The Power Sector debt keeps growing daily. The ₦701Billion Payment Assurance Guarantee (PAG) scheme launched mid 2017 by the FGN (via the CBN/NBET) to address the debt problem helped to alleviate payment for Gas supplied from January 2017.

Gas invoices were however still not paid in full during the PAG regime, thus causing additional debt build-up over the period of the scheme.

The PAG effectively elapsed in December 2018, and in addition to payment backlogs under the scheme, new debts have continued to build up from January 2019 to date. It is of grave concern to us and our members that we have not been formally advised of a replacement program for the PAG scheme.

We acknowledge the improvements that PAG intervention fund achieved in the Gas-to-power sector but our advocacy on this issue remains strong because:
a) these payments do not address the back log of debt owed to Gas producers/suppliers prior to January 2017, which are accruing interest at alarming rates.
b) 80% of invoices paid leaving a balance of 20% adding to past debt.
c) such income must be used to pay due loan obligations, the operating (OPEX) and General and Administration (G&A) costs of producing and supplying Gas; and
d) paying the backlog of pre-2017 Gas royalties and current royalties which are accruing monthly.

The lack of sanctity of agreement in the gas-to-power sector is a fundamental barrier to attracting further investment into the sector and is largely responsible for the huge debt that has made the sector unattractive in the short term.

Enforcement of sanctity of agreement is fundamental to improving investor confidence.

Investments in the gas sector are in US$ while income is in Naira at CBN rate

Sector suffering from FX exposure due to differential exchange rate of ₦ 60/mscf or 18% of value of gas sold

FX exposure degrades project economics, profitability and viability

Makes the gas sector un-attractive to investors especially if there is no other incentive such as AGFA or equivalent to cushion impact of monetary policy

DPR insists Gas Royalty payment be paid in US$ but;

US$ gas invoices are actually paid in Naira at CBN rate.

Gas producers/suppliers would suffer FX exposure losing ₦60/mscf of gas sold.

DPR claim their action is based on the Petroleum Law. We postulate this law, made in 1963 and amendments thereto, focused only on oil and did not really consider the case of Gas

DPR is further insisting that Gas royalties must be paid as at when due. NGA fully supports this position under normal circumstances.

However, we are unable to support this position under circumstances whereby our members have not been paid by Federal Government (FGN) and/or State-owned Independent Power Plants (IPPS), the Nigerian Gas Company (NGC), the Nigerian Gas Marketing Company (NGMC) and related entities; NBET/CBN.

MPR issued Draft 2019 Domestic Gas Regulation on the sector without holistic stakeholder inputs. This portends an unsustainable supply and distribution of gas to the last mile customers:
a) Arbitrary fixing of prices across the gas value chain without due consideration for the capital investment in existing and future infrastructure.
b) Downstream commercial sector which is the main anchor of liquidity in the gas value chain should not be sacrificed to cross-subsidize other sectors of the economy.
c) Proposed framework derails the gas industry from the willing buyer-willing seller pricing philosophy as engrained in the Gas Master Plan and the Domestic Gas Pricing Policy.

The most important missing factor in the gas to power value chain is market reflective pricing. Current power tariffs are inadequate to sustain the entire value chain.

Furthermore, pricing of power has been politicized leading to the inability of the Multi Year Tariff Order (MYTO) being implemented in accordance with the guiding parameters and prevailing change drivers. Adjustments have been so far slow, politically motivated and insufficient to sustain the value chain.