The President, Nigerian Gas Association,(NGA) and Chief Executive Officer, Frontier Oil Ltd, Engr. Dada Thomas on the sideline of the Nigerian International Petroleum Summit, (NIPS) in this interview speaks on the challenges, of the nation’s Gas sector, the Shale gas revolution and impact on the economy.
Excerpts:
Sir, what are the takeaways from today’s conference?
The morning topic was about the 7 BIG WINS and the minister gave a performance report on how far they have gone on the project.
For me, as the President of Nigerian Gas Association, the issue of policy and how those policies impact on gas development and I think it was quite encouraging.
There were two key messages that we wanted to get across which are one, Nigeria needs to change its paradigm.
Gas should not be seen as a source of immediate tax revenue but rather an enabler of the entire Nigerian economy.
We should use gas to generate power which will allow the economy to blossom and if the economy grows, then you can get the VAT and all the transaction taxes you are looking for from a much larger economy. The Minister acknowledged that which is a good thing.
The second thing is that in the NGA, we firmly believe that the need to migrate to a free market and that means we want to go into a willing-buyer and willing seller market.
We don’t want government to be regulating commercial transaction. Government has no business in that. This is where we should get to.
I think the difference between us and the policy makers is speed. We want it now but they want it much more slowly.
I think overall, quite some progress has been made on the 7 BIG WINS. A number of policies were approved for Oil and Gas, then the PIGB which is one of the four parts of the Petroleum Industry Bill.
The most important bill from the investors’ viewpoint is the Fiscal Bill.
Now, the Petroleum Host Community Bill is important so is the Administration Bill but for the man who will bring his money to the table, the most important is the Fiscal Bill.
And what we are advocating is that there should be an engagement between the policy and law makers with the operators and investors a lot more to ensure that we have an alignment that will be a win-win for everybody.
If it’s not a win-win, investors will not bring their money and you know Nigeria does not have the balance sheet to turn the gas development and if we can’t fund gas development, we are going to be in perpetual darkness.
If we continue to lack the power to generate employment for the young people, I think the future will not be bright for Nigeria.
We believe operators, law makers, policy makers all have to work together to make sure that the 7 BIG WINS in general and Gas development specifically work for the benefit of all.
The afternoon session which I chaired was all about Africa becoming a serious gas player in the world.
The bulk of the conversation was on Nigeria because we are the ones who have been at it longer and within Nigeria, I think the picture is that things are beginning to look in the right direction but there is a lot yet to be done.
Some schools of thought believe that the enabling environment is not there while others believe that we are somewhere there.
I think we are in between all of these. The truth is that the conducive environment to do business is not very good in Nigeria.
Therefore, we need to attract external investors because we don’t have the money.
If we don’t, they will go to Mozambique, Senegal, Ghana and other places who have found gas and are ready to work with investors. They will go to Tanzania.
You heard one of the panelists talk about a bid round in Uganda which he won.
He has never been to the place. So, he went , put a team together and won an acreage.
Do you think that can happen in Nigeria?
There is a need to make ease of doing business much better in Nigeria.
All you have to do is come into contact with civil servants and you know that this is a difficult environment.
Also, monetary policy has to work hand in hand with fiscal policy not conflicting. And then we have to ensure that the business environment is suitable for people to do business.
The fact is we have been talking about this issue for 40 years. When will Nigeria get it right?
We have had many conferences and recommendations, yet no concrete decision made. What do you think is responsible for this?
We have not as a nation been straightforward, consistent, transparent and committed to policy.
We have had too many issues of policy summersault and inconsistency. I’m sure if you go to the Federal Secretariat, you will see hundreds of studies and reports that have been done. We need to get our acts together and start implementing policies and decisions. The speed of implementing policies is very critical in this digital age.
The Ghanaians have gone from policy to a production system within 5 years and we are still trying to pass PIB in 18 years.
The FID for Train 7 is just being taken after 8 years within which time the Ghanaians had already gotten their acts together and already boasting that they will sell gas to Nigerians.
So, we need better and committed governance.
On the Shale Gas revolution, how is NGA prepared for this?
This revolution has changed the energy dynamics of the world.
If you listened to the news recently, the Americans are approaching 10mbpd. They have become the second biggest Oil producer after Russia.
Similarly, Shale Gas has also been discovered in the UK, China. What this means is that the technological barriers have been broken.
Once that is broken it is just a matter of lowering your cost of development.
NGA is conscious of shale gas. But the question is , does it have an effect? Yes, on the LNG export because LNG is goiung into the world market which went down from $14 to as low as $3.
However, we don’t import gas into Nigeria. So, that pricing challenege which oil may impose is not the same for gas. In Nigeria, there is not enough gas to meet the demand.
