Both in the electricity and petroleum sector, Nigeria may battle with the dismal performance that greeted the sectors last year, unless decisive decisions are taken amidst the general elections and political transition. KINGSLEY JEREMIAH writes.
Subsidy payment, both in the oil, gas and electricity sectors; crude oil theft, vandalism, insecurity, contract-based market for power, incessant collapse of national electricity grid, divestment of assets, metering challenges, low investment in the oil and gas industry, stalled projects, oil search in the North amidst drilling activities in Gongola basin, licensing round and other issues are projected to decide the outlook of the country’s energy sector in 2023.
While the oil and gas sector remains the primary industry that sustains the nation’s economy, the uncertainties in the sector, especially the dismal production which dropped to about 900 barrels per day last year, compounded the challenges facing the nation’s economy and contributed to the wide disparity between the naira and the dollar.
On the other hand, the war in Ukraine exposed the weaknesses of the Nigerian National Petroleum Company Limited-managed fuel scheme as prices continued to rise, leaving queues across the country even as the country spends almost all its crude oil earnings on subsidies for premium motor spirit.
The development is coming at a time when promises to begin refining activities at the Port-Harcourt refinery by December last year remained elusive. Already, experts are projecting that the take-off of the Dangote Refinery and others, could reduce the challenges in the availability of PMS and other petroleum products in the country.
With the price of diesel also hitting record high last year, manufacturers, homes and small businesses barely survived last year under energy crisis as the nation’s electricity generation and eventual supply to homes stood at about 4,000 megawatts through the year.
Also, Nigeria came into 2023 with a debt of N44.06 trillion, while seeking to finance a budget of N21.8 trillion in an election year where the disparity between the naira and dollar remained high as inflation, low oil production, subsidy payment, electricity woes, insecurity and other challenges compounded business growth.
With about ₦11.78 trillion fiscal deficit, which represents 4.78 per cent of Gross Domestic Product in the 2023, Nigeria’s economy is faced with record challenges as the inflation rate stands at 21.47 per cent, maximum lending rate at 30.73, unemployment rate at above 10 per cent as of 2021 and poverty index at 0.257, with about 133 million people being multidimensionally poor.
While the country had announced mini oil licensing towards the end of last year, the Oil Benchmark Price in the 2023 budget was pegged at $75 and daily oil production rate was projected at 1.69 million per barrel.
Economist and Group Chairman at International Energy Services Limited, Dr Diran Fawibe, who listed ways to improve the sector in 2023, called for investigation into the recent or ongoing oil theft in the country.
“Nigeria must work towards removal of oil subsidies as soon as possible before it bankrupts the economy. There is a need to take effective measures to attain and sustain oil production levels of 1.8 to two million barrels per day.
“We must lay a solid foundation to streamline investments in the oil and gas upstream, midstream and downstream sectors through orderly implementation of the Petroleum Act and ensure transparent level playing field in all engagements across board,” Fawibe said.
Managing Partner, The Chancery Associates, Emeka Okwuosa, said the country needs a robust and strict implementation of the Petroleum Industry Act (PIA) based on accountability and transparency.
Okwuosa stated that there was need for subsidy on petroleum products to be removed, adding that policy somersaults in this area has not helped anybody.
“We need our refineries to be adequately maintained or privatised and we need more refineries to come on stream. We need steady and sustainable supplies of petroleum products and not the queues we have been seeing on a daily basis,” he noted.
Banking on Dangote refinery to come on stream, Okwousa wants the government to be strict on multinationals to halt continuous flaring of gas and degradation of the environment.
Energy Economist at the University of Ibadan, Prof. Adeola Adenikinju noted that while the PIA took decades before being passed, the new law must be fully implemented to ensure the projected gains are realised.
He said the PIA must ensure a free market, where demand and supply spur growth, especially in the downstream segment which remained controlled and monopolised.
“At the heart of the PIA is the market allocation of resources. Demand and supply must be reconciled by market forces, not administrative controls,” he said.
In the face of the uncertainties in the petroleum industry, Adenikinju said the downstream segment must be allowed to function as designed to create local markets and industries instead of reliance on the import market.
