Nigeria-Morocco Gas Pipeline: Reflections On The WAGP Tariff Methodology

The Nigeria-Morocco Gas Pipeline (NMGP) represents one of Africa's most ambitious cross-border infrastructure projects. As planning advances, a critical lesson from prior successful projects, most notably the West African Gas Pipeline (WAGP), is the central importance of establishing a clear, stable, and enforceable tariff methodology.

This legal update highlights the importance of a bankable tariff methodology for the NMGP using WAGP's Tariff Methodology Agreement (TMA) as a benchmark for structuring NMGP's commercial framework.

Commercial Context

Especially for long-term, capital-intensive projects like cross-border pipelines, revenue predictability is the foundation for attracting both debt and equity capital. The tariff methodology is the instrument that delivers this predictability. Amongst others, a standard tariff methodology will address key commercial questions:

1. How will transportation charges be calculated over the project's lifespan?
2. What capital and operating costs will be recovered through tariffs?
3. How will investors earn a return on capital deployed?
4. How will tariffs adjust for inflation, throughput volumes, or cost changes?
5. (Who controls changes to tariff levels and how are disputes resolved?

In the absence of a stable, treaty-backed tariff framework, lenders and sponsors will perceive significant regulatory risk, especially in multi-jurisdictional projects where host states retain wide fiscal discretion.

The Complexity of Cross-Border Pipelines

Projects such as NMGP involve numerous sovereign states, each with, distinct fiscal regimes and political priorities; separate regulatory authorities, diverging political risk profiles; and currency and foreign exchange exposures.

Fragmented national tariff-setting rules across 13 countries would generate unacceptable uncertainty for project financiers. Therefore, a unified, multilateral tariff framework is not just desirable but also essential for commercial viability.

Lessons from WAGP: The Tariff Methodology Agreement (TMA) Model

The WAGP TMA provides a valuable legal precedent. Its core features directly address many of the legal and commercial challenges NMGP will face:

1. Treaty-Embedded Tariff Framework: The TMA was incorporated into the WAGP Treaty and domestic law of each participating country, giving it binding effect internationally and domestically.
2. Transparent Formula-Based Calculations: Tariffs are calculated based on clear, agreed financial models covering: (a) Capital recovery (depreciation and return on investment); (b( Operating and maintenance cost recovery; (c) Return on equity and (d) Tax components.
3. Currency Stabilization: Tariffs are denominated in US dollars, shielding investors from multi-currency volatility across member states.
4. Pre-Agreed Adjustment Mechanisms: The TMA sets out automatic, formula-driven adjustments for inflation, throughput changes, and actual operating cost variations.
5. Regulatory Stabilization: Host governments contractually waived unilateral rights to amend tariff terms. Any amendments require multilateral agreement, protecting against political interference.
6. Neutral Dispute Resolution: International arbitration governs tariff disputes, providing confidence to investors that future disagreements will be handled neutrally.

Implications for NMGP Tariff Design

Given NMGP's significantly larger geographic footprint and political complexity, a similarly robust tariff methodology is even more critical. Without a harmonized, treaty-backed tariff methodology, NMGP may struggle to attract private capital or secure long-term shipper commitments.

To build on WAGP's success, we expect that the tariff framework of the NMGP would include (a) Treaty -anchored legal status enforceable under both international and domestic law; (b) Fully transparent, formula-based tariff calculations (c) Currency denomination in a stable international currency (e.g. USD) (d) Automatic adjustment mechanisms for cost, inflation, and operational changes (e) Stabilization provisions limiting host state discretion; (f) Neutral, internationally enforceable dispute resolution mechanisms.

Conclusion

The experience of WAGP demonstrates that comprehensive, treaty-based tariff methodologies are not ancillary legal issues but core instruments of bankability. As NMGP progresses, sponsors and policymakers would expectedly treat tariff design as a first-order legal and financial negotiation as failure to do so risks introducing regulatory uncertainty that can impair the ability to attract commercial financing and long-term shipper confidence.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.