How Energy Sector Fared in 2018

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Chineme Okafor, in this report summarises key events and developments that shaped Nigeria’s energy sector in 2018

Regardless of how the year ends, the verdict amongst key stakeholders about how Nigeria’s energy sector performed in 2018, showed that development within it were largely measured.
Indeed, the sector recorded mixed performance in 2018.

As it had been for years now, developments in the country’s energy sector – electricity; oil; and gas, has remained poor as major policies required to move the sector forward have never really been prioritised even when reforms especially in the electricity sector have happened.

Even when it is obvious the country’s economic development depends largely on how efficient its energy sector operates, governments have always opted to taking piecemeal reforms that often come up with little values.
2018, was clearly not different in this regard.

Electricity
Upgrading the capacity of Nigeria’s electricity market to guarantee stable supplies for the country has faced various challenges even after the reforms that happened in 2013.
Though initiated to reposition the sector, the 2013 reform has yet to lead Nigeria out of darkness as the country is yet to enjoy stable power supply.

In fact, reports from various agencies associated with the sector indicated that up to 60 per cent of the country’s citizens were yet to be connected to the national grid in 2018, while those connected to the grid were often left with an average of 3500 megawatts (MW) of power to use.

This, means that for a country of circa 170 million people, more than half of its citizens are not linked to the grid, while the balance shared 3500MW at homes; industries; and offices amongst others.
In 2018 however, developments recorded in the sector were both mixed.
In terms of the positive developments, insufficient gas supply to some gas power Gencos especially those of the National Integrated Power Projects (NIPPs) remained an issue yet to be solved by the country.

Also, chronic illiquidity which impacts heavily on capacity expansion, as well as government’s silence on key regulatory and market decisions such as tariff reviews, helped to give the power sector a measured achievement.
Also, the poor financial situation of the sector did not get better because the Discos reportedly still failed to improve their payments to the sector for power supplied.
The Discos equally did not raise their distribution capacities to take all that was generated by the Gencos every day.

Over this period, operators similarly struggled with refinancing the cost of acquiring their assets, as well as making critical investments for expansion because revenue collection in the system did not get any better while the technical and commercial losses of the Discos remained high.

Similarly, the sector continued to record huge accident rates following reports by the Nigerian Electricity Management Services Agency (NEMSA) in January that 87 deaths from 82 accidents occurred in the sector between January and October 2018.
The NIPP which was set up in 2004 as an integral part of efforts to bridge the country’s power shortages, also had its share of the sector’s challenges along with its transmission, distribution and gas supply infrastructure.

Its 10 brand new plants which have a combined production capacity of 5,455MW and slated for privatisation, were not privatised for sundry reasons. Other projects under the NIPPs were also stalled as the company struggled to stay up in the midst of crushing debt to it by the market.
The country, in its push to introduce solar to its power mix, signed agreements in 2016 with investors for 14 solar power plants, but the government in 2018 did not advance that agreement that would enable 1250MW of solar electricity to be added to the grid.

Additionally, the Power Sector Recovery Plan (PSRP) which was initiated to revive the 2013 reforms, did not gain traction in the year as negotiations for its loan component was not concluded.
With regards to specifics, a 12-month performance trend data obtained from the office of the Vice President, Prof. Yemi Osinbajo, by THISDAY, had shown that the sector struggled to sustain an average daily power production of 3,798MW between January 1 and December 23, 2018.

The data which the paper analysed, disclosed that after the sector achieved a peak power generation of 5,222MW on December 18, 2017, it largely struggled to keep up with the trend, and for the 12 months struggled to generate and supply up to 4000MW.
For the period, the highest generation and supply mark attained was the 4419.6MW achieved on March 28, while high frequency resulting from unavailability of distribution infrastructure; poor gas supplies to generation companies; and water management constraints dominated the sector.

On the average for the 12 months, the sector could not supply up to 2954MW of electricity daily to homes and offices in the country due to these constraints, and in this regards lost N506.193 billion.
In January, it produced and supplied an average of 3697MW daily; in February, it did 3937MW; in March, it supplied 4029MW; as well as 3985MW in April.
Also, in May, 3780MW was the average daily energy level the sector could afford to produce and supply, while 3588MW was produced averagely in June.

For July, it was 3619MW; 3660MW in August, and then 3,514MW in September. It generated an average of 3752MW in October; 4038MW in November; and 4086MW in December.
For the unearned revenue, in January it was put at N40.419 billion; February was N35.522 billion; March was N36.399 billion; April was N33.175 billion; while June had N48.759 billion.
The month of July saw the sector failing to earn N50.082 billion, while August saw it lose the most as N59.976 billion could not be earned. In September, it lost an average of N51.519 billion; N52.449 billion in October; N38.178 billion in November; and N18.690 billion in December.
The trend report also indicated that for the period, a total of 243,446 metrics million standard cubic feet (mmscuf) of gas was supplied to power generation plants in the sector, thus indicating an average of 20,287mmscuf per month and 680.016mmscuf per day.

Nevertheless, some remarkable steps were taken to fix some of the challenges in the sector.
For instance, the government in its desire to keep the Gencos on, approved N701 billion loan for the Nigerian Bulk Electricity Trading Plc (NBET) from the Central Bank of Nigeria (CBN) to guarantee payments to gas suppliers and Gencos, and this eventually took off in the year.
In terms of capacity addition, the new 459MW Azura-Edo power plant began production.
On the governance side of the sector, the NERC eventually got a chairman to give it a semblance of a complete commission even though its independence was greatly questioned by stakeholders within the year.

