Thursday, August 22, 2013

Nigerian PIB, Gas Flaring and the Economy

PIB, gas flaring and the economy

FRIDAY, 23 AUGUST 2013 00:00
Nigerian Guardian

A MORE focused government, committed to the wellbeing of the people requires no more than a year or two within a single electoral term to produce any law to guide activities in the country’s critical economic sector. Unfortunately, this is not the case in Nigeria. As soon as the Federal Government, nay, the federal executive arm, broached in 2000 the introduction of necessary reforms in order to enhance the impact of the petroleum sector on the economy, Nigerian National Petroleum Corporation (NNPC’s) joint-venture international oil companies (IOCs) rose in opposition and adopted a sinister filibustering to prolong as long as possible the existing state of affairs which favours them to the disadvantage of their host country. So it is that five years after the Petroleum Industry Bill (PIB) was initially submitted to the National Assembly, the draft remains just that: a Bill. The result is the continuation of the status quo with the attendant inefficiency and corruption in the oil and gas sector.

For instance, after the IOCs sponsored representatives of the sixth National Assembly to Accra, Ghana, a trip that called to question the integrity of members of the legislature, the legislators turned their back on the national interest encapsulated in the PIB and aborted its passage on the self-damning excuse that different versions of the draft law were in circulation in the National Assembly. Today, the seventh National Assembly has before it a watered-down PIB, which seeks to grant discretionary powers to the executive arm. The present executive arm is apparently less nationally motivated than its predecessor that initiated the PIB.

This well-planted loophole compromises the national interest and it is therefore unacceptable.

The existence of a full-time legislature makes abominable the planned partial surrendering of legislative responsibility to the executive arm through the instrumentality of discretionary powers under any law.

For it is tantamount to empowering the executive arm to implement the affected laws selectively and on arbitrary terms by means of unwritten amendments. The corrupt abuse of the discretionary powers given to the executive to issue import waivers, an exercise that has ruined domestic production and destroyed thousands of jobs, is well known to all Nigerians.

While the executive and legislative arms are employing delay tactics to foist on the country a Petroleum Industry law that may prove to be hollow, critical issues, such as promoting utilisation within the country of large volumes of routinely flared natural gas, have seen little progress beyond the level attained before 2000. Natural gas has innumerable industrial applications. The unbundled Power Holding Company of Nigeria (PHCN) is the largest consumer of natural gas. But gas supplies to PHCN often suffer recurring interruptions owing mainly to backlog of unpaid bills for gas supplied.

Another source of heavy demand for natural gas was meant to be the National Integrated Power Plants. Despite the fact that complete funding in foreign exchange for these plants was provided upfront in 2005, they have fallen far behind their completion year of 2007.

The scope of the projects included ancillary works for gathering, processing and transmission of gas to each plant as well as evacuation of power generated to distribution utilities. It is not clear how much of the scope of work has been achieved though the power plants have recently been pronounced completed.

Bids were submitted last June for the purchase of at least 51 per cent of each utility. But surprisingly, government has set June next year as tentative date for releasing the plants to successful buyers.

Why is government delaying the sale of power plants that are six years behind schedule by another one year? Is it a ploy to hand them over to cronies of top government functionaries?

It is hereby recommended that the utilities should be sold immediately in their current condition and at the best price offered irrespective of the cost of construction to interested buyers with proven track record in power generation.

Buyers should undertake to make the utilities functional within a specific time frame, failing which they should face financial sanctions and even imprisonment for any breach of the terms of sale of the power plants.

Anticipating that the initial PIB would be speedily enacted into law, government developed the Nigerian Gas Master Plan and Gas Infrastructure Blueprint as vehicles for rapid development of the gas sub-sector.

But the abundant investment opportunities in the area have not aroused the desired response notwithstanding government approval of competitive gas-to-power prices and the signing of World Bank Partial Risk Guarantee for gas supplied to independent power plants. The Gas Revolution Initiative, which was announced with fanfare in April 2011 proclaimed that binding memoranda of understanding had been signed by the Nigerian National Petroleum Corporation with Saudi and Indian firms to execute specific gas-related projects. But the Goodluck Jonathan administration’s mid-term report was silent on the fate of the initiative.

Government has estimated that full implementation of the Gas Master Plan, which will reduce gas flaring to the acceptable industry minimum level, will require $25 billion. It is now clear that decisions on such investments will await the passage of the PIB. In the circumstance, the apparently deliberate prolongation by the National Assembly of the status quo plays into the hands of those who want no change, but it is quite detrimental to national interest.

Incidentally, passing the PIB will also give birth to a Nigerian oil company that will be expected to hold its own, compete with the IOCs and not become a junior partner in any project jointly executed with another company.

Can the expected company find the financial muscle for that role? Yes! The inherent blessing in deriving over 70 per cent of government budget from oil dollar receipts should come in handy.

It is also hereby reiterated that when the Federation Account begins to be allocated via domiciliary dollar accounts for conversion to realise naira revenue through deposit money banks, there will accrue substantial amounts of wholly federal-owned external reserves.

Part of such reserves may be used as foreign currency loan to supplement cheap domestic bank credit that will become available in the process to enable a focused national oil company to carry out its functions.

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