PhD Law Paper

Order Description

Article containing sections on Nigeria, Niger, Algeria, and finally a comparison between Niger and Ukraine as transit countries in terms of legal issues.

Answer

TRANSIT PROBLEMS VIA TSGP

 

Contents

Introduction. 2

Nigeria. 3

Niger 12

Algeria. 15

Comparison between Niger and Ukraine. 18

Conclusion. 23

References. 26

 

Introduction

The Trans-Saharan Gas Pipeline (TSGP) is an international gas pipeline that was proposed during the 1970s, linking Nigeria to the European natural gas market through Niger and Algeria. In this proposal, the pipeline is set to supply gas to Europe through four pipelines running across the Mediterranean Sea: Trans-Mediterranean, Medgaz, Galsi, and Maghreb-Europe. The pipeline is estimated to cover a distance of about 4,200 kilometers. The proposed origin of the pipeline is the Niger Delta basin. It would cross towards Northern Nigeria towards the Sahel region in Niger before Algeria via the Atlas Mountains. In Algeria, the pipeline would pass through HassiR’Mel, a hub for oil and natural gas pipelines that transport these valuable energy resources to the Algerian coast.

The pipeline passes over different countries and involves different stakeholders both in the public and private sector. For this purpose, different joint venture agreements and memorandums of understanding between Nigeria and Algeria have been signed. Similar agreements have also brought on board Niger, stakeholders in the European natural gas market, as well as different oil and gas companies. For this reason, it is imperative to focus on legal aspects of the various transit problems that are likely to emerge. For instance, each of the African countries where it will pass faces a challenge of terrorist threats and insurgencies. Moreover, the project is a high-stakes investment that is estimated to cost US$ 13 billion.[1] Once completed, the pipeline will hopefully end Europe’s overreliance on Russian natural gas.[2] This issue is open to debate since questions have been raised regarding the economic viability of this investment in light of uncertainty about Nigeria’s proven natural gas reserves and the threat of sabotage by terrorist groups in Nigeria, Niger, and Algeria.

The aim of this paper is to examine different transit problems of the TSGP from a legal perspective. In this discussion, it may be able to draw a parallel between Nigeria’s circumstances in regards to the TSGP with that of Ukraine. Over eighty percent of Ukraine’s natural gas exports to Europe are supplied through pipelines running across Ukraine. Russia has in the past experienced several transit problems because of relying on Ukraine as a transit country. For example, two separate Russia-Ukraine disputes in 2006 and 2009 triggered major disruptions in gas supply to Europe. Since the TSGP will pass across Niger, this paper will also examine different legal issues that are likely to emerge and the lessons to be learned from the Ukraine’s experiences as a transit country.

Nigeria

Nigeria is the proposed starting point for the Trans-Saharan Gas Pipeline. In July 2009, the Nigerian National Petroleum Corporation, the country’s state oil company, announced the signing of an agreement with Algeria and Niger for the establishment of the TSGP. The next move for these three countries was to look for commercial partners to enable them to meet the construction cost. Some of the companies that have expressed interest in the project include Total from France, Anglo-Dutch Shell, and Gazprom from Russia. Nigeria has continued to reassure these investors regarding what is arguably the most burning issue: financial viability.

Nigeria has the seventh largest natural gas reserves in the world. This gas is of high quality because of its richness in liquids and low sulphur levels. A major problem that has raised concerns about financial viability is that Nigeria’s reluctance to undertake gas exploration. This phenomenon may be attributed to the inherent nature of the Nigerian gas market.[3] Until the late 1990s, Nigeria continued to encounter a serious gas utilization challenge. During the early 2000s, the market entered the era of legal and fiscal consolidation. The country ushered the demand explosion era beginning 2005, thereby necessitating a gas master plan of which the TSGP is an integral component.

The project is widely being seen as beneficial for Nigeria because of the existence of abundant gas reserves that remain untapped. However, this issue has also attracted controversy because some stakeholders have doubted the authenticity of reports indicating that the gas reserves exist. In early 2009, the gas reserves were estimated at 5.2 trillion cubic meters.[4] The reserves exist in the form of both associated and non-associated gas fields. By exploiting latter category, Nigeria would reduce its greenhouse gas emissions by reducing its flare rate. If the reserves indeed turn out to be rich in liquids, they would lead to the production of liquefied petroleum gas, propane, and butane.

Historically, associated gas obtained during oil production was flared because of difficulties in marketing it.[5] The difficulties arose because of distance from the nearest pipeline connection, sourness of the gas, and lack of market demand. Consequently, it was conventionally viewed as an inconvenient byproduct of the oil exploration process. Nigerian gas was particularly considered useless because of the discovery of North Sea gas deposits. Today, North Sea reserves have been depleted, and this situation has greatly increased the perceived attractiveness of the Nigerian reserves. European buyers consider the Nigerian gas attractive because it can fill the TSGP. This gives TSGP an edge over its main competitor, the Nabucco pipeline, which continues to face a perennial supply problem in Central Asia and the Middle East.

