Resolve gas to power problems, World Bank tells FG

As the new government of Muhammadu  Buhari  settles in, the World  Bank has warned  that unless the  issue  of gas -to -power  is  resolved,  it would  be difficult  to mitigate against  the effects  of sliding  crude oil revenue profile of the country. The World Bank therefore urged  the government to muster the political  will  to  break the jinx  which  has bedeviled  the  power sector.

With the power sector properly fixed, it said,the nation’s economic base would expand and this would lead to significant creation of  jobs across sectors.

Marie Marie-Nelly, country director, World Bank stated this in Lagos, while speaking at the Contracting and  Procurement Managers Conference  with  the theme : “Oil and Gas price Decline  Contracting  and Supply Management, Making a Difference,” which was organised by the Nigeria  Liquefied Natural Gas (NLNG) company, and held  in Lagos,Monday.

Marie-Nelly  emphasised that  the country’s leadership must muster enough political will to  sort out the power  problem, adding it was  because of lack of political will  that  had made  her unable  to convert  her huge  gas resources  to power.

He lamented that there were still a lot of bottlenecks  yet to be addressed which have prevented the translation of gas resources to power, in spite of the huge reserves in- country.

“It is critical to get the gas -to -power  issue sorted out  without  further  delay because it  is very  important  towards boosting the economic growth at this point in time when the decline in oil prices has  impacted negatively on the economy”, he said.

“ The day Nigeria  sorts out  the  gas-to-power  supply issue,  that would be the day  the country would break  the jinx  that has enveloped the power sector and the economy would quicken its path of growth”.

  Commenting on the  implications of the declining  oil and  gas  prices  on  Nigeria, he urged the  government to diversified  its   economy so as to mitigate the effect of such fluctuations in  Oil  and  Gas prices.

  He said areas which the decline has already affected  include sharp reduction in the capital expenditure of the  2015  budget, many states not being able  to pay salaries and carry on with projects, while many have cut their budgets,  and the drastic reduction of  foreign reserves which can presently support only about four to five months of importation.

The diversification of the fiscal revenue through a tax policy and  administration, export receipt,  as well as improving the quality of expenditure could be some of the steps the government  may consider taking to boost its revenue profile.

The financing needs of the country, he said, are so large that they would need to be complemented by domestic financing from different sources.

He said government would require extraordinary political will to carry  out such reforms but that when once accomplished, they wouls lead to a diversification of the economy and revenue base of the country, encouraging private sector financing through foreign direct investment and borrowing.

He said borrowing to finance economic activities was not a bad thing, and that  countries such as Thailand and Malaysia had borrowed significantly but made sure to deploy the resources judiciously.

In his opening  remark Babs Omotowa, managing  director of the Nigeria LNG, said the oil price levels are expected to remain subdued for at least two years. Omotowa added that it was not inconceivable that oil prices could fall much lower,  depending on what happens in countries like Iran, Iraq and Libya.

He said whilst we have experienced this cycle many times in the past, it has a severe impact on the economy of oil producing countries such as Nigeria which derives 80 percent of its revenue from oil and gas earnings, and which do not have the deep financial reserves of the likes of Saudi Arabia. 

He said:  “Agreements are being renegotiated for up to 40 percent reduction in the joint ventures budget in Nigeria just as many oil and gas producing nations are taking various steps to respond to this challenge, including Egypt and Indonesia who are reducing subsidies, Russia which is cutting government expenditure by 10 percent, Venezuela which is liquidating assets, Iran which is cutting its budget by $3billion”.

He observed that even though some  analysis may highlight that Nigeria has a relatively lower cost of production, compared to other basins ($20-$30 for onshore and $50-$60 for offshore, compared with LTO (light-tight oil) and Oil sands of $60-$80), these costs are significantly high when one recalls that Nigeria’s onshore cost used to be $8-$10.

Similarly, government expenditures  he said have gone up significantly, both in overheads and also in projects. He exlpained for example, that a kilometer of road in Nigeria now costs over N1billion, and that if it is in swampy terrain with bridges, it could even be up to $3billion per kilometer.

The NLNG said while it is important for governments and companies to diversify to increase revenues, it is equally important to recognise that cost is a big challenge, which has grown significantly in recent time and become unsustainable.

Olusola Bello