including LNG) being embarked on by the Nigerian National Petroleum Corporation (NNPC), its joint venture partners and other oil producing companies in Nigeria.
The domestic gas market in Nigeria remains largely underdeveloped. Gas demand is constrained by the poor state of the gas infrastructure and limited storage capacity. Only about 37% of natural gas produced is stored for domestic consumption.
Natural Gas Projects
Major gas utilisation projects that are currently operational are:
- Nigeria LNG (NLNG) Project: A joint venture project between NNPC (49%), Shell Gas BV (25.6%), TotalfinaElf LNG Nigeria Limited (15%) and Agip International BV (10.4%). The combined total production capacity of trains 1-3 is 28,500 tonnes per day. The production of Trains 4 and 5 came on stream in 2005. Upon completion, Trains 1 - 5 will consume about 2.5 bcf/day of gas and produce 16.7 million metric tonnes of LNG for export. The FID for Train 6 was taken in 2004 and construction is expected to be completed in 2007. This will raise the total production capacity by an additional 4 million metric tonnes of LNG and 4 mtpa of NGL. Plans are also on the way for Train 7.
- Escravos Gas-Gathering Project: Ajoint venture project between NNPC (60%) and ChevronTexaco (40%) to recover associated gas from offshore fields. Operations commenced in 1997 and the first shipment of liquefied petroleum gas (LPG) was in September 1997. The Escravos plant processes 185 mmcf of associated gas daily. The 3rd phase of this project is expected to increase gas processing to 400 mmcf of associated gas daily and will feed a $1.7 billion Escravos gas-to-liquid (EGTL) plant that was scheduled to come online in 2005. The EPC contracts for the construction of the EGTL plant was awarded in 2005 to Team JKS, a consortium comprising JGC Corporation of Japan, KBR and Snamprogretti. The EGTL site is located approximately 60 miles (100 kilometres) southeast of Lagos State and is expected to produce 34,000 barrels per day of GTL diesel, GTL naphtha and a small amount of liquefied petroleum gas.
- Oso NGL Project: This is an NNPC (49%) and ExxonMobil (51%) joint venture project that converts associated wet gas into natural gas liquids (NGLs). The project’s current production capacity is 50,000 barrels per day. The financing and award of EPC contracts for the expansion of existing facilities was concluded in December 2004. The NGL expansion plants are currently under construction and due to be completed in 2008.
Projects in the pipeline include:
- Brass LNG Project: Commenced as a joint venture project between NNPC (49%), Chevron (17%), Conoco Philips (17%) and Agip (17%) for the construction of a 2-train, $3 billion, LNG plant expected to produce up to 10 mtpa of LNG per annum by 2009. Due to other interests in OK LNG, Chevron pulled out of the project in December 2005. It was recently announced (August 2006) that Chevron’s interest in the project has been sold to Total. FID is now expected to be taken in the last quarter of 2006 and its first cargo is billed for the 4th quarter of 2010.
- Ok LNG Project: A joint venture between NNPC, construction of a $6 billion LNG project located in Olokola at the border of Ogun/Ondo States in western Nigeria. The Project is expected to come on stream in 2009 with an initial capacity of up to 10 mtpa LNG per annum and will be expanded to the optimum capacity of up to 33 mtpa. FID is expected to be taken by the 1st quarter 2007.
- West African Gas Pipeline Project: A joint project between ChevronTexaco, Shell, NNPC, Nigerian Gas Company (NGC), Societe Beninoise de Gas, Societe Togolaise de Gas and Ghana’s National Petroleum Corporation for the extension of the existing Escravos-to-Lagos pipeline to Takoradi, Ghana. The total length of the pipeline is 1,033 km and the total cost of the project is $550 million. The initial capacity of the pipeline will be 200 mmcf per day, while the ultimate capacity is estimated to be 580 mmcf per day with additional compression at Lagos and Lome. The pipeline is expected to deliver gas to Benin, Ghana and Togo by the 1st quarter of 2007.