European countries view both the TSGP and the Nabucco pipeline as alternatives to Russian natural gas. If completed, TSGP would mark the end of an era in which Europe has continued to rely on Russian energy. This dependency has brought about numerous inconveniences primarily because of frequent disputes between Ukraine and Russia over transit issues. Whenever these disputes flare up, they lead to interruption of gas supplies. Even after the construction of pipelines that do not pass through Ukraine, Europe has remained dependent on Russian gas. Nigeria must be keen to avoid similar problems in regards to the role of Niger as a transit country. Such considerations may go a long way in helping stakeholders to determine whether it would be wise to diversify by building different pipelines passing through different countries to link up with Algeria. In such a situation, Algeria would avoid problems similar to those experienced by Russia in the event of future disputes with Niger. European purchasers would also need to look into this issue because a dispute between Nigeria and Niger would also affect gas supplies to Europe.

Other than financial viability, legal issues are a major concern particularly in regards to the role that Nigeria should play in ensuring that as many transit problems as possible are avoided. Nigeria has already entered into joint venture agreements and memorandums of understanding with Niger, Algeria, and different EU countries in relation to details of the pipeline construction process. Based on these agreements, one may come up with a timeline on the various phases of the project, thus: conceptual and design phase (2004-2005), feasibility phase (2005-2006), pre-FID (Final Investment Decision) (2007-14), and construction (2015-2018).[6] Variations in the timelines for different phases may vary depending on numerous factors such as availability of funds, geopolitical dynamics, disagreements over specific routes for the pipelines, and legal hurdles inherent in various agreements.[7]

One of the legal instruments created by the Nigerian government to address the issue of funding was the ICRC (Infrastructure Concession Regulatory Commission) Act 2005. The objective of the Act was to provide a framework for public-private partnerships (PPPs) in large projects. In the context of the TSGP, the ICRC Act provides an ideal reference point as far as aspects of public-private partnership are concerned. The Act is a crucial legal instrument that the Nigerian government can use to accelerate investment in infrastructure at the national level through private-sector funding. For this reason, the success of the Public Private Partnership’s procurement for the TSGP depends heavily on the willingness by stakeholders to adopt the provisions outlined in this law. Such a view is supported by the federal government’s stated objective of using PPPs to create new infrastructure and to expand existing assets. The PPPs also provide an excellent framework for cooperation state and national governments in designing and constructing the gas pipeline. Without the goodwill of individual states, the project may be riddled with frequent problems of sabotage.

Preparations for the construction of the gas pipeline have reached a point where stakeholders need to enter into long-term contracts. Without long-term contracts, it will be difficult for transit problems to be overcome. Such contracts are also important in the context of the finance technique that will be used to finance the entire project. In this technique, an off-take contract as well as a long-term sales contract will be needed. For such a contract to be put in place, a buyer should be willing to remain committed to the project for an extended period.  Presently, Nigeria lacks a legal framework for the creation of such a contract.

Although public financing is a viable option, it subjects public finances to significant potential exposure. By funding the project using public funds, Nigeria would be required to bear all the risks associated with its participation. The country’s fiscal conditions may deteriorate because of the heavy burden that the project may impose on public resources. The country should enhance the existing legal mechanisms to ensure that public expenditures and its potential negative effects such as shortage of funds for competing projects and tax increases are addressed. This explains why Nigeria is at a strategic position of substituting private investment for public funding by simply adopting the provisions of the ICRC Act.

In the TSGP, Nigeria, Algeria, and Niger propose to use borrowed funds to finance 75 percent of the project. In such a situation, Nigeria must address several concerns based primarily on its prevailing circumstances. To begin with, it must ensure that it has given purchasers an assurance regarding the sufficiency of the quantities produced. The main targeted consumer in the case of this pipeline is the Europe. Nigeria must also ensure that the gas produced will not be diverted to another purchase other than the European market. Secondly, Nigeria needs to ensure that it has addressed the issue of price fluctuation throughout the life of the long-term off-take contract based on the realization that price adjustment mechanisms will always be appropriate. No proper legal regime is in place to ensure that neither the Nigerian government nor the purchaser is shortchanged in the course of the life of the contract.

It is common for parties to introduce “take-or-pay”, “deliver-or-pay”, and “take-or-pay” clauses to avoid unfair trade practices that may undermine the resourcefulness of the TSGP. In “take-or-pay”, the quantity of natural gas to be supplied is stipulated. In most cases, gas supply contracts require purchasers to commit to a payment of 80 percent of the total quantity supplied. The purchaser is required to pay the value of this quantity even if he decides not to take the consignment. In “ship-or-pay” provisions, the user undertakes a commitment to pay transport tariffs imposed on the pipeline company even if he (the user) is unable to purchase the gas being transported. On the other hand, the “deliver-or-pay” protects the purchaser’s interest by ensuring that all the gas that the pipeline company has been contracted to supply has been delivered. Producers who fail to supply the amount of gas agreed upon with the purchaser are compelled to pay a fine to the purchaser.

