The levies stipulated in the Petroleum Industry Act to be paid by operators in the midstream and downstream sectors of the Nigeria oil and gas industry is inadequate to close the infrastructure in the sectors, some stakeholders have said.
They said this in a report sponsored by Seplat Energy Plc to commemorate its 2021 Energy Summit, with the title ‘Hidden in plain sight: Nigeria’s energy transition’.
They noted that the PIA established the Midstream and Downstream Infrastructure Fund to appropriate 0.5 per cent on sales of all petroleum products and natural gas sold locally.
The report said, “This levy will yield approximately $70-80m annually based on current consumption levels. Total amount of investment required to close the infrastructure gap is in the range of $6-7bn, which spread over 10 years amounts to $600-700m annually.
“The provision in the Act clearly will not cut it; 0.5 per cent is insufficient to fund the infrastructure drive by government. Even though it is to fund government’s participation in the respective projects, it is still grossly inadequate as equity contribution.”
The stakeholders noted that the Petroleum Act Implementation Committee had been set up by the government to implement the provisions of the new governance law.
They, however, said, “A major challenge for them will be to find the right model to facilitate the development of the gas market for Compressed Natural Gas and Liquefied Petroleum Gas.
“There are no cylinders for LPG and conversion kits for vehicles, which are beyond the reach of majority of Nigerian homes and motorists.
“The country also operates a Universal Cylinder Ownership policy, which is a disincentive to private-sector-led initiatives for cylinders.
“As such, a market infrastructure provider will be required to provide these cylinders and conversion kit to end users for free so as to eliminate the biggest barrier to entry for most users – Affordability.”
They said the market infrastructure provider would then recover its investment from the levy to be charged on consumption and appropriated by the Midstream and Downstream Infrastructure Fund established by the PIA.
According to the report, while crude oil has a critical role in the funding of Nigeria’s growth and its energy transition in the long term, the reality and threat of climate change requires the de-carbonisation of energy systems in the country.
“As such, the provision in the Act for the establishment of a gas infrastructure fund, to appropriate levies on petroleum and gas products consumption for investment in midstream and downstream infrastructure is a clear disruptor to change the paradigm of energy supply in Nigeria as the gaps in the market are bridged,” it said.
The stakeholders described gas and renewables as the future of energy markets.
They said, “Nigeria and its development partners must step up to the play in making its 200tcf of proven gas reserves, 14GW captive market, and burgeoning 206.1million-strong population count.
“Growth in the natural gas sector is expected to come from industrial consumption, transportation, petrochemicals and alternative fuel consumption by Nigerian homes and automobiles.”
According to the report, the role of the solar market in Nigeria is set for growth with over $10bn anticipated in annual revenues from solar home systems and mini-grids.