Further to the Treaty on the West African Gas Pipeline Project that was entered into by the Federal Government of Nigeria, the Republics of Ghana, Benin and Togo in 2003, the Federal Government of Nigeria signed the West Africa Gas Pipeline Act, into law on 22 June, 2005, in order to provide the legal regime for the implementation of the treaty. The statute provides the enabling legislation for key issues relating to the project i.e. the establishment of the West African Pipeline Company, the West African Gas Pipeline Authority, licensing and fiscal regime.
- Trans-Saharan Gas Pipeline: This is a 4,000 km pipeline infrastructure proposed to link Nigerian gas fields through Mali to Beni-Saf on the Algerian coast. Gas production from the fields will be sold to the European market. The estimated cost of the project is $7 billion and is expected to develop the natural gas market and infrastructure in the northern parts of Nigeria.
- Nnwa-doro Floating LNG Project: A proposed floating LNG plant to be constructed by NNPC/Shell and Statoil.
- Western LNG Project: This is a joint venture project between NNPC, ConocoPhillips, ExxonMobil, Chevron Texaco for the construction of a 5 mtpa liquefaction plant within the West Niger Delta area of Nigeria. The sponsors are currently conducting studies on the feasibility of the project, while the planned start up of the project is scheduled for 2008.
NNPC has recently announced a new LNG Project in the Bonny region of Southern Nigeria and the imminent execution of a Heads of Agreement between the Federal Government of Nigeria and the Government of Equatorial Guinea for the supply of about 600 mmscf of gas per day.
Natural Gas Infrastructure
Nigeria’s gas infrastructure comprising approximately 1,100 km of pipelines, 7 gas systems and 14 compressor stations with an installed capacity of 2.1 bcf per day and 13 export terminals has been constructed by the Nigeria Gas Company Limited (NGC) a wholly-owned subsidiary of NNPC. Multinational companies have also obtained licences and constructed pipelines to supply their individual gas utilisation projects. These pipelines run from the gas fields to the project site or as is the case of distribution lines for the downstream, from the factory gate to the end users.
The country’s gas pipeline infrastructure is largely situated in the southern part of the country with no interconnectivity around central and Northern Nigeria. The condition of the pipelines varies from good for the few recently constructed systems to extremely poor for older systems.
1.2 To what extent are the country’s energy requirements met using natural gas (including LNG)?
The Power sector is the single largest consumer of natural gas in the domestic market. It is estimated that about 80% of natural gas utilised in Nigeria is consumed annually by Power Holding Company of Nigeria Plc (the successor to the National Electric Power Authority) and independent power producers. The remaining 20% is utilised as industrial fuel in the cement, fertiliser, rubber, manufacturing, aluminium and steel industries.
Nigeria’s energy requirements are met through oil (64%), natural gas (27%), and hydro-electricity (8%). Coal, nuclear energy and other renewables are not utilised. The relative low reliance on natural gas is due to the limited local projects available to utilise the natural gas produced, the present state of the gas infrastructure and the absence of an integrated network system.
It is important to note that natural gas is being leveraged as the fuel to power Nigeria’s economy. Presently 15 new gas fired plants, which are either being constructed or planned, thereby increasing the gas demand from the power sector from 1 bcf/d in 2005 to about 3 bcf/d in 2009.
1.3 To what extent are the country’s natural gas requirements met through domestic natural gas production?
Nigeria’s natural gas requirements are met through domestic natural gas production save for LPG. Though an exporter of LPG, Nigeria has had to resort to the importation of significant amounts of LPG to make up the shortfall in the domestic market. This is due to the non-functioning of refineries, lack of storage capacity and constraint of local marketers to access gas terminals. Official records on the volumes of LPG imported into Nigeria and from what countries are not available.
1.4 To what extent is the country’s natural gas production exported (pipeline or LNG)?
Currently all of the natural gas produced as LNG and NGL are exported through LNG and NGL vessels save for 300,000 metric tonnes allocated for domestic use. Natural gas is not currently exported by pipeline. The main countries to which LNG produced in Nigeria are exported include America, France, Turkey, Portugal, Italy, and Spain. Official records on the volumes exported to each of these countries are not available.