Fortunately for Nigeria, purchasers in Europe are willing to enter into long-term sales agreements because of steady demand for natural gas in the continent and the need to avoid overreliance on Russian natural gas. However, it is extremely difficult for the country to enter into such a long-term agreement because of the inherent nature of the energy market. In the energy market, it is difficult to predict prices even one year ahead. It is even more difficult to predict energy prices in the next ten years. This obviously means that the most acceptable sales agreement for both Nigeria and European purchasers is one that creates ample room for flexibility in price determination. Presently, some degree of rigidity must be allowed for to create enable stakeholders to derive a conclusion regarding project viability. A critical aspect of the TSGP will be the structuring of the project financing and long-term off-off-take contract.

The EU is aware that security issues pose a significant threat to virtually all its alternative supply routes, including the one in Africa. In Nigeria’s Niger Delta region, where the TSGP will originate, the main threat is the Movement for the Emancipation of the Niger Delta (MEND). MEND has already threatened to sabotage the pipeline.  This militant group maintains that foreign oil and gas companies have continued to exploit Nigeria’s natural resources while refusing to share profits reasonably with local communities. The group issued this threat soon after the 2009 signing of a construction agreement by Algeria, Nigeria, and Niger.

Since 2006,  MEND has continued to sabotage petroleum exploration activities by destroying pipelines and kidnapping technical staff. The objective has been to reduce the country’s oil production as a way of coercing the government to agree to their demands. Although the Nigerian military continues to reassure stakeholders about its ability to provide protection to all petroleum installations, it would be unwise for one not to take the threats issued against the TSGP seriously. In the past, the militant group has launched successful attacks against oil infrastructure in Lagos and the Niger Delta. The inability by the military to protect these two areas from attacks casts a shadow of doubt regarding its ability to protect more than 1,000 kilometers of the proposed gas pipeline.

The cease-fire that militants ordered in October 2009 renewed hope of long-term stability in Niger Delta. The militant group stated that it was stopping its campaign of destroying oil pipelines to create room for negotiations with government officials with a view to find lasting peace. However, many people remained skeptical about this cease-fire because of failure of many cease-fires in the past. In fact, a number of MEND leaders released a press conference in June 2010 declaring that the cease-fire was over. The Nigerian president has endeavored to reconcile with the group in many ways by promising the group a 10 percent share of all oil revenues obtained from the Niger Delta. Such a move is likely to contribute to the mitigation of the existing security risk.

Legal sanctions against members of the militant group may not be as effective as equity participation. The latter gives a sense of pride and ownership among the people of Niger Delta as far as the operations of the petroleum industry in their region is concerned. It is also likely to reduce the possibility of disruption of petroleum production. However, it is also important to look at the pitfalls that come with this policy option. To begin with, Nigeria’s majority ethnic groups control political power in a country where most oil and gas resources are produced in minority ethnic areas. These groups are unlikely to relax control over the industry as this would be akin to political suicide. Another pitfall is that local communities in the Niger Delta lack financial resources to acquire stakes in the petroleum industry that would enable them exercise significant control over the exploitation of resources in their localities.

The federal government may solve this problem by advancing loans to local people to be paid back using proceeds from the sale of oil and gas. A major hindrance to the actualization of this solution is corruption. The pervasive problem of corruption in Nigeria has greatly undermined initiatives aimed at promoting equity participation by minority ethnic groups in the Trans-Saharan Gas Pipeline project. An ideal solution to this problem is the setting up of off-shore trust funds. Moreover, Nigeria has also established the Extractive Industries Transparency Initiative (NEITI), through which an aggressive policy framework for information disclosure is being developed. NEITI is based on the guidelines provided by the Extractive Industries Transparency Initiative (EITI), an international agency that has established a standard for assessing the level of transparency in the way countries exploit mineral, oil, and gas resources.

The enactment of the Petroleum Industry Bill (PIB) 2012 also marks a crucial step forward in efforts by the Nigerian government to put in place a legal framework capable of addressing transit problems that may potentially threaten the financial viability of the TSGP. PIB seeks to establish a solid foundation as well as sound structural, regulatory, fiscal, and commercial frameworks for transparent operations in the petroleum industry. NEITI supports the enactment of PIB to enable Nigeria to deal with the challenges of inefficiency and mismanagement that have dogged the industry for years.

PIB seeks to reorient the existing petroleum industry law as part of a strategic move that may enable Nigeria to overcome transit problems that may potentially affect TSGP. The existing petroleum laws contain provisions for the establishment of a fiscal regime that may not necessarily be compatible with the international standards expected of the TSGP. Moreover, a review of existing laws will go a long way in resolving the “resource curse” that hinders effective exploitation of oil and gas resources particularly in many developing countries. Indeed, the primary objective of the PIB is to repeal many of the laws governing the petroleum industry in Nigeria. Some of these laws include    Associated Gas Re-injection Act 2004, Petroleum Act 2004, Motor Spirits Act 2004, Petroleum Trust Fund Act, 2004, Petroleum Products Pricing Regulatory Agency Act 2003, Petroleum Profits Tax Act 2004, and Petroleum Technology Development Fund Act 2004.

