The payment for gas in naira instead of the United States dollar as captured in gas contracts is currently inhibiting investments in the Nigerian gas sector, operators have said.
According to them, the inability of heavy gas users such as industries and power generation companies to pay for the commodity in dollar, as agreed in gas contracts, has made it impossible for investors to put money in the sector.
The President, Nigerian Gas Association and Managing Director, Frontier Oil Limited, Mr. Dada Thomas, in an interview with our correspondent, said the operating atmosphere was extremely difficult for gas investments.
He said, “We in Frontier with our partners, Seven Energy and Acugas, have invested in the largest indigenous gas plant in Nigeria and installed gas processing capacity of 200 billion standard cubic feet a day.
“So, I can tell you that it is not easy to invest in gas in Nigeria today. One of the reasons is that gas investments are dollar investments and so we have to go and find a lender to give us dollars; we put that into the business to generate more funds. But guess what, in today’s Nigeria, our revenue is now paid in naira. And when I go looking for the dollar to repay my investors, I cannot get it.
“So there is a problem with paying for gas in naira when the gas contracts were made in dollars. Gas producers are paid in naira at the prevailing Central Bank of Nigeria’s rate at the date you are paid. So, you generate naira at 320 and supposing you are selling your gas at $2, you get N640.
“But if you take N640 to the market to buy dollars, what are you going to get? Of course, you won’t get $2; you may get $1.5 if you are lucky because they are going to sell to you at about N440 to a dollar. Therefore, I cannot meet my loan obligation and that is what we call an investment income currency mismatch.
“That singular fact alone means that nobody is going to invest in gas in Nigeria in the foreseeable future until this issue is resolved.”
Thomas stated that this development, after the illiquidity in the power sector, was the second most important problem that had stalled gas investments in Nigeria.
The CBN had recently tightened its regulations on the use of foreign currencies in carrying out transactions in Nigeria, warning individuals and corporate organisations against doing so.
The bank, in one of its statements on the development, stated that such moves were against the provisions of the CBN Act.
It said the provisions of the CBN Act of 2007 stated that the currency notes issued by the bank should be legal tender in the country, adding that this should be used for the payment of any amount.
But the Federal Ministry of Petroleum Resources and the Nigerian National Petroleum Corporation have repeatedly canvassed more investments in the gas sector in a bid to diversify the country’s source of revenue from the sale of crude.
The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, recently confirmed that the country had paid less attention to the gas sector over the years, but noted that the situation would be adequately addressed if the draft National Gas Policy was approved by the Federal Government.
The minister had said, “Our policy challenge is to develop a policy, the institutional, regulatory and fiscal framework that is attractive to the private sector. Over the years, there has been a total neglect of the gas sector. We really have not focused sufficiently on gas production.
“All of those times, it had been oil production. Having regard to the effect of the recession today, let us develop the twin windows of economic earnings in this country. Let us move to gas.”
Similarly, the Group Managing Director, NNPC, Dr. Maikanti Baru, had called for more investments in the gas sector, stressing that there was a need to expand the country’s gas exploration efforts in its sedimentary basins in order to increase Nigeria’s gas reserves.
According to him, Nigeria currently holds the ninth largest gas reserves in the world with 192 trillion cubic feet of gas, but that the resource will be depleted in a couple of years if the country fails to shore up its gas reserves.
Baru urged investors to tap into the $51bn gas investment opportunities in Nigeria, adding that the growth of the Nigerian gas sector was anchored on growing the power and gas based industries.