A professor emeritus and renowned energy economist, Wunmi Iledare said apart from the subsidy issue in the downstream, the three PIA institutions need to step on the plates and do things right.
“What do I mean? Optimising the value system of an institution is highly dependent on the sustainability of the value through posterity. Fashioning regulations for agency revenue enhancement is not good for the petroleum and power sector. Taking advantage of the 2023 trilemma election can lead to a consequential industry government quadrilemma; inefficiency, ineffectiveness, inequity and ethical abnormality,” he said.
According to him, there is the need to revisit the legal framework of the power sector reform act, adding that the DisCos are pseudonyms within the context of a monopoly market structure.
Iledare insisted that the distribution companies were created to fail, stressing that no amount of patching can redeem the structure.
“The shares held by the government must be let go and the Nigerian Electricity Regulatory Commission (NERC) must step up the plate and function as expected.
“Of course, one can only hope that the transitioning political gladiators come to terms with the saying that the morality of a society is judged majorly on how the society judges its children. Just do the right things and do things right to evoke a rejoicing lifestyle for Nigerians,” he stated.
In February 2015, NERC had issued an order stating that Nigerian Electricity Supply Industry (NESI) on Sunday February 1, 2015 attained a much-awaited Transitional Stage Electricity Market, whereby wholesale buying and selling in electricity is based on contractual and regulatory rules.
With so many issues and failures, the sector has remained in limbo since then as Nigerian Bulk Electricity Trading Company took charge of bulk trading with accumulated debt that now plunged the market into financial crisis.
Mid last year, NERC signed contracts with the distribution and generation companies on the basis that the supply of 5,000 megawatts would be guaranteed amidst backlash on NERC’s Service Based Tariff (SBT).
Appreciating the support of the World Bank, African Development Bank among development partners anchored by the Rural Electrification Agency among other stakeholders, Executive Director at Green Growth Africa and Research Fellow at the Politecnico di Milano, Italy, Dr. Adedoyin Adeleke anticipated the new mini-grid energy projects in the country.
He noted that it remained critical for the country to understand that interventions have an end date.
“The intervention project is for a time. Hence, while we are focusing on projects with interventions, we need to pay closer attention to developing the market conditions for energy access. Market conditions that could facilitate the development of mini-grid projects, for instance, fully on market-driven forces.”
Adeleke noted that grid-connected electricity could only become reliable if significant improvement is made on the transmission network.
He said: “Transmission is a crucial area in the sector that the government needs to prioritise in its agenda and policy direction,” stressing that the nation’s socio economic development would remain elusive without improvement in the conditions of energy access, supply and use.
Energy analyst, Lanre Elatuyi anticipates an improvement in the available grid power from the present average baseload of 3,500MW.
This, he said, would only be possible by increasing the capacity of all the distribution companies and also with a massive reduction in their Aggregate Technical and Commercial Collection Losses from the current average of about 47 per cent to about nine per cent.
“Presently, Discos reject loads for commercial reasons especially in areas where revenue collection is challenging. DisCos need to attract long term capital, but given their present bankability with their ATC&C loss level, financial institutions that are already exposed to these DisCos can’t lend them money.
“There is also a need to revisit the market design to deal with the present illiquidity in the single buyer model,” Elatuyi said.
He called for more competition in the wholesale market so that eligible customers and DisCos could transact bilaterally.
Such development would take care of the stranded capacity in generation and provide the needed liquidity for the Gencos, Elatuyi said while adding that there was a need to get industries that depend on expensive captive generation connected back to the grid.
He said the power sector policy directives and timelines released in 2019 must be followed instead of looking for another policy direction, noting that a lot depends on the independence of the regulator from the government and from the regulated entities.
Elatuyi said there was the need to remove the bottlenecks in the DisCos through the Siemens deal, adding that such a move could mean breaking the franchise areas to smaller manageable areas and allow more players to come into the sector.
“Licence review will take place this year and the regulator must be impartial in their assessment of every market participant,” he noted.
Source: Kingsley Jeremiah/ Guardian
