How Nigeria’s Energy Sector Fared in Half Year 2018

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Chineme Okafor looks at how Nigeria’s energy sector – oil, gas, and electricity, performed in the first half of 2018

In 2017, Nigeria which is currently reported to be Africa’s largest economy, gave out hopes that 2018 could just be the year it would take bold moves to reposition or consolidate reforms initiated in her energy sector.

Having initiated an electricity market reform that was concluded in 2013, but which has yet to gain the expected momentum, as well as reforms in her oil and gas sectors and the breaking up of the omnibus Petroleum Industry Bill (PIB) into different parts for ease of passage, the country looked ready to make 2018 count for it.

Undoubtedly the continent’s heavyweight with lands rich in mineral resources, great agricultural potential and favourable demographics, the country initiated a recovery scheme – the Power Sector Recovery Programme (PSRP), with the World Bank, to help revive her electricity market which had by 2017 become so lethargic that investments into some of its key value chains like the distribution networks appeared to have dried up.

Similarly, as Africa’s largest oil producer and a key member of the Organisation of the Petroleum Exporting Countries (OPEC), Nigeria which reportedly holds down a good spot as the world’s fourth-largest exporter of liquefied natural gas (LNG), also indicated it would be taking some bold steps to balance its crude oil business.
This was after it was hit hard by the slump in oil price which started in 2014 and has gradually recovered.

Developments in electricity sector in half year of 2018

Using analysis by the Spectator Index, the World Economic Forum (WEF) in January 2018, ranked Nigeria second worst in electricity supply in 2017.
The ranking indicated that war-ravaged Yemen was the only country Nigeria bested amongst the 137 countries that were assessed.
At that time, power supply in the country was circa 4000 megawatts (MW), and the country had enlisted the support of the World Bank through its PSRP to revive the fortunes of the sector which electricity distribution companies (Discos) said was financially challenged by a funding shortfall of circa N1 trillion.
Similarly, the sector was challenged by the incompleteness of the board of commissioners of the regulatory agency – the Nigerian Electricity Regulatory Commission (NERC) which had just six out of the seven commissioners recognised by the laws governing the operations of the industry – the Electric Power Sector Reform Act 2005 (EPSRA), as well as repeated collapses of the transmission systems and revenue losses on account of several constraints.
In a draft copy of the PSRP, the federal government had said about $7.5 billion funding would be needed to revive the power sector over the next five years, starting from 2017 till 2021. It added that the funding requirement would translate to $1.5 billion per year and that its realisation would depend on certain outlined steps such as appropriate tariff reviews taken amongst others.

So far, the government and the World Bank Group have concluded a two-day high-level consultations on the PSRP, a comprehensive programme of policy; legal; regulatory; operational and financial interventions expected to restore service efficiency and long-term power sector viability, but the power sector has not improved on its operational efficiencies.

In fact, a June 22 operational report of the sector obtained from the Advisory Power Team in the office of the Vice President, Yemi Osinbajo, estimated that due to insufficient gas supply; distribution, transmission and water reserves constraints, the power sector has lost about N226.135 billion within the six months of 2018.

The country’s transmission network has also experienced about seven collapses in 2018, despite the continued expansion of the system by the Transmission Company of Nigeria (TCN) through its Transmission Rehabilitation and Expansion Programme (TREP) which has seen the transmission company embark on several high voltage line projects.
The NERC has also gotten a chairman, Prof. James Momoh, who was appointed and inaugurated by the government to complete its board, and send signals that regulatory processes in the sector could become independent of government intrusion and stable in process.

Within the period also, the age-long practice of estimated billing by Discos, which had become a big source of suspicion and mistrust between the Discos and electricity end-users became a subject of intense consideration and discussion by both the executive and legislature which through the House of Representative Majority Leader, Hon. Femi Gbajabiamila (APC-Lagos), introduced a bill to end or criminalise its practice.

In this regards, the Minister of Power, Works and Housing, Mr. Babatunde Fashola, at the June 2018 monthly meeting of operators in the power sector which held in Kaduna, described estimated billing practice as being subjective, discretionary and often prone to abuse.
He said the executive and legislative arms of government had taken up the issue of estimated billing seriously, and respectively initiated solutions to end it.

