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PIB will not solve problem of gas supply to power companies

Gas-PipelineThe Petroleum Industry bill will not solve the problem of gas supply to the power sector. This is because the fiscal regime embedded in the bill would be a disincentive to the joint venture companies that are expect to supply the bulk of the gas the power generators would require.

The tax for gas jumped appreciably in the bill and this is capable of discouraging gas development in the industry. If gas is not developed on consistent bases it would be difficult for enough gas to be supplied to the power sector, analysts said.

The fiscal regime as contained in the PIB, the international oil companies IOCs are saying they would not be able to survive as it is too hard for them to comply with. It would make it impossible for them to make investment. The government in the bill is planning to take 75 percent of their profits after they have removed the cost of production.

The government on the other hand is saying it needs to up the tax because it wants more revenue. It argument is that what it has been earning as revenue from gas has been low and therefore decide to jack up the tax on gas in the PIB.

Austin Avuru, managing director of Seplat petroleum Resources had described the draft bill as an attempt to kill the development of small and medium size oil fields operators as the fiscal regime contained in it, especially as it

affects gas development is most disincentive to local companies.

He said the bill will not fly if passed in the present form because the fiscal regime is too harsh and this coupled with lack of infrastructure and low price of gas it would be difficult for oil and gas operators to invest in the much touted Gas Master Plan programme.

He wants the government to embark on major reforms of our gas sector to assure delivery on a sustainable basis, commenced implementation of the gas master plan strategic framework towards wholly competitive, market driven domestic gas sector by 2014 and also Put in place transitional framework to facilitate gas access in the short to medium term – particularly for the power sector.

The price of gas currently is not encouraging enough for reasonable investment in the oil and gas industry. The price about $1.50 cent although it is expected to increased to $2 by January next year. The price of the commodity is about $3 in the international market.

The government announced a new gas to power price regime in 2010 which has seen the price graduated to $1.50 cent from 20 cents per million metric btu . This signified the effective take off of the gas master plan, and heralds the beginning of a migration in the gas pricing which further increase to one dollar fifty by 2011 and two dollars by the end of 2013.

An official of the Nigerian national Petroleum corporation that spoke to BusinnesDay allayed the fears of the power investors saying they need not worry over gas supply because the World Bank would be providing securitization for gas revenue sold to the power sector thus eliminating the supplier disincentive that often arises from PHCN’s inability to pay the full price for gas supplied.

Seye Fadunsi an executive director at pillar oil said if tax on gas is very high it would become difficult for investors in the sector to expand their investment portfolio.

 

[Business Day]

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