2 Development of Natural Gas
2.1 Outline broadly the legal/statutory and organisational framework for the exploration and production ("development") of natural gas reserves including: principal legislation; in whom the State’s mineral rights to natural gas are vested; Government authority or authorities responsible for the regulation of natural gas development; and current major initiatives or policies of the Government (if any) in relation to natural gas development.
Section 44 (3) of the Constitution of the Federal Republic of Nigeria, 1999 and section 1 (1) of the Petroleum Act, 1990 ("Petroleum Act") vests ownership and control of all petroleum which includes natural gas within the territorial boundaries and waters of Nigeria, and the Exclusive Economic Zone in the Government.
The DPR is responsible for regulating both the upstream and downstream sector of the oil and natural gas industry, while NNPC (through NGC) oversees gas transmission and distribution.
Key Government initiatives include the pronouncement of the Natural Gas Strategy to be implemented by specific legislation for the gas sector - the Downstream Gas Act and the Natural Gas (Fiscal Incentives) Act.
Legislation on gas incentives to date include:
- Tax free dividends, accelerated capital allowances, nonapplication of withholding tax on interest payable on any loan obtained with the prior approval of the Minister of Finance for a gas project and tax free period (initial period is three years, which may subject to the satisfactory performance of the business be renewed for an additional period of two years). (See section 39 of the Companies Income Tax Act on downstream gas utilisation operations.)
- Treatment of the capital investment on facilities equipments to deliver associated gas in usable form at utilisation or designated custody transfer points shall be treated for tax purposes as part of the capital investment for oil development.
- Capital allowances, operating expenses and basis of tax assessment shall be subject to the provisions of the above Act and the tax incentives under the revised memorandum of Association.
- Investment required to separate crude oil and gas from the reservoir into usable products shall be considered as part of the oil field development (see section 11 of Petroleum Profits Act).
In addition, the Natural Gas Strategy seeks to create a legal and regulatory framework for wholesale competition and multiple distributors with third-party access to the gas network and encourage private sector participation.
Some key features of the Natural Gas Strategy are the establishment of a Gas Commission as an independent regulator for the downstream natural gas sector, regulating the price of gas for local consumption and developing regulations for anti-competitive practices.
2.2 How are the State’s mineral rights to develop natural gas reserves transferred to investors or companies ("participants") (e.g. license, concession, service contract, contractual rights under Production Sharing Agreement?) and what is the legal status of those rights or interests under domestic law?
Ownership of natural gas reserves is vested in the State. Participants in the oil and gas sector are granted licences i.e. the Oil Exploration Licence (OEL), the Oil Prospecting Licences (OPL) and the Oil Mining Leases (OML) and Production Sharing Contracts (PSCs) to explore, exploit and produce petroleum including natural gas within the concession area. Contractors under the PSCs have contractual rights, on a production sharing basis with NNPC, to explore, export and produce petroleum including natural gas under OMLs/OPLs held by NNPC on behalf of the Federal Government. Participants holding OPLs or OMLs engage in petroleum/gas exploration on either a joint venture with NNPC or a sole risk basis. These concessions do not confer on the licence holder any ownership rights in the natural gas discovered.
Upon the discovery of gas (in commercial quantities) a separate agreement on the terms and conditions for the right to use gas, utilisation of gas, royalties and pricing is negotiated between the participant and the Federal Government.
The legal status of the rights granted over natural gas is acquired through contract.
2.3 If different authorisations are issued in respect of different stages of development (e.g., exploration or production arrangements), please specify those authorisations and briefly summarise the most important (standard) terms (such as term/duration, scope of rights, expenditure obligations).
The term/duration of the licences differ. An OEL terminates on the 31st of December of the year following the date of granting (renewable for a further one year provided the licensee fulfils certain conditions), an OPL shall not exceed five years including periods of renewal, an OML, 20 years. Authorisations with regard to exploration are the same in all cases. The rights pursuant to an OPL and OML, are conferred on the participant both by legislation and the contractual provisions of the licence, while under a PSC, the participant has a contractual right to explore, export and produce petroleum including natural gas, subject to the condition that where natural gas is discovered in commercial quantities, a separate agreement on the terms and conditions for the utilisation of gas, the right to gas, royalties and pricing is negotiated between the participant and the Federal Government.