Evidently, Nigeria faces serious problems that could trigger numerous transit challenges for the TSGP. As the source country for the TSGP, the country is likely to have a huge impact on level of success of the pipeline. This will all depend on how it addresses potential transit problems, particularly the terrorist activities of MEND, corruption among federal government officials, and the near-absence of a legal and regulatory framework for the oil and gas industry, and lack of compliance with international standards governing operations of extractive industries. The measures that Nigeria takes to address transit problems will go a long way in reassuring European buyers regarding the viability of the project. It is also likely to influence the adoption of similar measures by Algeria and Niger in their efforts to enable them to deal with the related problems of terrorism, corruption, and the lack of an appropriate legal regime.

Niger

Niger is arguably the weakest point for the TSGP project. Several geopolitical factors make it risky for a gas pipeline to pass across this country. Some of them include a sparse population, underdeveloped security infrastructure, and a vast territory. These factors make it difficult for the government to deploy capabilities as well as to identify and deter potential security threats. In this regard, the most serious security threat is posed by the Tuareg guerilla movement.[8] This movement operates under the auspices of an even larger movement, Le Mouvement des Nigériens pour la Justice.

Tuaregs inhabit vast terrain in West and North Africa, and have historically developed political regimes that extend beyond national borders. In Niger the TSGP will pass across the Agadez region, which happens to be one of the areas inhabited by Tuaregs. The Tuareg movement and MNJ are opposed to the exploitation of the country’s uranium resources by French nuclear energy companies.[9] The political stance of these movements is similar to that of MEND in Nigeria in regards to claims of unreasonable share of revenue as well as the tendency to target government officials, production facilities, and foreign workers.

In recent years, the resurgence seems to have been halted. However, despite a concession grant meant to appease the Tuaregs in 2009, lingering tensions and local political issues are likely to trigger a resurgence of violence. Nevertheless, the government’s proposal for a local stake has been rather effective in convincing the rebels to drop their weapons. If local political issues and ethnic tensions do not boil over, the prevailing calm is likely to last for a long time.

This description of the current political and security environment in Niger portrays a picture of the transit problems that are likely to be encountered in the TSGP project.[10] Numerous allegations of environmental and economic abuses have been leveled against Areva, a French company. The TSGP project’s association with the European market is likely to trigger even more opposition from Tuaregs, who accuse European companies, particularly French Areva, of treating their nation like a colony. The leaders of the insurgency are likely to use the project to pile pressure on the Nigerien government to rein on Areva to do away with its underhand tactics that exacerbate the prevailing problem of economic exploitation. A real political risk is likely to emerge should Total, a French oil company, participate in the TSGP project. This is simply because the company is widely considered a symbol of neocolonialism in African in general and Niger in particular.

The political situation in Niger also looks bleak for the project because the government that signed the preliminary intergovernmental agreement sanctioning the TSGP was overthrown in 2010. The coup occurred following months of a political crisis in which opponents of the government accused its leader of dictatorship. This political environment has created an uncertain investment climate in Niger, which may translate into numerous potential transit problems for the TSGP project. In fact, this situation is arguably the most important variable in determine the financial viability of the entire project. It may be extremely difficult for financiers to catch up with repair works following repeated cases of destruction and sabotage by Tuareg guerillas in the vast terrain of the sparsely-populated country. The high costs of establishing the necessary legal instruments, security apparatus, and precautionary mechanisms are likely to outweigh the benefits that Niger may derive from the project.

At the geo-political level, Niger will play a critical in addressing different legal issues relating to land lease agreements, organization modalities, pipeline construction, and exploitation. Two types of agreements are likely to be put into consideration in making a choice on how Niger will cooperate with Nigeria and Algeria as the principal transit country for the TSGP. The first type of agreement is one where host countries enter into an agreement with the pipeline project companies and the crossed country (Niger). This agreement requires the approval and ratification of the state government. In this agreement, all issues relating to the execution of the project in the crossed country, including applied taxation, crossing rights modalities, and financing are addressed. The second type is the inter-government agreement, whereby all the governments involved in the international pipeline project come together to establish a special system that guarantees stability by setting up legal rules that comply with international standards in regards to taxation, environmental protection, technical operations, and safety procedures. In the case, the latter type of agreement was chosen when Niger participated in the signing of the preliminary intergovernmental agreement.

Despite the type of agreement that Niger enters into, the risk of changes in decision-making following takeover by a new government should not be ruled out. One of the defining aspects of the Nigerien political landscape is the tendency by a new government to overturn the decisions of the previous government as a way of correcting perceived cronyism or corruption. The possibility of the present government being overthrown makes the risk even more likely. The level of discontent with government operations is high mainly because of corruption and lack of openness in the way contracts are awarded. In case the present government is overthrown, its decisions in regards to the RSGP project would most likely be overturned as well.

The economic outlook for Niger is bright considering the large number of high-stakes, capital-intensive projects that are about to be commenced. However, recent political events do not spell a good omen for the country. In a country where the level of corruption is high and presidents trash the constitution at will, one may be justified to express skepticism about Niger’s ability to utilize the current windfall to promote economic development. The country is unlikely to suffer under the weight of a rising account deficit because of strong capital spending arising from the construction of new refineries, oil fields, hydropower facilities, as well as participation in the TSGP project. On a positive note, the projects will offer the country adequate resources for economic modernization. In this regard, one may conclude that transit problems in Niger should be viewed in the context of wide-reaching changes to the country’s system of governance as well as overall mobilization for economic development. A best-case scenario is one where governance systems are reformed, the existing legal regime for the petroleum industry is reformed, corruption is reduced, and equitable distribution of economic resources is promoted, thus enhancing development across all industries. A worst-case scenario is one where the current government is overthrown and prevailing decisions on the TSGP are overturned.

