Vanguard (Lagos)

Nigeria: Power Generation - NLNG Cautions Against Increases in Gas Taxes, Royalties

Premier natural gas giant, Nigerian LNG Limited has warned that any attempt to increase current taxes and royalties accruable to the exploration and production of gas in the country will be counter-productive, as it will impact negatively on electricity generation.

NLNG, the promoters of the Liquefied Natural Gas project, argued that the operating environment is not yet right for additional increases in taxes and royalties in view of the infrastructure challenges for gas development in the country.

The Managing Director, NLNG, Mr. Babs Omotowa, speaking at the ongoing Nigeria Oil and Gas, NOG 2013 International Conference and Exhibition in Abuja, also warned that any further delay in enabling the exploration and production of gas in Nigeria will be

counter-productive with regard to meeting Federal Government's 40 Giga watt electricity target in the nearest future.

"Any uncompetitive or additional taxes and royalties on gas production will only lead to a reduction in such investments, which could be counter-productive in the future, he said.

According to him: "Gas to power is clearly a major enabler for growing the Nigerian economy, and to generate and distribute 40Gigga watts from the end of the decade is clearly a policy in the right direction.

"Clearly, adequate power supply underpinned by gas, evidence abound to show that it will unleash big and small scale investments required to jump start the economy, and investments in areas like agriculture, manufacturing, petrochemical and fertilizers. These industries are at the thin edge of the value chain, have the potential to generate up to 300 to 500% of the income that government can generate through a focused concentration of taxes from gas production.

"The more important benefit is the huge employments that will be created for the growing unemployed population in the country that can ever be imagined. Therefore, any delay in enabling the exploration and production of gas in Nigeria is simply counter-productive."

Low impact on human, economy,

Omotowa noted that currently the impact of the development of oil and gas in Nigeria since thee discovery of commercial oil in Oloibiri in 1957, has remained very low. More so, its impact on the Gross Domestic Product, GDP, is even less admirable.

"The impact of the sector on the economy in terms of translating into huge incomes for sustainable improvements in the lives of most citizens, employment generation, gas to power development and stimulation of other sectors of the economy has remained very, very low.

"The sector's contribution to the national GDP is a meagre 17%. So the benefit of the development of the oil and gas industry goes beyond income generation for the government. But more importantly is to provide employment generation for the economy out of the significant billions of dollars revenues generated, it should provide feedstock for power generation and industries that are required to revive the economy - manufacturing, petrochemical, and small and medium scale industries and for commercial use."

Furthermore, he argued that despite the huge reserves base and potential, the level of gas penetration and utilisation in Nigeria for both domestic and export purposes is still low.

This, he said is because "there are quite some infrastructure challenges as well as the uncertainties about the enabling environment for new investments. Other countries such as Malaysia, Qatar and UAE, are good examples where the gas have been used as strategic paths to harness the potentials of the countries that have yielded enormous benefits and dividend to the economy and rapid developments of industries and retain businesses."

Pointing out that the problem with Nigeria is not paucity of vision, aspirations and targets, but the will to execute them "without the usual chaos and distractions," Omotowa maintained there was an urgent to incentivise the gas industry, with a view to energising "a sustainable social, economic and industrial growth in Nigeria, as envisaged in the Gas Master Plan."

He added that "This will require the creation of the right and enabling environment, the right fiscals, commercial and socio-political environments to have the attraction of the type of investments required for infrastructure developments."

Investments in oil and gas

To underscore the need to institute the right fiscal environment to boost investments, Nigeria only managed to attract a meagre 0.08 percent of global investments in the oil and gas industry in 2012.

He said that of the over one trillion dollars investment recorded across the world in 2012, only $8.4billion came to Nigeria. The more worrisome, he added is the fact that majority of this amount went into operating expenditure, with very minimal investments in capital expenditure.

"So in reality, the oil and gas sector GDP growth rate was negative at 0.34 for 2011. Sadly, Nigeria is gradually losing its position as an investor's delight in the global energy sector. This is worrisome, considering the massive challenges required for gas exploration and production as well as the infrastructure development across the gas to power chain.

"Unfortunately, this will also have far reaching effects on the medium to longer terms considering the rapid decline that oil and gas has been experiencing without new investments."

Accordingly, Omotowa stressed the need to address all stakeholders concerns, especially as regards the Petroleum Industry Bill, PIB.

"There is the need to address the extremely prolonged uncertainties around the PIB, which is an important determinant of the future of gas supply, because it also includes gas regulations and fiscals, which are crucial to the supply of gas to the power plants.

"This is because we cannot afford to risk a laudable agenda of the Gas Master Plan, and the impact it will have on the overall economy and the people. The mutually benefiting PIB, which will enable investments in gas, required unlocking the huge potential and opportunity in Nigeria is clearly required."

He insisted that the Nigerian gas reserves can meet both domestic and export demands, adding that all that is required is the right incentives and prices for domestic and a free environment for exports.

"The introduction of things like domestic gas royalties appear not to take into account the current challenges in infrastructure and the limited ability of the market to turn to commercial and low prices. A fiscal situation that strongly incentivises investments to develop gas fields and related transportation infrastructure is required to support the provision of reliable power."

In his opinion, the issue with gas is not just about revenues for government as the value at stake is on "enabling the economic diversifications through underpinning reliable power generation and providing the essential fuel and feed stock for sustainable industrial development and employment."

Technology development

Omotowa finally noted that in terms of technology development, the technologies for turning natural gas resources to wealth are well established worldwide, and are constantly evolving.

In this regard, he said the NLNG provides inspiration that demonstrates a clear delivery of significant results that are globally competitive and financially sound under the right conditions.

"We are pleased that we have been able to demonstrate successful models in NLNG, which are being looked at to be replicated with the planned investments in other LNG plants and related industries," he added.

As such, to promote higher penetration in the gas sector, he said "it is necessary for permitting actions to continue to be taken to create the opportunities that will attract investors, local entrepreneurs to enable them achieve sustainable standards of excellence in this business."

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