2.4 To what extent, if any, does the State have an ownership interest, or seek to participate, in the development of natural gas reserves (whether as a matter of law or policy)?
Pursuant to section 1 (1) of the Petroleum Act, ownership and control of all natural gas is vested in the State. Paragraph 35 (b) of the First Schedule of the Petroleum Act gives the Minister the right to impose on any licence or lease granted for the exploitation of petroleum, terms and conditions which entitle the State to take any associated natural gas free of cost or at an agreed cost and without payment of royalty.
The State grants contractual rights to the natural gas to the participant. The Government and its Joint Venture partners agree to the terms and conditions for the exploitation of natural gas including each party’s percentage share of gas produced.
Under a farm-in arrangement, the State is not involved in the exploitation of natural gas.
2.5 How does the State derive value from natural gas development (e.g. royalty, share of production, taxes)?
The Federal Government derives value from natural gas development via share of production, royalty payments, and taxes. The Federal Government’s share of production under a joint venture or a production sharing arrangement is made through NNPC in accordance with its participating share currently ranging from 41% to 51%.
Royalty and tax accruing to the Federal Government are:
- Tax rate: 30% corporate income tax of accessible profits; and 2% education tax;
- Value Added Tax: 5% applicable to domestic costs only; and Royalties: 7% and
- 5% of the natural gas produced from onshore and offshore areas respectively is payable. Where the natural gas is utilised locally i.e. for the purpose of power generation, no royalties are payable.
2.6 Are there any restrictions on the export of production?
There are no restrictions on the exportation of natural gas, save that an exporter of natural gas is required to obtain the requisite export licence issued by the Ministry of Trade and Commerce. Applications are made to the DPR and the export licence is granted for a period of 3 months each.
2.7 Are there any currency exchange restrictions, or restrictions on the transfer of funds derived from production out of the jurisdiction?
There are no currency exchange restrictions on the transfer of funds derived from production out of jurisdiction under Nigeria’s foreign exchange regime. Oil exploration companies engaged in gas production are allowed to retain sale proceeds offshore.
2.8 What restrictions (if any) apply to the transfer or disposal of natural gas development rights or interests?
Pursuant to section 14 of the Petroleum Act, no interest can be transferred by a licensee or created in respect of gas development rights and interests pursuant to an OPL and OML without the prior consent of the Minister. However, section 16 of the Petroleum Act states that the Minister however shall not give his consent to any assignment or transfer unless he is satisfied that:
- the proposed assignee is of good reputation, or is a member of a group or is a member of companies of good reputation, or is owned by a company or companies of good reputation;
- there is likely to be available to the proposed assignee (from his own resources or through other companies in the group of which he is a member, or otherwise) sufficient technical knowledge and experience and sufficient financial resources to enable him to effectually carry out a programme satisfactory to the Minister in respect of operations under the licence or lease which is to be assigned; and
- the proposed assignee is in all other respects acceptable to the Federal Government.
2.9 Are participants obliged to provide any security or guarantees in relation to natural gas development?
Participants in the natural gas sector are not obliged to provide any security or guarantees to the Government for the acquisition of rights or interest for the exploitation of natural gas, but are required to make representations as to their financial and technical capacity.
Under a standard marginal field farm out agreement, the farmer must provide security to ensure compliance with the farmee’s abandonment and de-commissioning of facilities obligation in the farm out area.
2.10 Can rights to develop natural gas reserves granted to a participant be pledged for security, or booked for accounting purposes under domestic law?
Rights to develop natural gas are contractual and the pledge of such rights by the licence holder can only be made subject to the terms of the contract. The prior consent of the Minister of Petroleum Resources will be required under the provisions of the Petroleum Act where such security interest transfers the proprietary interest in the licence to another entity.
2.11 In addition to those rights/authorisations required to explore for and produce natural gas, what other principal Government authorisations are required to develop natural gas reserves (e.g. environmental, occupational health and safety) and from whom are these authorisations to be obtained?
