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(c) Natural gas
Though Nigeria has been known as a major oil producer, in recent years, its potential reserves in natural gas are only now being discovered. Current proven gas reserves are estimated at 3.5 trillion cubic metres, among the largest in the world, with additional reserves estimated at some 25 trillion cubic metres. Hence, the potential for gas production could be greater than that of oil. Some 60% of the proven reserves lie to the east of the Niger Delta. Much of Nigeria's gas is produced in association with oil production; hence, the same multinational companies are engaged in the same system of joint-ventures with the NNPC for the production of gas. The Nigerian Gas Company (NGC), a subsidiary of NNPC, buys gas from the gas producing companies at agreed prices and sells it to domestic consumers; it has a monopoly in the supply of natural gas to the domestic market. The NGC operates a 1,000 km gas gathering, transmission, and distribution pipeline network with a capacity of about 56.6 million cubic metres per day. Natural gas consumption is rising as it is becoming a source of fuel for power generating plants, industrial enterprises, and exploration activities of some oil companies. In 2003, natural gas consumption increased by 3%, to 29.9 million tonnes of coal equivalent (tce); it accounted for 51.2% of the total energy consumed.
Table 2
Gas production and utilization, 1998-02
(Million cubic metres)
| Year |
Production |
Utilization |
Flared |
| 1998 |
36,036.6 |
10,886.5 |
25,150.1 |
| 1999 |
36,156.4 |
12,664.6 |
23,191.8 |
| 2000 |
47,538.0 |
21,945.0 |
25,592.0 |
| 2001 |
57,529.9 |
29,639.7 |
27,890.3 |
| 2002 |
47,976.0 |
26,203.4 |
75,772.7 |
Source: Central Bank of Nigeria online information. Available at: http://www.cenbank.org [23 September 2004].
Various incentives have been put in place over the past six years to encourage the production and use of gas. The production incentives include an income tax rate of 30% (compared with the Petroleum Profit tax of 85%); accelerated capital allowances; investment tax credits; reduced royalty rates; tax-free periods; tax-free dividends; and tax-deductible interests on loans. Incentives geared at improving the domestic use of gas include duty-free imports of machinery and equipment by industrial establishments using gas; VAT-free purchase of plant, machinery, and equipment acquired for gas utilization; corporate income tax exemption for up to seven years
for activities using gas; and no royalty or Petroleum Profit tax on oil extracted in association with gas. The tariff rate on petroleum gases and other hydrocarbons is 30%.
Natural gas exports have been on the rise in recent years (Chart IV.1). Nonetheless, gas production remains well below its potential. Gas is produced mainly in association with oil; almost 50% of gas produced in 2003 was flared (i.e. burnt at the oil collection point), leading to significant economic loss, as well as environmental pollution. Furthermore, private sector investment in the petroleum subsector was almost exclusively in oil activities, while the potential for gas exploitation is largely ignored.
Awareness of the policy shortcomings in the gas subsector has prompted the development of a reform strategy aiming to: end the flaring of gas by 2008; capture (in the meantime) the economic value of flared and unexploited gas; rapidly develop domestic and regional gas markets; and improve responsiveness to environmental issues. A new Gas Act will be introduced to: create a new and separate legal and regulatory framework for downstream and upstream gas activities; define the title, rights, and taxation arrangements for associated and non-associated upstream gas discoveries; allocate the responsibility of downstream gas activities to the Minister for Petroleum Resources and Energy; create an independent Gas Regulatory Commission to deal with the full range of economic and technical regulation of the downstream gas subsector; create a National Gas Transportation Company (NGTC), separate from NNPC; permit private sector developers to construct and operate pipelines, and connect these pipelines to the network; license a single distributor for a geographically defined area designated as a local distribution zone; and prescribe the principles on which prices should be set. In general, the Government is expected to shift from its present role of "hands-on" to that of a policy-maker, planner, and regulator.
A number of major gas projects are under way. The National Liquefied Natural Gas Company (NLNG), a joint-venture between three international oil companies and NNPC, was created and commenced the liquefaction of natural gas in September 1999, with a capacity of 2.7 million tonnes annually; the construction of the plant cost US$3 billion. In 2002, the plant's capacity was increased by 50% at a cost of US$1.3 billion; financing plans are in place for another expansion. Furthermore, gas production facilities under the "Escravos Gas Project" are being expanded30; and one of the world's first commercial gas-to-liquids facilities is to be constructed. There are also plans for the construction of a Trans-West-African pipeline to supply natural gas to Benin, Togo and Ghana; the project is anticipated to enable Nigeria to export some 200 million cubic feet of gas per day. The Government has also expressed its determination to execute the Trans-Saharan Gas Pipeline Project, which will carry Nigeria's gas to Europe.
Source: Central Bank of Nigeria .
(ii) Solid minerals
Nigeria is richly endowed with solid minerals, including precious metals, a variety of stones, and industrial minerals. Bitumen deposits in Nigeria are estimated at 42 billion tonnes, an amount greater than the existing reserves of both crude petroleum and natural gas. There are nearly 3 billion tonnes of "indicated" reserves of coal in 17 identified fields, and over 600 million tonnes of proven reserves; Nigeria's coal is among the most bituminous in the world, owing to its low sulphur content. Around 3 billion tonnes of iron ore deposits are located in three states and the Federal Capital Territory; it is being mined in one state. An estimated 10 million tonnes of lead and zinc are spread across eight states. A billion tonnes of gypsum deposits (an important input in the production of cement) are spread over many states. Other solid minerals include: over 40 million tonnes of talc deposits; 7.5 million tonnes of barite; 700 million tonnes of bentonite; and 3 billion tonnes of kaolinitic clay. Other reserves include gemstones, gold, limestone, marble, manganese, phosphate, rock salt, tin, diatomite, and columbite.
