Power Generation At The Mercy Of The PIB

(By Ebirim Okechukwu)

As it stands today, there is no gainsaying the fact that the passage of the Petroleum Industry Bill is the way forward for the gas – to – power programme of the Federal Government. The fear for the general public will, however, remain the impact deregulated gas prices will have on electricity pricing being one of the key indices employed by NERC in determining tariffs. On the other hand, Nigerians will equally have to choose from the fear of escalating gas and electricity prices and the non-availability of gas within the domestic market. The crippling of our thermal power generation facilities owing to the non-availability of gas is certainly not an option.

The PIB remains a bill in the National Assembly notwithstanding the extensive innovations it intends to introduce into the entire Petroleum Industry including the gas sub-sector. The National Assembly has to act in the best interest of the Electric Power Supply Industry as a whole by expediting work on the passage of the Petroleum Industry Bill. However, the PIB is not all there is to the steps taken so far in making the gas sub-sector more robust and viable. There is the Nigerian Gas Master Plan.

ALL too often, drop in power supply in Nigeria has always been blamed on the fall in gas supply to thermal power generation facilities in the country. What could be the reason that a country sitting on estimated proven high quality gas reserves of 187 cubic feet, the seventh largest in the world, is unable to make gas available for its local use? This problem was one of the reasons for the inauguration of the Oil and Gas Sector Reform Implementation Committee (OGIC) in 2000 then under the chairmanship of Dr. Rilwan Lukman and later Dr. Edmund Daukoru.

  Part of the outcome of the work of OGIC is the National Oil and Gas Policy, which had the overall design to introduce a considerable degree of commercialisation into the Oil and Gas Sector. This committee was re-inaugurated during President Umaru Musa Yar’Adua Administration and charged with providing a template for institutional and regulatory reforms of the Oil and Gas sector. The Petroleum Industry Bill (PIB) was part of the outcome of the committee’s efforts. The chequered history of that bill popularly referred to as the PIB is now well rehearsed with the reading public. At a point, some members of the National Assembly suggested that there were different versions of the PIB before them and in circulation. Hence, there was perhaps an orchestrated confusion as to the contents of the authentic version of the PIB. This prompted the Jonathan Administration through the incumbent Minister of Petroleum Resources, Mrs. Deziani Alison-Madueke, to rework the bill and forward it afresh to the National Assembly in July, last year.

  Unlike the Petroleum Act of 1969 and the Nigeria National Petroleum Corporation Act of 1977, which were barely concerned with issues regarding the upstream and downstream workings of the gas sub-sector, the PIB is a clear departure in this regard. The Executive’s version of the Bill, baring any further alterations that the National Assembly can lawfully make, includes provisions for the issuance of gas supply licence, gas distribution licence, transportation and pipeline owner licence and the transportation network operator licence. It specifies the rights and obligations of each of these licensees. The Bill also seeks to establish the Downstream Petroleum Regulatory Agency (DPRA) with functions that cut across the entire downstream of oil and gas sector.

  The Bill deregulates gas pricing but provides that the Minister, while acting on the advice of the DPRA, is to regulate prices with respect to particular activities being carried out by any licensee as a monopoly or dominant service provider. This pricing is to be done in consultation with the licensees and proposing stakeholders. Gas pricing methodology is to reflect the cost of all components in the wholesale gas supply chain including transportation, distribution and supply. Prices have to reflect costs incurred in the efficient provision of the services concerned; a reasonable return on investment and shall not discriminate between customers of similar characteristics such as those with similar size and consumption profile. Wholesale gas prices are to be negotiated directly between a supplier and a customer as well as an upstream gas supplier and an off-taker on an arm’s length basis. The gas supply agreements are to be monitored by the DPRA with a view to checking market abuses. However, a transitional gas pricing arrangement is to be put in place by the DPRA in consultation with the ministers in charge of Petroleum, Finance, Industries, Power and Steel and with gas producers, electricity producers and the National Electricity Regulatory Commission (NERC) including other key stake holders. This is pending the implementation of the gas pricing deregulation described in the foregoing. The PIB remains a bill in the National Assembly notwithstanding the extensive innovations it intends to introduce into the entire Petroleum Industry including the gas sub-sector. The National Assembly has to act in the best interest of the Electric Power Supply Industry as a whole by expediting work on the passage of the Petroleum Industry Bill. However, the PIB is not all there is to the steps taken so far in making the gas sub-sector more robust and viable. There is the Nigerian Gas Master Plan.

  Under this plan, a Domestic Gas Supply Obligation is put in place. This obligation requires that all oil and gas companies are to set aside a pre-determined quantity of gas for the domestic market. Also a domestic gas pricing framework is in place dividing the domestic gas market into the power sector, the gas-based industries and the wholesale sector.   However, the existence of legally enforceable gas supply agreements between gas suppliers and off-takers is fundamental to the success of this Plan. The Vice President Arc Namadi Sambo is quoted as saying that the implementation of the Gas Master Plan will gulp about N1.3 trillion while the Federal Government is to inject, as its counterpart funding, the sum of US$500 million. This project will take the collective participation of the Federal Government through the NNPC, the Nigerian Gas Company and the private sector for its implementation.

  The World Bank on its part has put together a Partial Risk Guarantee in support of Gas Supply and Aggregation Agreements (GSAA) to be entered into between gas suppliers and off-takers. The establishment of critical infrastructure to deliver gas at the supply points based on Gas Supply Agreements to be entered into also remains a challenge for the sector. Where the infrastructure does exist, the willingness of the suppliers to supply in the absence of price incentives offered by a deregulated market continues to constitute a bottleneck for the availability of gas domestically. This problem is heightened by the weak capacity of the concerned regulatory agencies as at present constituted to oversee the up and downstream activities of the relevant licensees in the Petroleum Industry.

As it stands today, there is no gainsaying the fact that the passage of the Petroleum Industry Bill is the way forward for the gas – to – power programme of the Federal Government. The fear for the general public will, however, remain the impact deregulated gas prices will have on electricity pricing being one of the key indices employed by NERC in determining tariffs. On the other hand, Nigerians will equally have to choose from the fear of escalating gas and electricity prices and the non-availability of gas within the domestic market. The crippling of our thermal power generation facilities owing to the non-availability of gas is certainly not an option. It is best the PIB introduces the reforms it promises particularly deregulation while the Government should ensure that the gas sub-sector is competitive enough and free of market abuses and monopolistic controls of a few operators. The ball is in the court of the National Assembly to put the gas – to- power plan on a sound legal pedestal that will engender the influx of highly needed investment and a boost for thermal power generation in this country.

Okechukwu is a legal practitioner.

okey.ebirim@rocketmail.com

“Opinion pieces of this sort published on RISE Networks are those of the original authors and do not in anyway represent the thoughts, beliefs and ideas of RISE Networks.”

RISE NETWORKS

"Nigeria's Leading Private Sector and Donor funded Social Enterprise with deliberate interest in Technology and its relevance to Youth and Education Development across Africa. Our Strategic focus is on vital human capital Development issues and their relationship to economic growth and democratic consolidation." Twitter: @risenetworks || Facebook - RISE GROUP || Google Plus - Rise Networks