Authorisations and approvals in respect of environmental, health and safety compliance are required to be obtained from the DPR and the Federal Ministry of Environment (FME) pursuant to detailed guidelines issued by these agencies. Operators are required to prepare detailed Environmental Impact Assessment (EIA) reports for approval by the DPR and FME.
Authorisations are also issued by the Environmental agency of the state where the facilities are located pursuant to state guidelines, which usually mirror the Federal guidelines.
2.12 Is there any legislation or framework relating to the abandonment or decommissioning of physical structures used in natural gas development? If so, what are the principal features/requirements of the legislation?
The framework for the abandonment/decommissioning of physical structures used in natural gas development is provided for in the Environmental Guidelines and Standards for the Petroleum Industry issued by DPR. The guidelines stipulate that during the project initiation and design phases, decommissioning programmes (objectives and implementation) are to be drawn up and incorporated in remediation/restoration programmes.
The operator of the natural gas facilities is required to submit a detailed Decommissioning Report to DPR for approval. Decommissioning activities are expected to commence at least one year after the facility has been completely shut down and/or abandoned and must be completed within 6 months.
A Decommissioning Certificate is issued by DPR once the decommissioning activity is certified as satisfactory.
3 Importation / Exportation
3.1 Outline any regulatory requirements, or specific terms, limitations or rules applying in respect of cross-border sales or deliveries of natural gas (including LNG).
An export or import licence for the exportation of natural gas or the importation of LPG must be obtained from the Ministry of Trade and Commerce. The licence is processed through DPR and is for a duration of 3 months. The licence contains the terms and conditions upon which the importation or exportation of natural gas is permitted.
4.1 Outline broadly the ownership, organisational and regulatory framework in relation to transportation pipelines and associated infrastructure (such as natural gas processing and storage facilities).
The country’s gas transportation and pipeline infrastructure is largely privately owned and comprises pipelines and storage infrastructure that service natural gas projects under joint venture arrangements with NNPC and the multi-national oil companies for export.
The Oil Pipelines Act, 1956 and the various regulations made thereunder i.e. the Oil and Gas Pipelines Regulation pursuant to the Oil and Gas Pipeline Act 1995 provide the legislative framework for the regulation of the natural gas transportation networks. Regulatory oversight is conferred on the Minister, who exercises his powers through DPR.
Upon enactment of the Downstream Gas Act, which is currently being considered by the National Assembly, the Nigerian Gas Transportation Company (NGTC), will be established to act as the Licensed Transportation Network Operator who will have the responsibility for monitoring the amount of gas that enters and exit pipelines and most importantly enforce control through network agreements (between operators of connected transportation pipelines). In line with the foregoing, the NGTC would be required to hold a transporters licence such that transportation of gas will be prohibited through a transportation pipeline without its authority. In addition, a major policy initiative of the Federal Government under the Natural Gas Policy is to increase private sector participation in the transmission and distribution infrastructure.
4.2 What Governmental authorisations (including any applicable environmental authorisations) are required to construct and operate natural gas transportation pipelines and associated infrastructure?
Pursuant to the Oil Pipelines Act 2004 and the Oil and Gas Pipelines Regulation, the permits and licences required for the construction, maintenance and operation of gas pipelines are obtained from DPR, these include:
- a permit to survey the route for the pipeline;
- upon completion of the survey, an oil pipeline licence which permits the construction of the pipeline must be obtained; and
- an EIA study must be undertaken and an EIA Report issued where the pipeline to be constructed exceeds 50 km in length.
The construction and operation of associated infrastructure (i.e. storage facilities) is subject to the issuance of the requisite permits and approvals to construct and operate such facilities from the DPR.
4.3 In general, how does an entity obtain the necessary land (or other) rights to construct natural gas transportation pipelines or associated infrastructure? Do Government authorities have any powers of compulsory acquisition to facilitate land access?
An entity wishing to obtain necessary rights to construct natural gas transportation pipelines or associated infrastructure is required to apply and obtain a permit to survey a pipeline. The survey permit entitles the holder to enter into the land for all acts necessary to ascertain the suitability of the land for the laying of a pipeline and ancillary installations. The holder is required to notify the occupants of any developed land along such routes prior to entry.