 Algeria

Algeria holds abundant natural gas reserves, which were estimated at 4580 billion cubic meters in January 2006. However, unlike Nigeria, Algeria has put in place concerted efforts towards natural gas exploration work. Over the last two decades, over 150 important natural gas discoveries have been made. As new discoveries are being made, the Nigerian government continues to establish new gas pipelines that form a link between new areas of gas production and existing network infrastructure. This long history of gas exploration and exploitation inevitably goes hand in hand with a wealth of experience in terms of the development of legal, economic, and political frameworks. This essentially means that Algeria is simply miles ahead of Nigeria in terms of the structural and operational capacity as far as the exploitation, transport, and marketing of natural gas is concerned. This experience arises from the numerous efforts that successful Algerian governments have made to seal viable joint venture agreements and contracts, identify viable production opportunities, and design the construction of gas pipelines linking production areas to target markets.

The pipeline transport system in Algeria is well established. It links gas fields in the South of the country to the LNG plans in the North, and finally to Italy, Spain, and Portugal. The Enrico Mattei Gasline transports gas to Italy while the Pedro Duran Farrel Gasline connects the country’s natural gas plants to Portugal and Spain. Algeria has also established two more pipelines with a view to supply the Italian and Spanish markets without transiting any country. The Medgaz pipeline supplies Spain while the Galsi pipeline, whose feasibility study was completed in 2005, will supply mainland Italy once completed. Once the TSGP project is completed, it will link up with these Algerian pipelines to supply gas to Europe. This means that Algeria’s well-established pipeline transport system is a major boost for the planners of the Trans-Saharan Gas Pipeline project.

The hydrocarbons law that was enacted in April 2005 forms a formidable foundation for Algeria’s gas industry.[11] It identifies pipeline transport as a regulated activity. It also creates room for interested parties to come in through joint venture agreements to gain access to the pipeline network. The law also outlines a specific system that all stakeholders should adhere to in regards to all transit pipelines in the country. In fact, the law was instrumental in turning the idea of the TSGP project into a reality. This is demonstrated by the MOU (memorandum of understanding) between NNPC and SONATRACH for the commencement of a feasibility study as well as the move to register the project in the list of NEPAD’s (The New Partnership for Africa’s Development) programs . Within such a framework, Algeria was in a strategic position to raise important questions relating to geo-strategy, geopolitics, and international law. By raising these issues, Algeria (through SONATRACH) made a significant step towards stemming potential transit problems.

Because of its wealth of experience, Algeria has a responsibility to steer the project by providing crucial insights for complex legal aspects. For instance, careful attention should be directed to the number of states participating in the project and implications in terms of the legal-regulatory framework for each of these states. Algeria’s experience in provisions addressing issues of taxation, system ownership, right of way, permits, and authorizations may need to be relied upon during the crafting of contracts and joint-venture agreements to reduce the potential for disputes that may lead to gas supply interruptions in future. Similarly, the capacity for each partner should be clearly defined. In other words, all technical, financial, economical, and political aspects of the project should be anchored in law to avoid future disagreements.

Algeria occupies a strategic position because of its contiguity to submarine pipelines linking Africa to European market. The country’s goodwill is desperately needed in the quest by stakeholders to work out an approach that optimally implements the project. The element of desperation comes in because such endeavors tend to encounter major constraints, some of which are unavoidable. Without goodwill and perseverance from all actors, it may be difficult for all the internal and external conditions of the TSGP project to be satisfied. Internal conditions encompass technical, commercial, economic, and financial aspects while external conditions encompass legal, political, and tax environment.

Unfortunately, Algeria, like Niger and Nigeria, faces its share of insurgencies and terrorist activities. The main insurgent movement is the Salafist Group for Call and Combat. This terrorist group, which is affiliated to Al Qaeda, seeks to what it claims to be the corrupt ways of Islamic regimes. The movement also opposes the presence of foreigners in Algeria. In 2007, the group changed its name to Al Qaeda in the Islamic Maghreb (AQIM). Unlike in Niger, the Algerian military has been successful in preventing the group from sabotaging the country’s economy. AQIM’s threat to the Trans-Atlantic Gas Project is similar to the one posed by the Tuaregs. However, Algeria has showed a higher degree of commitment in dealing with AQIM than Niger. Niger tends to be hindered in its quest to deal with the insurgency by political instability and inadequate capacity. Fortunately, insurgency has become a regional problem in North Africa and many regional summits have been held to address cross-border terrorism and the threat it poses to international development projects such as TSGP.

