Uncertainty over gas policy threatens FGs 10,000mw target

Uncertainty over policy and payment of gas amongst other factors, may hinder the  Federal Government’s target of achieving 10,000 megawatts in the next three years.   

President Muhammadu Buhari, in his keynote address at a retreat on the Nigerian economy last month, in the Presidential Villa Abuja, said the target of his administration is to achieve 10,000MW distributable power in the next three years, adding that in 2016 alone, government intends to add 2,000mw to the national grid.

Analysts however say that the targets cannot be achieved unless certain regulatory uncertainties in the sector are addressed to strengthen the institutions that operate or enable the sector.

“The Nigerian Electricity Regulatory Commission (NERC) amongst other things, should immediately appoint the NERC Commissioners, so they can take the reins of regulating the power sector which is NERC’s primary role.

“For the Nigerian Bulk Electricity Trading Plc (NBET), it should ensure that it evolves into a credit worthy off taker to the privatised GENCOs and NIPPs”, said Dolapo Kukoyi, a transactional lawyer, working currently in the power sector.

“The gas sector needs to have a separate regulator and regulation for gas, to effectively execute the areas of synergy”, Kukoyi added.

“The power sector needs to provide assurance on payments for gas related contracts and ensure that agreements become effective and enforceable. Government should also encourage gas swaps and expedite the completion of gas infrastructure projects around the country, prioritising areas with stranded gas”, she said.

Kukoyi called on the government to ensure that gas prices are constantly reviewed, in addition to developing a framework towards the monetisation of flared gas.

She said that getting more generation on the grid is critical for the Discos and the nation as a whole, adding that the honourable minister for power, works and housing, needs to work with the relevant counterparties, including the Niger Delta Power Holding Company Limited (NDPHC) at looking at the issues affecting completion of the NIPP privatisation process which has the potential to bring over 4,000MW on the grid and hopefully reach a viable resolution.

“It is also important for investor confidence, that the process reaches a logical conclusion and government’s position on the transaction is made clear as soon as possible”, Kukoyi said.

The factors that impede the growth of the power sector in Nigeria include gas supply shortages due to sabotage and not enough investments in new gas projects to bring more gas into the pipelines, poor transmission capabilities, high losses, tariff issues, regulatory issues, inadequate funding and investments across the entire value chain of the power sector.

“The Petroleum Industry Bill (PIB) is key,” said Odion Omonfoman, an energy consultant and CEO of New Hampshire Capital Limited, an energy consulting firm. He said that, “addressing a number of these factors would require a multi-sector collaboration between the office of the Vice President, who chairs the NCP/BPE and the NDPHC, the Ministry of Power, Ministry of Petroleum Resources, NERC, CBN, Ministry of Finance, and the MDAs under these ministries. It would also involve the private sector owners being sincere in their operations and meeting the terms of their performance agreements.

“The core issue in the energy sector is funding and investments. For example, a situation where operators in the upstream industry are owed by the Nigerian National Petroleum Corporation (NNPC) with respect to NNPC’s share of its cash calls, stifles investments in exploration and production activities and gas development”, Omonfoman added.

“Also, a situation where the power sector owes gas suppliers billions of naira for gas supplied to the power sector discourages gas supply to the power sector. Thus, working with the CBN and Ministry of Finance, there should be a funding policy for the sector to attract strategic and targeted investments in both the power sector and the oil and gas sector”.

The funding policy, according to Omonfoman, can include government guarantees for gas-to-power projects (gas pipelines, gas field development) and for generation projects that would be natural off-takers to the gas produced.  In addition, the CBN can stimulate increased commercial bank lending to the energy sector by adopting more lenient banking guidelines for loans to the energy sector – interest rates, sector limits, generous provisioning requirements for oil and gas loans, power sector loans, amongst others.

Omonfoman called on government to develop a renewable energy policy to harness renewable energy in power development. The policy, according to him, should identify specific pockets of funding renewable energy projects as renewable energy projects are very expensive from a capital expenditure perspective.

FRANK UZUEGBUNAM