The holder is required to pay adequate compensation to any person whose land or interest in land is damaged or affected by the exercise of the rights granted by the permit. Where the parties cannot agree on the amount of compensation, the court has the power to fix the compensation payable.
The holder of a permit to survey may, after payment of the appropriate fees, make an application to the Minister for a licence to construct, operate and maintain a pipeline in respect of the pipeline route for which survey has been completed.
Section 44 of the Constitution of the Federal Republic of Nigeria, 1999 and the Land Use Act 2004 provide for the compulsory acquisition of land by either the Federal or State Government for public uses and the payment of adequate compensation.
4.4 How is access to natural gas transportation pipelines and associated infrastructure organised?
Access to privately owned transportation pipelines are negotiated by the parties. Please refer to question 4.6 for further details.
4.5 To what degree are natural gas transportation pipelines integrated or interconnected, and how is co-operation between different transportation systems established and regulated?
Natural gas transportation pipelines are largely unconnected as they are constructed to serve individual gas projects.
Co-operation between various transportation networks are presently unregulated.
4.6 Outline any third-party access regime/rights in respect of natural gas transportation and associated infrastructure. For example, can the regulator or a new customer wishing to transport natural gas compel or require the operator/owner of a natural gas transportation pipeline or associated infrastructure to grant capacity or expand its facilities in order to accommodate the new customer? If so, how are the costs (including costs of interconnection, capacity reservation or facility expansions) allocated?
Pursuant to the Oil Pipelines Act, any party who wishes to use any third-party pipeline and ancillary installations for the transportation of natural gas may apply to the Minister for a right of access. The Minister will consult the applicant and the owner of the pipeline network to determine whether the transportation network can accommodate the request made. Where the parties cannot reach an agreement amongst themselves, the Minister has the power to impose conditions that he deems expedient and appropriate.
Section 18 (8) of the Oil Pipelines Act imposes a fine on the owner of the pipeline where he fails to comply with the conditions agreed or stipulated by the Minister. Continued failure to comply with these conditions will result in revocation of the licence.
In practice, NGC has control over third-party access to its networks and access rights are subject to negotiations.
4.7 Are parties free to agree the terms upon which natural gas is to be transported or are the terms (including costs/tariffs which may be charged) regulated?
Parties are free to negotiate terms upon which natural gas is to be transported. Such terms, costs and tariffs are not subject to regulation.
5 Transmission / Distribution
5.1 Outline broadly the ownership, organisational and regulatory framework in relation to the natural gas transmission/distribution network.
NGC dominates the country’s transmission and distribution networks operating as a gas supplier and a gas transmission company. In order to stimulate domestic consumption of natural gas, NGC has established Local Distribution Zones (LDZ) and through 20-year BOT contracts, delegated third parties to develop high-pressure transmission networks.
Presently the Oil Pipelines Act in regulating transportation networks applies to transmission/distribution networks, whilst the awards of transmission concessions are contractual.
A Natural Gas Policy and the Downstream Gas Bill, which is presently being considered by the National Assembly, will provide a specific regulatory framework for the regulation of gas transmission. The new regulatory framework will govern the award of transmission concessions and stimulate competition within the domestic gas market.
5.2 What Governmental authorisations (including any applicable environmental authorisations) are required to operate a distribution network?
The governmental authorisations required to operate a distribution network include
- a survey permit;
- an oil pipeline licence; and
- an EIA report and certification.
The DPR is solely responsible for issuing a survey permit and oil pipeline licence, whilst both the DPR and the FME have joint responsibility and authority to approve an EIA report and issue an EIA certification for the operation of a distribution network.
5.3 How is access to the natural gas distribution network organised?
Access to the natural gas distribution network is contractual. NGC’s virtual monopoly over the network gives it a high bargaining power in the negotiation process. 5.4 Can the regulator require a distributor to grant capacity or expand its system in order to accommodate new customers?
There are no express provisions in the Petroleum Act or the Oil Pipelines Act which require a distributor to grant capacity or expand its system in order to accommodate new customers. The Minister, in the exercise of his statutory powers to regulate and prescribe third-party access to transmission/distribution networks may require NGC to grant capacity.
