The Federal Government of Nigeria (FGN) published the Flare Gas (Prevention of Waste and Pollution) Regulations, 2018 (“the Regulations”) in October 2018 (although it was signed on 5 July 2018)1. The thrust of the Regulations is to facilitate the conversion of Flare Gas to a marketable gas product, and the development of a competitive bidding process for entities wishing to access and utilise gas that is currently being flared.
The objectives of the Regulations are essentially to:
(i) reduce the environmental and social impact caused by the flaring of natural gas,
(ii) protect the environment,
(iii) prevent waste of natural resources, and
(iv) create social and economic benefits from gas flare capture.
The key provisions of the Regulations are as follows:
I. Ownership of Associated Gas (AG)
Section 2 of the Regulations reaffirms the rights of the FGN as enshrined in the provisions of Paragraph 35(b)(i) of the First Schedule to the Petroleum Act, to take all natural gas associated with crude oil free of cost and without payment of royalty.
II. Assignment of Flare Gas
To facilitate the reduction in Flare Gas, The Minister of Petroleum Resources (“the Minister”) may, by the issuance of a Permit, authorise a qualified applicant (QA) selected through an open competitive bidding process to acquire Flare Gas on behalf of the FGN.
III. Qualification as a Permit Holder
The Regulations defines a QA as an interested bidder who meets the requirements/qualifications for the tender process and intends to utilise gas for its own purpose or for sale to third parties. QAs will be required to submit a bid bond (i.e., 1% of the estimated project capital expenditure not exceeding $1 million) alongside their proposal, which will be valid for a period not less than six months after the bid submission due date. Subsequent to the bid process, the QA with the highest ranking proposal will be selected as a preferred bidder (PB). The PB will be required to pay a milestone bond and meet certain conditions set out by the Department of Petroleum Resources (DPR) to access Flare Gas before becoming a Permit Holder (PH). PHs will be required to pay performance bonds.
According to the DPR, Flare Gas sites accessible to a PH are only those specified in its permit. The permit can be revoked by the Minister where a PH is unable to fulfil the conditions stated therein, and may be deemed to have forfeited its status. Although a Non Resident Company (NRC) can participate in the bid process as a QA and be selected as a PB, such NRC must incorporate a company in Nigeria, to obtain the permit to access Flare Gas from the Minister (i.e., to become a PH).
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