The P&ID Gas Project, Restructuring and Southern Conundrum

The Frontlines By Joseph Ushigiale

The recent landmark rulings in favour of Nigeria in a matter instituted by the federal government against Process and Industrial Development Limited (P&ID) in both the United Kingdom and United States of American courts are worthy of commendation.

While presuming that the facts of the rulings are already public knowledge, the point needs to be made that the present administration of President Muhammadu Buhari deserves commendation for its dogged pursuit of this matter to its logical conclusion. Rather than accepting the positions canvassed by the battery of compromised lawyers urging the federal government to enter into a contrived agreement which would have cost the commonwealth a fortune, the government, convinced that the promoters of the gas project failed to fulfill their own side of the agreement refused to play ball.

In the end, Nigera, by the ruling has been saved from paying P&ID the $10b arbitration claim it tendered before the courts. The ruling is without doubt a fresh breathe of air and indeed a deodorant for an administration reeking from one corruption scandal to another. The administration’s record which sticks out like a sore thumb is so bad that even its anti-corruption czar is under investigation for sleaze. Yet, the redeeming feature in this matter is the seeming statement from the administration that future projects that are not well negotiated and which result in such claims and other judgement debts (which are very many) that have fleeced the commonwealth of billions of dollars would no longer be entertained.

Now that Nigeria has secured reprieve from the P&ID case, let’s return to the rationale behind the Gas Supply and Processing Agreement (GSPA) entered into between the late Umaru Yar’Adua’s government and the P&ID and to ascertain whether or not it was desirable and who stood to benefit from it?

To begin with, Nigeria is known to flare most of its gas released during oil drilling. Until recently, the penalty for gas flaring also known as flare payments (penalties) was N10 per thousand standard cubic feet. However, a revised penalty issued few years ago increased or reviewed it upwards. A statement from the Nigeria Gas Flare and Commercialization Programme (NGFCP) said “the upward review in the case of any one producing 10,000 barrels of oil or more, to $2.0 USD per thousand standard cubic feet of gas and, in the case of anyone producing less than 10,000 barrels of oil per day, to $0.50 USD per thousand. This year, government has projected a revenue of N104b receipt up from N45b which accrued to the federation account in the past.

Thus, it was cheaper for the oil majors to make flare payments rather than investing in gas production which would have had multiplier effects including generating revenue for government and improved electricity supply to millions of homes in Nigeria.

So was the project desirable and was it going to have positive effects on the people and the economy? Yes it was because at present, the World Bank estimates that only 59% of the country have access to reliable supply of electricity. It also acknowledged that with almost 8 billion cubic meters of gas flared annually according to satellite data, Nigeria is the seventh-largest gas flarer in the world. At the same time approximately 75 million Nigerians lack access to electricity

According to the records, the GSPA was signed during the administration of President Umaru Yar’Adua. The duo of Mr. Michael Quinn and his partner Brendan Cahill proposed the project to late President Yar’Adua in August 2008. At that time, the late Rilwanu Lukman, a 2-time OPEC Secretary-General, who was Minister of Petroleum Resources at the time, signed the GSPA.

It was learnt that the P&ID and the Nigerian Government entered into a 20-year Agreement – known as the Gas Supply and Processing Agreement (GSPA) – to refine natural gas for powering Nigeria’s electricity grid. Specifically, the GSPA was to generate an additional 2,000 megawatts of power for the national grid. Such a major increase in low-cost electricity supply brought by the P&ID project could have been transformative for millions of Nigerians.

As part of the deal, the P&ID was required to build a state-of-the-art gas processing plant to refine natural gas (“wet gas”) into “lean gas” that Nigeria would receive free of charge to power its national electric grid. The P&ID was not entitled to be paid for this work: instead, it was to own the by-products created by the refining – such as propane, ethane and butane or natural gas liquids and was to have the exclusive rights to sell them on the international markets. This market was projected to be worth billions of dollars over the 20-year lifespan of the contract.

Had this project taken off as planned, it would have curtailed the wasteful flaring of natural gas that is released during oil drilling in addition to depleting the country’s natural resources and depriving it of the much needed revenue. A government taskforce – Nigerian Gas Flare Commercialisation Programme (NGFCP)– found out that in 2016 alone, Nigeria failed to earn over $1.1 billion in potential gas revenue, as a result of flaring as much as 275 billion cubic feet of natural gas.

New data from the Nigerian National Petroleum Corporation (NNPC) showed that between Q1 and Q3 2018, oil and gas firms flared a total of 251.9 billion standard cubic feet of natural gas for a total loss of ₦197 billion (approximately US $547 million) in potential revenue.