The Nigeria Mining Corporation (NMC), which operates under the Federal Ministry of Solid Minerals, processes applications for investment in the solids minerals subsector. The mining of solid minerals is largely in the hands of small-scale mining entities that are often poorly financed; some mining activities are also carried out by illegal artisans who lack the technical competence, and engage in unsafe and environmental degrading practices. Hence, in general, the level of exploitation of these minerals is very low. Solid minerals contribute less than 1% to real GDP
The Government has recognized that the solid minerals subsector is under-developed and that it has potential to, inter alia, stimulate industrial growth, diversify the economy, eradicate poverty, and generate revenue and foreign exchange through exports, and has thus undertaken a number of measures to develop it. Incentives available in the subsector include: three- to five-year tax holidays lower income taxes, of between 20% and 30%; deferred royalty payments; capital allowances; investment allowances; and exemption from the payment of import duties. Currently, bentonite and barite, the main constituents of the mud used in drilling oil wells, are import prohibitions on the list (Table III.5). The average tariff in mining and quarrying in 2003 was 30.4%, with a maximum tariff of 150% on gypsum.
The mining law of 1946 was revised in 1999 with the purpose of ensuring an orderly attractive and conducive atmosphere for the exploitation and development of solid minerals. Under the current legislation, a mining licence is granted to a prospecting company subject to proof of economic reserves of the mineral commodity for which the concession is sought. Prospecting companies have to obtain the right to prospect in addition to a certificate of entry into the mining industry; they can apply for an exclusive prospecting licence (EPL) where the mineral is located. An EPL is renewable every one or two years, for a surface area not exceeding 22 square km. Once the company has established the existence of the mineral in commercial quantities under the EPL it can apply for a mining licence over the whole or part of the area covered by the EPL.
During the period under review, the first lapidary for cutting and polishing gemstones was established in Jos. The Government also approved a number of projects and agencies to support the subsector. These include artisanal and small-scale mining projects to assist small-scale miners in marketing their products and in creating jobs; the Geological Survey Agency of Nigeria; and the Bitumen Development Authority. In 2003, development and exploration of Nigeria's bitumen resources commenced with some urgency: thus far, two companies have been awarded bitumen blocks. Plans to establish two medium-sized coal briquetting plants in Enugu have been concluded; and Nigeria has entered into a cooperative arrangement to establish an international geological laboratory. Furthermore, the Government has decided to privatize the productive activities of NMC and focus its attention on detailed geologic exploration.
(iii) Electricity
Nigeria has abundant resources for the generation of electricity (e.g. rivers, oil, gas). However, current generation is highly inadequate and is a significant barrier to the development of the economy. Thermal power accounts for two thirds of the electricity generated and the balance is provided from hydroelectric sources. The National Electric Power Authority (NEPA) is the government monopoly with responsibility for electricity generation, transmission, and distribution; and the Utilities Charges Commission of the Presidency is responsible for setting electricity prices.31 NEPA's current installed capacity is about 6,000 MW, and average electricity generation in 2003 was about 3,300 MW, which is well below the level of electricity demand. The inadequate supply is aggravated by acts of vandalism on distribution and transmission infrastructure. The deficit in electricity supply has led to, inter alia, rationing of power, frequent
power outages, and fluctuations in power supply, all of which are very costly to businesses as well as households. In a recent survey, Nigerian manufacturing firms identified, infrastructural weaknesses, in particular the inadequate supply of power, to be their biggest problem. Several businesses use generators; however imports require prior approval from NEPA. It is estimated that generators and accessories account for some 22% of the total equipment and machinery costs for businesses and, on average, firms spend an additional 3.3% on equipment and machinery damaged due to power fluctuations and cessations.
According to the authorities, the problems in the electricity subsector are a result of years of neglect and under-investment. For instance, no new power stations were built and no major overhaul was carried out on existing plants between 1990 and 1999; hence, by 1999, only 19 out of 79 generating units were in operation and actual daily generation was only 2,000 MW.
Since 1999, a series of short and long-term measures have been taken: a new NEPA management has been established; rehabilitation of old plants and installation of new ones has increased operating power generation units to 40; and agreements have been made with independent power producers to augment supply to the national grid. These efforts helped to increase electricity generation to 3,300 MW in 2003. Nonetheless, the inadequate supply of electricity remains a significant hindrance to national development efforts. Imports of electricity and electricity generation sets attract tariffs of 30% and 15% respectively.
As part of its efforts to provide a long-term solution to Nigeria's electricity needs, the Government has embarked on reforms aimed at increasing the generation capacity to 10,000 MW and the transmission and distribution capacity by 60% and 80% respectively; increasing collection efficiency from 70% to 95%; and reducing transmission and distribution losses from 44.5% to 15%. In order to attract and encourage private investment and ensure a level playing field for all investors, the Government has drafted the Electric Power Sector Reform Bill to establish an appropriate legal and regulatory framework, with clearly defined market rules, and adequate trading arrangements and a cost-reflective tariff structure. Under the bill, NEPA's vertically integrated structure is to be unbundled into six generation companies, 11 distribution companies, and one transmission company. The transfer of these companies to private-sector operators is scheduled for 2005. The bill also provides for the establishment of an independent regulatory commission, the National Electricity Regulatory Commission (NERC), which, inter alia, will be responsible for issuing licences to companies operating in the subsector. A rural electrification agency and a fund to increase rural access to electricity are also envisaged. The passage of the bill has been delayed.
Source: www.wto.org
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