Comparison between Niger and Ukraine

A comparison can be drawn between Niger and Ukraine because both are (potentially) transit countries for major gas-exporting countries. About 80 percent of Russian natural gas exports to the European market are transported through pipelines that run across Ukraine.[12] Similarly, all Nigeria’s natural gas exports to Europe will pass through Niger once the TSGP project is complete. In Ukraine, a bitter dispute with Russia led to a major cut in natural gas supply in 2006 and again in 2009.[13] In Niger, the vast terrain, lack of proper legal apparatuses, and the threat of terrorism, all pose a serious threat to operations of the pipeline. If not properly conceived, TSGP contracts could trigger disagreements similar to those pitting Russia against Ukraine.

In the case of Ukraine, transit fees are the main source of disputes.[14] Once the TSGP becomes operational, the initial compensation that states have agreed upon may prove to be insufficient because of changes in factors such as demand, level of production, and security responsibilities bestowed upon the transit country. To avoid such a conflict, parties to the TSGP  contract must ensure that relevant clauses allowing for adjustments to applicable transit fees are inserted before appending their signatures.

The issue of the amount of gas that Niger uses for domestic consumption also remains unresolved. In the case of Ukraine, this issue has triggered a lot of anger from Moscow. Ukraine has been accused of diverting natural gas meant for export to domestic use. Today, Niger is in a position to put in place the necessary contractual precautions to ensure that such a problem does not arise. For instance, the country may oppose the idea of future increases in price for gas channeled for domestic consumption. It may also demand to be given a free hand to switch to alternative sources of energy or even an alternative route. Niger must also be ready to examine how it links its energy access to that of downstream countries. Concerns about partial loss of sovereignty upon the payment of transit fees should be discussed. In Ukraine, the issue of sovereignty has caused major disputes, with Russia asserting its right to use the country as a transit route following the full payment of all applicable transit fees. Ukraine has also expressed discontent about the creation of collateral for investors operating outside the jurisdictions of its government, thereby undermining the country’s sovereignty. Niger is likely to encounter similar problems if the TSGP contract does not integrate all these legal, political, and economic factors.

As recent as June 2014, Gazprom, Russia’s national gas company, cut supply domestic-use gas to Ukraine following a dispute over unpaid bills. Although Ukraine continues to allow the transit of gas supplies to the European market, the dispute could take a new turn if the two countries do not resolve their differences. The latest developments are similar to the ones that unfolded in the disputes of 2006 and 2009 when gas supplies to the EU market were interrupted. During these disputes, Russia stopped supplying gas through Ukrainian pipelines over claims that Ukraine had siphoned off gas. Transit prices constitute a major sticking point for Ukraine and Russia. Neither country has expressed the willingness to reach a compromise. The tendency has been for both countries to try and convince EU consumers that the other party is responsible for the interruptions. The issue of transit fees often becomes difficult to resolve because it is intricately related to that of ownership and control of the gas transit network in Ukraine and the payment of Ukraine’s unpaid bills.

The gas supply cuts in 2006 and 2009 showed that power politics can take precedence over long-term contracts. The supply cuts violated the provisions of long-term contracts, thereby creating an intolerable situation in which about 20 European countries were exposed to uncertainty in the supply of a product that is strategically important to their economies. In many ways, Europe became a victim of power-politics plays between Ukraine and Russia. This situation necessitated the formation of a tripartite monitoring system bringing together Russia, Ukraine, and the EU. However, this move represents nothing more than a stop-gap contingency measure; a permanent solution is needed. A viable option towards the creation of such a solution would be the formation of a new business consortium to undertake the responsibility of operating the Ukraine transit pipeline through a long-term concession.

The contractual structure of Russian gas supplies traces its origin to the Dutch concept of Long-Term Gas Export Contract (LTGEC). This concept has proven to have its own shortcomings and transit risks as demonstrated by frequent decisions by Russia to cut supply to Europe without facing any consequences for the breach of contract. The contractual arrangements outlined in the TSGP are also based on the LTGEC model. This essentially means that the challenges that arose in regards to the role of Ukraine as a transit country for Russian gas are more or less applicable to the situation of Niger as a transit country for Nigerian gas. At the same time, Ukraine operates in a context where change from political to market-based price mechanisms is unfolding, which is an indication that the liberalization processes of the EU market have started to exert a profound influence on Ukrainian and Russian gas-export operations. A similar evolution processes should be expected to unfold in Niger. The form and content of initial long-term supply contracts should be expected to change in response to target-market realities. Failure by the Nigerien government to adapt to these changes is likely to trigger bitter disputes.

The planners of the TSGP can learn a lot from the collapse of the consortium concept as a platform for the refurbishment of the Ukrainian transit pipeline in June 2005. This collapse triggered a series of events that culminated in disruption of Russian gas supplies to Europe.[15] The Ukrainian government adopted a new position, insisting that it was better for the consortium to focus on constructing new pipelines instead of repairing existing pipeline networks. This position triggered a pessimistic view of the joint venture in Moscow. Russia insisted that it was delusional to talk about the construction of new pipelines without addressing the issue of maintaining the existing pipeline networks. This disagreement led to a deterioration of the Russian-Ukrainian relationship in regards to gas trade. It became unclear whether Ukraine would henceforth buy gas from Gazprom. Doubts also arose regarding the legitimacy of the joint venture between Russia and Ukraine to ship Turkmen gas to Ukraine. This was followed by the abandonment of international consortium responsible for the management of the gas transit network in Ukraine. The relationship between the two countries deteriorated to the extent where Russia expressed security concerns over the gas reserves it had stored in Ukraine for supply to the EU market during winter.

