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Non-implementation of gas flare penalties costs Nigeria N2.9trn

By Michael Eboh

LACK of political will on  the part of the Federal Government to enforce its own laws on gas flare penalties, has cost the country $14.298 billion between April 2008 and October 2016.

This came as international oil companies, IOCs, and other oil companies operating in the country fail to abide by the regulation stipulating penalty of $3.5 for every 1,000 Standard Cubic Feet, SCF, of Gas flared in the country.

Nigerian Extractive Industries Transparency Initiative, NEITI, in its latest audit report, the 2014 Nigerian Oil and Gas Audit Report, disclosed that in 2008, the Federal Government in its fiscal regime for the petroleum sector had set a penalty of $3.5 per 1,000 SCF of gas flared by the oil companies, stating, however, that the companies have refused to comply with the directive.

It also stated that the Federal Government had over the years, refused to enforce the regulation and is still collecting the old rate of N10 per 1,000 SCF which was supposed to run from 1998 to 2008.

Efforts to get the reaction of the Ministry of Petroleum Resources proved abortive, as messages sent to key officials of the Ministry were not responded to.

*Gas flare

Subsisting penalty rate

Furthermore, analysis of the various Annual Statistics Bulletins of the Nigerian National Petroleum Corporation, NNPC, showed that from 2008 to October 2016, oil and gas companies operating in the country flared a total of 4.085 trillion SCF of gas.

A breakdown of the figures showed that in 2008, 631.19 billion SCF of gas was flared; 2009, 2010, 2011, 2012 and 2013 recorded total gas flare of 509.35 billion SCF, 581.568 billion SCF, 619.033 billion SCF, 588.667 billion SCF and 409.31 billion SCF respectively.

Again, in 2014 and 2015, total gas flared was 285.762 billion SCF, 341.37 billion SCF; while between January and October 2016, 119.15 billion SCF of gas was flared.

Using the old and subsisting penalty rate of N10 per 1,000 SCF, the total of 4.085 trillion SCF of gas flared recorded in this period translated to N40.85 billion accruable to the Federation Account.

On the other hand, using the new penalty rate of $3.5 per 1,000 SCF of gas which is yet to be enforced, the country would have earned $14.298 billion, which would amount to N2.86 trillion, using an average exchange rate of N200 to a dollar.

This implied that due to the failure of the Federal Government to enforce the new rate, the country has lost about N2.818 trillion over these years.

Gas Flare Penalty, according to NEITI, is the penalty imposed on oil and gas producing companies operating within the country as a deterrent for burning the natural gas that is associated with crude oil when it is pumped up from the ground, adding that this correctional measure is to end air pollution, environmental degradation caused by gas flaring and also encourage investment in gas infrastructure by the oil and gas companies.

NEITI disclosed that the regulations governing gas flare penalty include: Regulation 42 of the Petroleum (Drilling and Production) Regulations, 1969; Associated Gas Re-injection Act, 1979; Associated Gas Re-injection (Continued Flaring of Gas) Regulations, 1984 and Cap. 26, Laws of the Federation of Nigeria, 1990.

Fiscal regimes

It noted that gas flare penalty rates per 1,000 SCF, used under various fiscal regimes are: 2Kobo applicable from 1985 to June 1992; 50Kobo applicable from July 1992 to December 1997; N10 applicable from January 1998 to March 2008 and $3.5 applicable from April 2008 to Date.

Commenting on the non-enforcement of the law, NEITI said, “The rate of N10 as provided by the Regulation of January, 1998 is still being applied. We understand that lack of political will on the part of Government to uphold the April 2008 Regulation may be responsible for the non-implementation.”

NEITI further stated that during the course of its validation exercise, it observed a very disturbing trend in some IOCs where gas flared penalty fees were not paid for over a decade and sanctions or fines were neither imposed on them by the respective regulatory agencies.

Commenting on the implications of this delay, NEITI said, “Late payment of statutory dues results in the reduction of government revenues; where regulatory agencies fail to sanction payment defaulters, they create the enabling environment for continuous delayed payment by oil companies, which in turn reduces  government revenue.

“It calls to question the efficacy and transparency of the regulatory agencies established to carry out oversight functions on the oil companies.”

To this end, NEITI recommended that, “Statutory dues should be paid as at when due by oil companies, whereas regulatory agencies should ensure the appropriate sanctions or penalties are given to defaulting companies.

“Regulatory agencies should ensure that these debts to the Federation are collected as soon as possible, while the relevant regulations should be reviewed to introduce interest charges payable by IOCs to the government for such long-term indebtedness to the government.”

 


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