‘Appropriate fiscal framework must be in place to attract significant investment to finance various strategic infrastructure projects across Nigeria’s gas value chain’

AUDREY JOE-EZIGBO, is the Co-Founder/Executive Director, Falcon Corporation Limited and 1st Vice President, Nigerian Gas Association (NGA). In this interview with FRANK UZUEGBUNAM, Editor, West Africa Energy, she talks about the newly approved National Gas Policy, the company’s recent Stakeholders’ forum on Underground Infrastructure Safety amongst other issues. Excerpts:

Recently, the Federal Executive Council approved the National Gas Policy. Do you see the approved version as achieving its aspirations?

Without a doubt, the approval of the NGP is a welcome development, but it is early days yet as far as the journey towards implementation and tangible impact on the industry is concerned. I view the NGP as a considerably well thought out governing tool for the Gas subsector.

The focus of the policy is to provide an enabling environment for optimal development and commercialization of Natural Gas resources across the value chain; the segregation of the industry into upstream, midstream and downstream operations being critical to the objective of positioning Nigeria as a gas-based industrialized nation.

The policy is robust in its approach towards deepening value extraction from the gas sector, and I see this also as a reflection of the extensive multi-level stakeholder engagement that was part of the process of developing the final policy.

A myriad of deep issues plaquing the industry remain. It is in the determined addressing of those issues in a systematic manner on a continuous basis that will ensure the NGP achieves its aspirations.

The effectiveness of the NGP is hinged to a large degree on the expectation that Nigeria will be able to draw in significant investment into funding the various infrastructure projects required to be delivered across the gas value chain. On the other side of the table, investors are watching closely to see what supporting fiscal framework the nation will put in place.

The NGP aims to create an operational landscape within the gas industry where gas projects are undertaken largely only when they piggyback off oil exploration projects. This will not help us develop an independent strong gas industry. It is the fiscal provisions that will show if indeed a standalone dry gas project will be economically viable, and the nation will only see concerted independent exploration and production activities for gas where this is possible.

There is a high level of expectation amongst industry players, but there is also a heightened level of anxiety which is compounded by other sectoral challenges such as the power sector illiquidity issue which is quite crippling on the operations of gas producers and suppliers.

Generally, I believe that if we begin to address other unresolved issue impacting the sector, we should begin to see some traction in terms of impact of the NGP on the sector in about 2-3 years.

Nigeria’s Gas potential has been bogged down by infrastructural challenges. What is the way forward?

Let me put it in context a bit. The UK has approximately 176Bcm of proven gas reserves while Nigeria has about 187Tcf. Conversely however, the UK has over 282,600KM of gas pipeline infrastructure, whereas Nigeria has barely 5,000km of antiquated pipeline infrastructure. When you further contextualize this along the lines of population, social welfare, level of development and industrialization, you get a clearer sense of just how dire the situation is. 

A survey by the Independent Petroleum Producers Group (IPPG) posits that for Nigeria to bridge the gas sector infrastructure deficit, there is a need for an estimated initial investment of $6 billion annually over a period of four years, and then dropping to $3 billion annually thereafter in new Gas production, processing and transportation infrastructure. This is not money that can come from the government, and neither is it money that will come in unless private sector investors can see that the landscape has been sufficiently de-risked. Erosion of investors’ confidence and investor apathy are understandable outcomes in the face of more stable economies competing for the same pool of investor funds.

Over the past ten years particularly however, we have seen attempts to address the development of the sector, but there were many gaps with the gas revolution, the power sector reform initiatives. We ended up driving implementation of several gas-to-power and gas-based projects without giving commensurate attention to the gas transportation, storage and delivery infrastructure that will provide the interconnectivity framework to ensure the Gas was available where needed. And in all this time, the conversation has centered around utilization of Associated Gas. We have not made any deliberate efforts to ensure exploration and production of Non-Associated Gas. This needs to change.

Our reality is that gas, not hydro and certainly not renewables at this point in time, is the primary resource that guarantees the desired quantum leap in power generation across the nation.