The main lesson to be learnt from the Russian-Ukraine dispute is that Niger should push for a comprehensive assessment of different legal instruments that can be used to address such disputes in case they arise. Niger may need to assess the merits and demerits of the National Lines Model on the one hand and the International Pipeline Agreements Model on the other. The National Lines Model is based on the interconnectedness among national lines. Each of these lines is governed under the domestic law applicable in the state where it operates. This means that a transnational gas transport project of TSGP’s magnitude is not considered a single unit; rather, it comprises of different operators and owners and is governed by different national regulatory systems. To seek redress cross-border disputes, Niger would need to seek redress through contracts executed among different operators and owners of different sections as well as inter-governmental agreements.

In the second model, the pipeline would be viewed as a trans-boundary project. Both Niger and Ukraine have adopted this approach, whereby the entire project is viewed as a legal unit operating under the protection of an intergovernmental agreement. Under this agreement, measures are put in place to guard against disruption of gas supplies as well as undue economic burdens subjected to producers and purchasers through excessive taxation and transit fees. In this model, support from all host and transit countries is critical. The case of the Ukrainian dispute of 2006 demonstrates how damaging the deterioration of relations among participating states can be to the whole system. Niger may encounter a similar problem if it does not cooperate with Nigeria and Algeria in efforts to deal with potential sources of disruptions such as terrorism, taxation, maintenance of the TSGP pipeline network, transit fees, and domestic use of gas meant for supply to European countries.

Conclusion

Many developments have occurred since the Trans-Saharan Gas Pipeline (TSGP) was proposed during the 1970s. However, questions have also been raised regarding the economic viability of this investment in light of uncertainty about Nigeria’s proven natural gas reserves and the threat of sabotage by terrorist groups in Nigeria, Niger, and Algeria. Each of these countries faces different challenges in efforts to make the project a reality. This means that each of them must address the unique problems affecting the project while at the same time contributing to the overall goal of turning the proposal into a reality. It is against this backdrop that the TSGP was placed on the list of NEPAD’s programs.

Nigeria enacted the ICRC Act 2005 as a way of establishing a sound legal framework for the project. This Act provides a PPP framework that is instrumental in aspects of financing and participation by both public- and private-sector stakeholders. However, the country also faces several challenges, one of them being difficulty in entering into long-term contracts to ensure successful completion of the project. Other major problems include doubts over financial viability, lack of a coherent legal framework, and security concerns because of the terrorist threats posed by MEND. To address insurgency problems, Nigeria is in the process of developing an equal-participation framework that guarantees economic benefits to all communities once the project is completed.

Niger will play the role of a transit country similar to the one played by Ukraine in Russia’s gas exports to the European market. Like Nigeria, Niger faces an imminent threat of terror from Tuareg guerillas. The resulting insurgency has brought into focus the hostility of local ethnic groups towards French companies. Moreover, vast terrain, sparse population, and overall lack of economic development make it difficult for Niger to install security apparatuses befitting a project of TSGP’s magnitude. Additionally, general political instability and uncertainty in the country are a major source of skepticism about the appropriateness of the Nigerien pipeline.

Lastly, Algeria is an important contributor to the project because of its experience in gas operations and its contiguity to all the pipeline networks linking Africa to Europe. The country also has a well-defined legal and policy framework for natural gas operations. Its wealth of experience in gas exploration, exploitation, and pipeline construction will be much-needed throughout the process of implementing the TSGP project. However, Algeria also faces a significant threat from Al-Qaeda-affiliated insurgent movement, the Salafist Group for Call and Combat.

Once the TSGP becomes operational, the issue of transit fees, taxation, and concerns over sovereignty will dominate discussions over transit routes. In this regard, it is imperative to compare Niger, the main transit country, with Ukraine. Ukraine is a major transit country for Russian gas exports to Europe. In the recent past, Ukraine-Russian disputes over issue of transit fees and taxation have led to major cuts to European gas supplies. To avoid a similar fate from befalling the TSGP, Niger should learn from the Ukrainian experience. For instance, the evolution of contractual and pricing mechanisms in Ukraine and Russia should be expected to unfold in Niger as time goes by. The choice of long-term supply contracts should be between the International Pipeline Agreements Model and the National Lines Model. Niger should advocate for a contractual agreement that will enable it to overcome transit problems in the long run while deriving optimal benefits from the TSGP project.

 

References

Abdalla, Muna. Understanding of the natural resource conflict dynamics: The case of Tuareg in North Africa and the Sahel. ISS Paper 194, August 2009.

Bilgin, Mert. “Energy security and Russia’s gas strategy: The symbiotic relationship between the state and firms.” Communist and Post-Communist Studies, 44, no. 2, (2011): 119–127.

