The Power Holding Company of Nigeria owes the Nigerian National Petroleum Corporation and some other international oil companies N10bn being payments due from supplies made to the company over the last few years.
A document obtained by our correspondent in Abuja on Monday indicated that the debt as well as other commercial issues such as lack of world class agreements contributed to making the domestic gas market a less attractive market for the investors.
According to it, �History of non-payment for gas in domestic market�mainly from government parastatals such as PHCN, Aluminum Smelting Company of Nigeria, Delta Steel Company created a drag in international oil companies� willingness to invest heavily in supply unless adequate interventions on revenue security are provided.�
It added that in view of the size of capital investments required, bankable gas agreements were critical and needed to be enforceable.
The document, which was attributed to the Group Managing Director, NNPC, Alhaji Abubakar Yar� Adua described the current domestic market as being immature, which necessitated that agreements must be improved to enable investor confidence.
He said, �Core IOC operators have a strong portfolio interest that is biased towards export LNG. There isn�t a natural confidence in the domestic market. This natural bias creates a major conflict and potential resistance to gas supply to domestic market.�
Yar� Adua added, �Fiscal regime favours existing upstream investors and thereby act as a barrier to non-oil investors and new entrants into the sector.
Offsetting capital costs at higher marginal rate of 85per cent than the rate at which gas profits are assessed does not give effective incentives for containment of costs
The government share of economic rent is low as gas development is essentially being funded from existing Oil tax revenues due to Government.�
He canvassed the need to have a proper commercial regulatory framework for downstream gas sector, including the provision of third party access, pipeline ownership, tariff structure and gas transportation code, adding that it was also necessary to have a separate fiscal regime for gas and downstream commercial regulatory framework.
According to the GMD, �Power sector demand growth is most aggressive. Over 20 plants are under construction. The gas reserves requirement of this sector is also most significant relative to other sectors. The disproportionate demand has a significant impact on the overall commerciality of supply � as the price of gas to power significantly impacts on the total revenue of the gas suppliers.
�The investment level required to deliver both export and domestic opportunities is significant. A radical approach to sector financing is therefore essential. More importantly, there also needs to be a reduced focus on the cost effectiveness of development projects in order to ensure that funding requests are optimised.�
Yar� Adua also indicated that almost 40 percent of Nigeria �s gas reserves estimated at about 180 trillion cubic feet was not available in the short term as they were stranded in gas caps and not accessible until much after the production of oil.
Dec252007