So given the viability of the project and its multiplier benefits to the economy, why has Buhari not shopped for a new genuine promoter to resuscitate the GSPA project after the initial setbacks given the fact that Calabar and the entire South-south in particular and the South in general hold the highest gas reserves in the country?
According to worldometer, Nigeria holds 187 trillion cubic feet (Tcf) of proven gas reserves as of 2017, ranking 9th in the world and accounting for about 3% of the world’s total natural gas reserves of 6,923 Tcf. Nigeria has proven reserves equivalent to 306.3 times its annual consumption. This means it has about 306 years of gas left (at current consumption levels and excluding unproven reserves).

Therefore, it was out of sound judgement and economic viability the late Yar’Adua administration decided to embark on the project. By choosing the South, Yar’Adua was utilizing its comparative advantages as the rightful place to site the project. Why then did Buhari not tow the same line?

A carefully study of Buhari’s developmental thrust and body language will show that his interest is the north and not pan-Nigeria. The core reason for this is clear: with the hindsight of the Biafran civil war, IPOB and Oduduwa Republic clamouring for self determination and the current growing clamour for restructuring, Buhari and his northern allies are already thinking ahead.

In the last five years, he has deliberately set aside every project that has benefits to the south and initiated by past administrations. Instead of building on what he met, Buhari choosed to begin new projects sited exclusively in the north.
For example, he completed the Abuja – Kaduna rail line simply because it is in the north and would serve the north even when there are so many other rail projects initiated by former President Goodluck Jonathan which aimed at connecting the entire country.

Buhari also took a further step to initiate an entirely new rail project from Kano to Maradi citing national interest as reason. In place of the GSPA in the South, Buhari has undertaken a very ambitious gas project from Ajaokuta, Kaduna to Kano.

Details of the project indicate that the Ajaokuta–Kaduna–Kano (AKK) pipeline is a 614km-long pipeline being developed by Nigerian National Petroleum Corporation (NNPC) to transport natural gas from southern Nigeria to northern Nigeria.
The £2.2bn ($2.8bn) pipeline project represents phase one of the 1,300km-long Trans-Nigerian Gas Pipeline (TNGP) project, which is being developed as part of Nigeria’s Gas Master Plan to utilise the country’s surplus gas resources for power generation as well as for consumption by domestic customers. The TNGP project also forms part of the proposed 4,401km-long Trans-Saharan Gas Pipeline (TSGP) to export natural gas to customers in Europe.

To underscore the importance the President attaches to the speedy completion of this project, the project approval was secured in record time. For instance, the NNPC submitted the proposal for the Ajaokuta–Kaduna–Kano (AKK) natural gas pipeline project to ICRC in June 2017, while the feasibility study was approved in the next month. The PPP compliance certificate for the project was also issued in July 2017. Nigeria’s Federal Executive Council (FEC) approved the pipeline project in December 2017.

That’s not all. Within the last 24 hours, the Ministry of Petroleum Resources just announced that it has sealed a deal with the Nigerien Societe Nigerienne De Petrole (SONIDEP) to import 15000 metric tonnes of refined petroleum products from Niger Republic. This is in addition to the development of a pipeline from Soraz refinery in Zinder, Niger to supply a new refinery that is being built in Katsina.

Rather than energizing the GSPA in the south which holds the gas reserves, he deliberately headed north. Ironically, the same project would be powered by gas exploited from the south. In addition to these plots, the Buhari administration rather than exploring several available financing models for his northern projects, he opted for loans from majorly the Chinese utilizing the crude oil in the south as collateral.

Now, the south is paying for projects being developed in the north including guaranteeing the same loans with no semblance of development in its region. This is in spite of the environmental degradation, poverty and lack of opportunities suffered by people in the region.

So where does this leave the south? The south is clearly in a conundrum or better still is living in self denial. Slowly, the Buhari going is gradually rendering the south irrelevant by diversifying and building new alliances and firming up agreements to ensure a safe passage for the north in case push comes to shove. It is already looking for and has found alternatives to the south’s monopoly of oil.

Just like during the negotiations for independence when the south made the moves only for the north to wn the prize, the current restructuring argument, it seems would end with the same results if the ongoing maneuvers by the north are put in context. If care is not taken, if the north and south are to go their separate ways, the south would wake up to the realities that its resources have been mortgaged for the infrastructure development in the north at its expense.

The time has come for stakeholders in the south to wake up from their slumber and take their right place in the scheme of things in this country. The ongoing attempt to belittle and totaling diminish the contributions of the south to national development has to stop forthwith.

Southern stakeholders have to stand up for their rights and ensure that the incident where the presidency shunned a meeting scheduled in Port Harcourt to discuss issues affecting the south should never be allowed to repeat itself.
It must be emphasized and made clear to Buhari that the GSPA is a laudable project desirable in the south for obvious reasons and it has to be impressed on the government that the project should be energized and sited in Calabar where it was originally slated for so that it can equally empower the south too.