Tariff Regulation Hindering New Investment in Gas Sector, Say Distributors

•Insist FG lacks funds to execute its ‘Decade of Gas’ programme 

•Lament banks’ unwillingness to lend for long-term financing

Emmanuel Addeh in Abuja

The Association of Local Distributors of Gas (ALDG) in Nigeria, an organisation which aims to deepen the utilisation of natural gas in the country, has said that government’s regulation of tariffs in the gas sector has continued to hinder new investment in the industry.

Chairman, Board of the ALDG and Managing Director of Falcon Corporation Limited, Prof. Joseph Ezigbo, speaking in the latest edition of the association’s publication, also maintained that the federal government cannot fund the much-talked-about ‘Decade of Gas’, reason the private sector must be encouraged to be on the driver’s seat.

Nigeria’s gas industry, he argued, is plagued by numerous challenges, including legacy issues, and unfolding ones due to the current state of the industry and the impact of global events.

“Infrastructure is and has remained a key challenge. Nigeria has a gross inadequacy of gas infrastructure, and we are not seeing new investments coming into the space. There are of course many reasons behind this.

“A key issue is tariff regulation. Regulated gas price limits investors’ confidence in the commercial viability of projects. The government still regulates the domestic price of natural gas, an act that many industry players say promotes inefficiency as pegged prices are not reflective of actual costs.

“The tariffs must be cost reflective and accommodate acceptable investor returns, and in this regard, the market must be allowed to determine the acceptable and competitive tariff levels that encapsulate value chain cost from production, processing, transportation, and distribution,” he maintained.

The ALDG chairman also stated that cost and tenure of funding for gas infrastructure where available is also a major constraint, with local financing institutions struggling with the capacity to provide the quantum and tenure of funding required.

The Nigerian financing landscape, he argued, needs to transition to one where single digit and long term local currency credit can be accessed since gas infrastructure facilities are extremely capital intensive.

Within the ambit of the Petroleum Industry Act (PIA), he opined that the implementation on of the Midstream and Downstream Gas infrastructure Fund (MDGIF) and other incentives for the development of gas infrastructure were critical to unlocking investment in the domestic natural gas market.

 Ezigbo maintained that the right way to go is to bring the private sector into the realm of ownership of the decade of gas programme being pursued by the federal government,.

“One clear thing is that the government does not have the resources, nor is its structure aligned enough to ensure continuity and timely delivery of the objectives of the programme.

 “The government needs to allow for the gravitating toward a completely private sector-driven industry where its role remains at the level of oversight of the PIA provisions and its attendant regulations.

“Where the country is today and the many socio-economic headwinds we are grappling with, we need the private sector efficiency and capacity to come to play and enable the industry to move forward at a much faster pace,” he argued.

He pointed out that the fact that components used in the sector are mostly imported, considering the effect that exchange rates have on company cash flows and the wide disparity between the official and parallel rates, only serves to compound the challenges.

The liquidity crunch in the gas-to-power value chain, he added, remains a huge concern, with the mounting debts as gas suppliers continue to suffer from payment defaults and liquidity constraints that erode investors’ confidence.

“This is a major problem for the gas sector given that power offtakes the bulk of gas delivered into the  domestic market.

“There are many attendant challenges stemming from the general micro and macro environment, amongst which are inflation, insecurity, human capacity constraints, and so on, which also have implications for gas development in  Nigeria.

“These notwithstanding, several opportunities exist for potential players to fully harness as enabled by the PIA,” he stressed.

Despite the many challenges, he stated that opportunities exist for potential investors to play in Domestic Liquefied Natural Gas (DLNG), Compressed Natural Gas (CNG), Auto Gas/Natural Gas Vehicle (NGV),  Liquefied Petroleum Gas (LPG), wholesale gas trading and natural gas distribution.