Besides, Fashola, said the NERC has initiated a new metering programme called the Meter Assets Provider (MAP) scheme to close the metering gaps in the sector.
Both measures, he noted would lead to a good outcome for electricity consumers and operators in the country.

Oil and gas sector half year report
Largely held back by lack of reforms over many decades, Nigeria’s oil and gas sector in 2017 witnessed a flurry of activities around its policy space, with the government initiating new oil and gas policy documents to prioritise investments in the sectors.
Also, within the year, the government continued its efforts to revamp the country’s refineries in Warri, Port Harcourt and Kaduna in its attempt to cut down the volume of refined petroleum products the country imports into the country, but that plan has not moved as fast as expected even in half year of 2018.

At the moment, the country still relies mostly on imported petrol to run her economy. According to the Nigeria Bi-annual Economic Update prepared by the World Bank Macroeconomic, Trade and Investment Global Practice Nigeria Team, about N128.9 billion was deducted by the Nigerian National Petroleum Corporation (NNPC) as at November 2017 from oil revenues due to the Federation Account, as subsidy payments for imported petrol.

On the other side, the country has continued to pay the arrears of a negotiated debt owed International Oil Companies (IOCs) on joint venture operations.
Similarly Nigeria’s crude oil production from a March 2018 report of the ministry of petroleum stood at 2.022 million barrels per day (mbpd).
The March oil production figure, however, included condensate which the Organisation of Petroleum Exporting Countries (OPEC) does not usually recognise as part of its members oil output figures.

Again, the NNPC within the period under review signed the contract for the $2.8 billion, 614 kilometres Ajaokuta-Abuja-Kaduna-Kano (AKK) pipeline project as part of its plan to boost local gas development.
The project has however attracted some experts’ review and comments which appeared to have questioned its viability and prospects.

Despite these, renewed theft of crude oil from the waters of the Niger Delta region – a region which holds much of Nigeria’s oil wealth and where much of the oil upstream activities are concentrated, has raised concerns about the government’s commitment to security of oil and gas installations.
This according to experts could also impact Nigeria’s take from oil and ultimately the execution of her budget.

Reacting to the development, Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, stated during a visit to Nembe Creek that it was worrisome and needed to be fixed.
He said: “I am here to see what is going on and how we can stop it. We will continue the tour, you can see we’ve been flying around with helicopters, trying to see where these points are.

“We are going to take words back to the headquarters to see how we can meet with the defence chiefs, and National Security Adviser. I will take words back to the president in terms of what the experience has been here.”

He further stated: “For the fact that vessels can actually come through the security corridors and pick up oil is even much more troubling. It may not have been oil, it may have been arms. “Something needs to be done in terms of security and environment as well as the economy of the country.”

Another development which cannot be said to be healthy for the country’s oil sector is the continued delay of the government to progress with the bid rounds for marginal oil fields she indicated interest in undertaking.
Kachikwu, in February, said President Muhammadu Buhari, being the substantive petroleum minister had not given his approval for the continuation of the exercise.

He explained that Buhari would have to examine the process as initiated so far, and sign it off if he was satisfied with it before it would continue. That sign off, he noted had not come from the president hence, the standstill.

“We need to get approvals. You have to understand that there are steps in these things, it has to be signed off, we are waiting for that sign off and I didn’t want to raise people’s expectations until I have gotten that sign off.

“Bear in mind that I am not the petroleum minister and the authority lies with the president. So, he is going to look at it and be satisfied with what we are trying to do, what process is in place and then approve that. Until he does that I don’t have the authority to jump into marginal field,” Kachikwu, said in response to a question on why the bid rounds had not progressed as expected.

The passage of the Petroleum Industry Governance Bill (PIGB) which has been on the cards for roughly a decade has however gained some healthy momentum with its passage by the National Assembly and reported transmission to Buhari for assent into law.
The passage of the PIGB, has according to experts beckoned a huge leap in the country’s attempt to reform her oil sector which has remained passive for years.