The commission equally rolled out the eligible consumer regulation which now grants Gencos rights to directly sell excess power high demand consumers. It as well passed a regulation to support investments in mini grid, and approved the Meter Assets Provider (MAP) regulation to allow shortlisted eligible operators in the scheme partner the Discos to provide meter for consumers.
The invigorated and retooled Rural Electrification Agency (REA), continued to take up new and priority task of getting power mostly through renewable energy sources to Nigerians through a suite of programmes in the forms of Energising Education Programme (EEP) and Energising Economy Initiative (EEI).

Through both programme, the REA aims to supply stable electricity to 37 federal universities and seven university teaching hospitals across the country using hybrid solutions, as well as to commercial hubs across the country to support their productivity. Four markets – Sabon Gari in Kano; Ariaria in Abia; Somolu Printing Community and Sura Shopping Complex, both in Lagos, have had the pilot phases of the EEI implemented, while Sura and Sabon Gari were commissioned in 2018.

Additionally, the REA galvanised the World Bank and other key operators to direct attention and funding to Nigeria’s off grid electricity market, thus highlighting to investors the immense business opportunities therein. The off grid electricity sector in 2018, thus showed it has a glorious future.

On debts owed by the government agencies to Discos, the government also concluded its verification, and indicated its willingness to net them off from debts the Discos owed the market.
The transmission network similarly got its share of the positives with the reappointment of Mr. Usman Gur Mohammed, a banker from the African Development Bank (AfDB) to head it.

As part of his tasks, Mohammed, who was charged with reviewing the operations of the TCN for improved productivity, got on with his work and made efforts to secure at least $1.55 billion from multi-lateral donors to revive some transmission projects and expand the transmission grid.
The TCN equally continued to upgrade the transmission network albeit with some reservations from the Gencos who still question the claims. Between February 2017 and August 2018, the TCN reported that it installed and energised 29 high voltage transformers and substations across the country using its in-house engineers as well as cleaning its projects’ procurement processes to weed out corrupt persons therein.

Oil and Gas
Emerging from a global issues which affected oil prices, Nigeria’s oil industry had to, according to experts, contend with domestic challenges in 2018.
Data obtained from the third quarter (Q3) 2018 Gross Domestic Product (GDP) report of the National Bureau of Statistics (NBS) indicated that an average of 1.92 million barrels (mb) of oil was produced daily within the three quarter in the country, just as real growth of the oil sector was by a negative 2.91 per cent year-on-year in Q3 2018.

Quarter-on-Quarter, the NBS stated that the oil sector recorded a growth rate of 19.64 per cent in Q3 of 2018, and contributed 9.38 per cent to total real GDP in Q3 2018, down from 9.84 per cent figures recorded in the corresponding period of 2017 and up compared to the preceding quarter, where it contributed and 8.55 per cent.
Despite the oil sector contributing most of Nigeria’s foreign exchange earnings, it did not in real terms impact the country’s GDP, indicating that it has not become the enabler which experts posits that it should be.

Reeling out what he considered an achievement of the sector in 2018, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, who was hugely instrumental in helping member countries of the Organisation of Petroleum Exporting Countries (OPEC) to negotiate and implement production cuts that stabilised the oil market, stated that the national petroleum and gas policies were initiated and approved by the federal executive to provide clarity to investors on the government’s position with exploitation of Nigeria’s hydrocarbons.

He added that the Nigeria Gas Flare Commercialisation Programme (NGFCP) to reduce the environmental, economic and social impacts of gas flare was initiated and approved, as well as the development of a wholesale gas pricing, network code and infrastructure tariff model to create a conducive situation for investment in gas infrastructure.

Similarly, Kachikwu, stated that a sustainable framework for the funding of NNPC joint venture operations was initiated in 2018, while arrears of cash call debts to oil companies were been paid.
Cost of oil production which he said was about $32 per barrel in 2017, was in 2018 taken up to be cut down to $15, in addition to reducing contracting cycle from between 24 and 36 months to a maximum of six months.

However, the NNPC stated that its cost of production was negotiated down to $22 per barrel, and contracting cycle down to nine months in 2018.
As regards new projects, the 200,000bd Egina FPSO was completed and sailed away in August, with an expectation that oil production from it would commence in earnest.

On the other hand, the NNPC in its bid to keep up supply of petrol to the domestic market, continued to accumulate huge under-recoveries, just as its refineries in Kaduna, Warri and Port Harcourt worked sub-optimally and negotiations for its planned project-finance model of revamping the refineries failed to yield results in 2018.

The Petroleum Industry Governance Bill (PIGB) which the legislators passed and sent to President Muhammadu Buhari, to assent to and open up the oil sector for new investments and businesses did not get through because the president declined assent to it.

Additionally, no new Final Investment Decisions (FIDs) were taken on any major project in the sector, even the NLNG Train-7 which was expected to have its FID before the year ends had not happened as at the time of filing this report.
Marginal fields bid rounds which industry players expected would take place in 2018 on account of the government’s hints, did not also happen.