Nigeria is the only country trying to turn economics around. So, I think Shale Gas is a threat to the export aspiration of Nigeria but not the internal domestic market because of our location advantage. Therefore, we will continue to watch what’s going on. Those who are exporting will have to rise to the challenge it imposes on them.
What’s NGA doing to unlock the Gas potentials in Nigeria?
What we are doing to promote the advancement of gas is advocacy. This is because if your policies and your laws are hopeless, you are dead on arrival. If you enact a petroleum policy which says if you invest your money, you can never get your money back, do you think any investor will come?
We are engaging with the policy and law makers to ensure that they understand they have to put in fiscal policies that will encourage investors to come and invest.
We are asking for them to make it attractive.
Second thing, we are embarking on creating awareness about investing in gas in Nigeria. This is why I leave my work to be here. This is why we will be at the World Gas conference in Washington to for the first time promote Nigeria’s gas story and let investors know that things are changing in Nigeria.
What do you think is the effect of the non-passage of the Fiscal Bill on the industry?
Do not underestimate the importance of any of the Bills. They are all important. All throughout the day, people talked about the opaqueness and transparency of the Oil and Gas industry.
The Minister this morning said the first thing he had to do what he discovered was that the IOCs were angry because things were not going in the right direction. So, he went on a tour to try and convince them that we could work things together.
Governance is everything. It affects every aspect of human existence.
Unfortunately in Nigeria, we don’t have strong institution and our governance systems are weak.
But for investors, the most important thing is the Fiscal Bill.
Now, if an investor is looking at your challenging operating environment and runs his economics and he said, I can get 50 per cent returns then I’m ready to take the risk because the numbers have shown him that the reward are worth the effort.
Otherwise, he might as well keep his money. The Fiscal Bill tells them if the risk is worth the effort. Is there enough reward for me to undertake this risk?
The Host Community Bill and the Administration Bill are also important but first among equal is the Fiscal Bill to the Investor.
I think the National Assembly’s objective is to pass all the Bills at the same time.
What we have to do is urge them to pass those Bills before June because if they don’t, their attention will be diverted to electioneering which means 2020 before any action which is going to be bad for the industry.
How possible is this before June?
They have had two Readings and the next stage is the Public Hearing. The good thing is that the National Assembly has a combined committee.
On a final note, what are the challenges to Gas development in Nigeria?
In the Domestic Gas Market, there is lack of sanctity of contract, the pricing of gas has been heavily regulated by government and we are saying this is fighting the development of gas.
We want a willing buyer- willing seller market. So, the government should get out of price regulation and let the business community decide within themselves what price they can sell and buy gas.
The third thing is that we don’t have the infrastructure. It’s difficult to use the molecule from where they are to where they are going to be consumed.
To get infrastructure right is very expensive. We are talking about $60 billion in the next 10 years which we have not even started for Gas development asides the billion you will spend on drilling wells and treatment facility.
The real problem killing the Domestic Gas industry is the Power Sector Debt.
The gas producers are owed hundreds of billions of Naira. But remember, that they have loans that need to be paid and yet their invoices are not been paid.
So, the power sector illiquidity is killing the Nigerian Gas System.
How does the gas sector escape the clutches of this debt which the government has put a programme in place for, that is the N701 billion intervention fund. The fund started in January last year and will end in December this year. It is already behind schedule.
As we are speaking, they have not paid the July 2017 invoice, so they owe 6 months asides the ones owed prior to January 2017. They have not paid any of that.
The only solution is that government should address the power tariff.
On the power tariff, the price will pay for power in Nigeria is not enough to sustain the power sector value chain. What I am saying is that the price is just too low.
Before the devaluation, it was roughly 14 cent per kwh and people would invest because that is not bad on a world scale.
The devaluation brought it to 7 cent. Nobody will invest in power in Nigeria at 7 cent per kWh, they will just never get their money back.
On top of that, you heard that about 46 per cent of power that is generated is lost by the time it gets to Discos and then to you and I.
It is lost by inefficiency due to transmission, technical losses and then commercial losses.
Nigerians are stealing power on a daily basis by By-passing the meters and turning their Air Conditioners on all day whenever there is power.
So, the Discos are not generating enough money for their own need let alone to now take what belongs to TCN, GENCOs and the Gas producers.
Unfortunately, NBET- the institution that was brought to bridge the payment gap has not really fulfilled its duty until these N701 billion intervention Fund.
Even at that, they only pay about 80 per cent of each invoice. There is still a 20 per cent debt that is yet to be settled asides the fact that they are 6 months behind schedule.
It is a sick chain of event that needs more than the current level of intervention.
So, are you suggesting an increase in tariff?
It is fundamental. Nobody is going to invest where he can’t recover his cost. I am not just suggesting it. The World Bank has said to the Federal Government that if you want to get the $5 billion for us to help you solve the power sector issues; you need to increase the power tariff.