We are glad for the approval of the NGP and passage of the PIGB, but we need traction on the passage of the Petroleum Fiscal Bill, Petroleum Host Community Bill and the Petroleum Revenue Bill.

We need to address the issues relating to market-reflective pricing. We will not attract the needed investments if the numbers do not make sense, the landscape of business is tight and uncertain, and there is a mismatch between the currency of investment and the currency of revenues, and bottlenecks impinging upon revenue flows back to the country from which the funds were sourced.   

How true is the assertion that power plant operators now prefer to shut down plants rather than continue to be owed?

This is a true and expected position. We cannot reasonably expect gas producers and suppliers to continue to operate where they are owed several billions of naira, with over two years’ worth of unpaid invoices accumulated.

Some of the operators who supply Associated Gas, have been able to manage the situation by leveraging their operation on revenues from oil exploration. But in the face of the lingering depressed global oil prices, this is not sustainable. For the few that have stand-alone gas operations, their operations have practically come to a halt, particularly where their gas is lean and they are unable to leverage on revenues from condensates or other bi-products of stripping the gas. 

Many players are facing bankruptcy arising from inability to service their loans, and a severe liquidity crunch that impacts their day to day operations. It is a very dire situation indeed. 

There is the fact that the Government had recently mandated that Gas producers should be paid in naira, whereas Gas is dollar-denominated commodity, and loans for gas development and infrastructure projects are contracted in dollars and expected to be repaid in dollars. These same companies have however had to obtain dollars to service their loans from the parallel market as they are not able to obtain funds from CBN at the official rate.  There was a point at the peak of the dollar crises when parallel market rates peaked at an all-time high of over N500, that those who had dollar-contracted loans were losing almost N230 for each dollar. The situation has improved significantly this year resulting from the various interventions by the CBN. What still obtains however, is that for every N305million payment received for gas supplied, a producer/supplier remits the equivalent of N365million to its lenders. Now imagine, as is the case today, that even at this clear gross loss position, they also contend with upwards of twelve to eighteen months of unpaid invoices. This is clearly unsustainable.

What is the impact of the N701b payment guarantee to Gas producers on your operations?

This N701 billion intervention fund was set up by the CBN to provide a payment assurance guarantee to address the liquidity constraints along the gas-to-power value chain. The intervention does not address legacy debt so there remains the question of how to resolve the backlog. This announcement was made in March and to date not a single naira has been disbursed, meaning another seven or eight months’ worth of unpaid invoices have further accrued.

It is very troubling for us as a business because one way or the other, we are all feeding from the same gas supply pool and when certain factors have potential to upturn supply security, we must pay attention. Granted, the immediate impact is not at the distribution end of the gas industry value chain, but it is a significant factor nonetheless because we can only distribute what is supplied and if supply is threatened, distribution is inadvertently then also threatened.

Falcon is a company that keeps her eye on mid and long-term prospects, opportunities, and key risks to our business, so it is of concern because the gas aspects of our operations cannot continue to run smoothly or at optimal capacity outside of our assurance of sustained supply at the volume, pressures and flows which we require. 

What is the idea behind the recent Falcon Corporation’s Stakeholders’ forum on Underground Infrastructure Safety?

We operate the Ikorodu Franchise for the Nigerian Gas Marketing Company and have several kilometers of Natural Gas Pipelines traversing the Ikorodu area. We found that it was imperative to engage the various stakeholders (TELCOS, GENCOS, DISCOS, LASIMRA and other relevant agencies of government at various levels, etc.) to work collaboratively and in unison to ensure safety remains the highest priority for continuous sustainable growth and development.

We have observed companies building infrastructure, carrying out excavations and installations without taking into cognizance the risk implications that can possibly cause colossal loss of lives and properties to our host communities.

This challenge is enabled largely by two factors: the existing multiplicity of government agencies (State and Federal) which means that in many cases, permits are given for such works to be done without companies being informed of our existing Gas infrastructure within the area; and secondly, the lack of composite data and mapping of the existing underground infrastructure within the area.

We had a successful outing and achieved our objective of engaging various stakeholders operating within Ikorodu in order to keep them abreast of the importance of the safety and security of our host communities, human lives, assets and investments.