According to the World Bank, Nigeria’s electricity and oil and gas businesses are hampered by a lack of payment discipline.
This was indicated in the World Bank’s Public Finance Review of Nigeria from November 2022. The research claimed that the nation’s ability to produce oil, gas, and power has been jeopardized by the absence of payment discipline. From the report:
“Chronic power shortages, which force businesses and households to spend on backup power generators running on petrol and diesel, are caused in part by the failure of power generation companies to pay gas producers, deterring delivery of natural gas to the power sector.”
The report also highlights the failure of the Nigerian National Petroleum Company (NNPC) to fully cover the country’s share of production costs, which has resulted in declining oil and gas production in joint venture (JV) operations.
The World Bank says Nigeria’s liquefied natural gas market is the only market in which there is full payment discipline. According to the report, Nigeria Liquefied Natural Gas (NLNG) Limited, in which the federal government, through the NNPC has a 49% stake, is active.
In March 2021, President Buhari praised NLNG Limited for generating $114 billion in revenues over the years with $9 billion in taxes. The president also said about $18 billion was paid as dividends to the federal government and $15 billion in feed gas purchases.
These achievements and others, the president said were accomplished with 100% Nigerian management and 95% Nigerian workforce.
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The World Bank recommends that Nigeria needs to improve payment discipline for the benefit of the country’s energy security and economic development. The Bank advocates for:
Safeguarding the country’s oil and gas assets by amending the Petroleum Industry Act (PIA) to specify that oil and gas assets will belong to the federation and the ownership will be transferred to the NNPC Limited or any other party upon payment of the full market value.
Requiring that oil and gas fiscal revenues be transferred first to the federation account by amending the PIA to require the government revenues related to the oil and gas contracts be paid to the federation account and verified by the commission.
Ensuring that all oil and gas fiscal payments be made in cash by amending the PIA to remove references to tax oil, royalty oil, and production sharing contracts, and retain only profit-sharing contracts, thereby ending all in-kind fiscal payments.
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