5.5 What fees are charged for accessing the distribution network, and are these fees regulated?
The fees charged for accessing the transmission networks are not presently regulated.
5.6 Are there any restrictions or limitations in relation to acquiring an interest in a gas utility, or the transfer of assets forming part of the distribution network (whether directly or indirectly)?
The prior consent of the Minister (and NGC with respect to a concession granted by it) is required by an operator in the natural gas sector to transfer, dispose or assign its interest in a gas utility or transfer assets forming part of a transmission network for which approval had been obtained for such acquisition. Otherwise the consent of the owner of the gas utility will suffice.
6 Natural Gas Trading
6.1 Outline broadly the ownership, organisational and regulatory framework in relation to natural gas trading. Please include details of current major initiatives or policies of the Government or regulator (if any) relating to natural gas trading.
Nigeria does not have a domestic natural gas trading market. Natural gas is sold on contractual basis.
6.2 What range of natural gas commodities can be traded? For example, can only "bundled" products (i.e., the natural gas commodity and the distribution thereof) be traded?
Nigeria does not have a domestic natural gas trading market.
7 Natural Gas
7.1 Outline broadly the ownership, organisational and regulatory framework in relation to LNG facilities.
The Petroleum Act provides the regulatory framework applicable to the oil and gas industry including the LNG sector. The DPR is responsible for issuing the requisite permits, licences and approvals for the construction (including expansion), operation and environmental compliance of LNG facilities. The FME also has regulatory authority to oversee environmental issues relating to LNG facilities.
There is only one LNG facility (comprising five producing trains) owned by Nigeria LNG Limited. This is a joint venture company between NNPC and other multinational companies. The only LNG specific legislation is the Nigerian LNG (Fiscal Incentives, Guarantees and Assurances) Act, which provides specific incentives for the NLNG Project and is not applicable to other planned LNG projects.
7.2 What Governmental authorisations are required to construct and operate LNG facilities?
The authorisations required to construct, expand and operate LNG facilities are issued by the DPR while the FME issues environmental permits:
- Upon submission of an EIA Report, an Environmental Impact Statement and Certificate is issued for the LNG project.
- Upon submission of detailed design plans, a Licence to construct the LNG facilities is issued.
- Upon the completion and submission of the LNG facility, a Licence to Operate the LNG facilities is issued.
- A Licence to Expand the LNG facility is required where the LNG facility is to be expanded.
Both the FME and DPR issue various environmental permits and certification, which certify that the LNG facilities comply with environmental standards.
7.3 Is there any regulation of the price or terms of service in the LNG sector?
There are no regulations on pricing or terms of service for the LNG sector.
8.1 Which Governmental authority or authorities are responsible for the regulation of competition aspects, or anti-competitive practices, in the natural gas sector?
There is no governmental authority or independent regulator charged with regulating competition issues or anti-competitive practices within the natural gas industry. The proposed Downstream Gas Act contains provisions that confer on the Gas Regulatory Commission ("the Gas Commission") (the proposed independent regulator for the downstream natural gas sector) requisite powers to facilitate and promote competition and to regulate anti-competitive practices within the sector.
There is also a proposed Federal Competition Commission Bill, which establishes a federal independent commission with general powers to regulate competition issues and anti-competitive practices within Nigeria and all sectors of the economy.
8.2 To what criteria does the regulator have regard in determining whether conduct is anti-competitive? There are no existing laws regulating anti-competitive practices in the Natural gas industry.
8.3 What power or authority does the regulator have to preclude or take action in relation to anti-competitive practices?
Under existing legislation, the DPR does not have specific powers to regulate anti-competitive practices.
8.4 Does the regulator (or any other Government authority) have the power to approve/disapprove mergers or other changes in control over businesses in the natural gas sector, or proposed acquisitions of development assets, transportation or associated infrastructure or distribution assets? If so, what criteria and procedures are applied? How long does it typically take to obtain a decision approving or disapproving the transaction?
Sections 99-122 of the Investments and Securities Act, 1999 confer on the Securities and Exchange Commission (SEC) the general powers to approve/disapprove mergers and acquisitions of companies in Nigeria. Mergers and acquisitions are disapproved where it is likely to cause a substantial lessening of competition or tend to create a monopoly within the affected industry. These merger control powers are not industry specific or restricted to the natural gas industry.