Bilgin, Mert. “Scenarios on European energy security: Outcomes of natural gas strategy in 2020.” Futures, 43, no. 10 (2011): 1082–1090.

Darbouche, Hakim. “Russian-Algerian cooperation and the ‘gas OPEC’: What’s in the pipeline?” CEPS Policy Briefs, 112, no. 1 (2007): 1-6.

Duruigbo, Emeka. “The Global Energy Challenge and Nigeria’s Emergence as a Major Gas Power: Promise, Peril or Paradox of Plenty.” International Environmental Law Review, 21, no. 6 (2009): 395-411.

International Business Publications. Niger Foreign Policy and Government Guide, Volume 1. Washington, DC: International Business Publications, 2003.

Keenan, Jeremy. “Uranium Goes Critical in Niger: Tuareg Rebellions Threaten Sahelian Conflagration.” Review of African Political Economy 35, no. 117 (2008): 449-466.

Konoplyanik, Andrey. “Gas Transit in Eurasia: Transit Issues between Russian and the European Union and the Role of the Energy Charter.” Journal of Energy & Natural Resources Law, 27, no. 3 (2009): 445-462.

Odumugbo, Charles. “Natural gas utilisation in Nigeria: Challenges and opportunities.” Journal of Natural Gas Science and Engineering, 2, no. 6 (2010): 310–316.

Onyeukwu, Humphrey. Nigerian gas master plan and policy: Is it a constrained energy policy? London: Routledge, 2009.

Pirani, Simon.,  Jonathan Stern, and Katja Yafimava. The Russo-Ukrainian gas dispute of January 2009: A comprehensive assessment. Oxford: Oxford Institute for Energy Studies, 2009.

Reymond, Mathias. “European key issues concerning natural gas: Dependence and vulnerability.” Energy Policy, 35, no. 8 (2007): 4169–4176.

Stern, Jonathan. The Russian-Ukrainian gas crisis of January 2006. Oxford: Oxford Institute for Energy Studies, 2006.

Yegorov, Yuri. and Franz Wirl. “Ukrainian gas transit game.” Zeitschrift für Energiewirtschaft, 33, no. 2 (2009): 147-155.

Yousfi, Mohamed. Trans – Saharan Gas Pipeline Project(TSGP) – Road Map For Success. 18th World Petroleum Congress, 25-29 September, 2013 Johannesburg, South Africa.

 

End Notes

[1] Bilgin, Mert. “Energy security and Russia’s gas strategy: The symbiotic relationship between the state and firms.” Communist and Post-Communist Studies, 44, no. 2, (2011): 119–127.

[2] Reymond, Mathias. “European key issues concerning natural gas: Dependence and vulnerability.” Energy Policy, 35, no. 8 (2007): 4169–4176.

[3] Onyeukwu, Humphrey. Nigerian gas master plan and policy: Is it a constrained energy policy? London: Routledge, 2009.

[4] Bilgin, Mert. “Scenarios on European energy security: Outcomes of natural gas strategy in 2020.” Futures, 43, no. 10 (2011): 1082–1090.

[5] Odumugbo, Charles. “Natural gas utilisation in Nigeria: Challenges and opportunities.” Journal of Natural Gas Science and Engineering, 2, no. 6 (2010): 310–316.

[6] Yousfi, Mohamed. Trans – Saharan Gas Pipeline Project(TSGP) – Road Map For Success. 18th World Petroleum Congress, 25-29 September, 2013 Johannesburg, South Africa.

[7] Duruigbo, Emeka. “The Global Energy Challenge and Nigeria’s Emergence as a Major Gas Power: Promise, Peril or Paradox of Plenty.” International Environmental Law Review, 21, no. 6 (2009): 395-411.

[8] Abdalla, Muna. Understanding of the natural resource conflict dynamics: The case of Tuareg in North Africa and the Sahel. ISS Paper 194, August 2009.

[9] Keenan, Jeremy. “Uranium Goes Critical in Niger: Tuareg Rebellions Threaten Sahelian Conflagration.” Review of African Political Economy 35, no. 117 (2008): 449-466.

[10] International Business Publications. Niger Foreign Policy and Government Guide, Volume 1. Washington, DC: International Business Publications, 2003.

[11] Darbouche, Hakim. “Russian-Algerian cooperation and the ‘gas OPEC’: What’s in the pipeline?” CEPS Policy Briefs, 112, no. 1 (2007): 1-6.

[12] Yegorov, Yuri. and Franz Wirl. “Ukrainian gas transit game.” Zeitschrift für Energiewirtschaft, 33, no. 2 (2009): 147-155.

[13] Konoplyanik, Andrey. “Gas Transit in Eurasia: Transit Issues between Russian and the European Union and the Role of the Energy Charter.” Journal of Energy & Natural Resources Law, 27, no. 3 (2009): 445-462.

[14] Pirani, Simon.,  Jonathan Stern, and Katja Yafimava. The Russo-Ukrainian gas dispute of January 2009: A comprehensive assessment. Oxford: Oxford Institute for Energy Studies, 2009.

[15] Stern, Jonathan. The Russian-Ukrainian gas crisis of January 2006. Oxford: Oxford Institute for Energy Studies, 2006.

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