In addition, where a merger contemplates an assignment of interests in the OML/OPL to a new entity, the prior consent of the Minister will be required for the assignment pursuant to the Petroleum Act.
Where the arrangement contemplates a change of operator, the approval of the DPR will be required.
9 Foreign Investment and International Obligations
9.1 Are there any special requirements or limitations on acquisitions of interests in the natural gas sector (whether development, transportation or associated infrastructure, distribution or other) by foreign companies?
There are no special requirements or limitations that prevent foreign companies from acquiring interests or participating in the natural gas sector, save that sections 54 and 56 of the Companies and Allied Matters Act, 1990 provide that any foreign company that intends to carry on business in Nigeria, is required to incorporate a separate entity in Nigeria for that purpose.
9.2 To what extent is regulatory policy in respect of the natural gas sector influenced or affected by international treaties or other multinational arrangements?
The Government’s policies in respect of the natural gas sector have been influenced by major international treaties and multinational arrangements. The initiative by the Government to attain a target of zero-flaring by 2008 is part of the emissions reduction strategy outlined in the Kyoto Protocol to which Nigeria is a signatory
10 Dispute Resolution
10.1 Provide a brief overview of compulsory dispute resolution procedures (statutory or otherwise) applying to the natural gas sector (if any), including procedures applying in the context of disputes between the applicable Government authority/regulator and: participants in relation to natural gas development; transportation pipeline and associated infrastructure owners or users in relation to the transportation, processing or storage of natural gas; and distribution network owners or users in relation to the distribution/transmission of natural gas.
There are no statutory compulsory dispute resolution procedures that apply specifically to the natural gas industry. However, paragraph 42 of the First Schedule of the Petroleum Act provides that if any dispute arises in connection with any licence or lease granted for the exploitation of petroleum between the Government and the holder of the licence/lease, such dispute shall be settled by arbitration, except where it relates to a matter expressly excluded from arbitration or expressed to be at the discretion of the Minister.
10.2 Is the country a signatory to, and has it duly ratified into domestic legislation: the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards; and/or the Convention on the Settlement of Investment Disputes between States and Nationals of Other States ("ICSID")?
The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards has been ratified by the Government and incorporated into Nigerian domestic law as the Second Schedule to the
Arbitration and Conciliation Act, 1990.
The Convention on the Settlement of Investment Disputes between States and Nationals of other States has also been ratified by the Government and came into force on October 14, 1966.
10.3 Is there any special difficulty (whether as a matter of law or practice) in litigating, or seeking to enforce judgments or awards, against Government authorities or State organs (including any immunity)?
Though the Federal Government does not enjoy any form of immunity from any legal action or suit that may be instituted against it in Nigerian courts or the levying of execution of judgments against its assets, there are certain practical constraints against such actions.
Section 84 of the Sheriff and Civil Process Act provides that where any money which is liable to be attached by garnishee proceedings is in the custody or control of a public officer of the Government in his official capacity, the prior consent of the Attorney-General of the Federation approving such attachment is required.
With respect to disputes relating to NNPC, section 12 of the NNPC Act, stipulates a limitation period of 12 months from the date when the cause of action arose within which any action against NNPC must be commenced. A pre-action notice is also required to be served on NNPC before the action is commenced.
Section 14 of the NNPC Act provides that any monetary judgment against NNPC is to be paid from the general reserves of NNPC as NNPC’s assets are protected from any form of execution or attachment.
10.4 Have there been instances in the natural gas sector when foreign corporations have successfully obtained judgments or awards against Government authorities or State organs pursuant to litigation before domestic courts?
Where a foreign corporation operating within the natural gas industry in Nigeria has a dispute with the Government, NNPC or any of its subsidiaries, the usual practice is that the parties resolve such disputes amicably. Where no settlement is reached amicably, the dispute is usually referred to arbitration. Most of the cases adjudicated upon by the local courts and won by the foreign corporations have been restricted to wrong assessment of taxes.