Nigeria has vast energy resources with the potential to become a net exporter of energy products across Africa.
However, in the last sixty years of independence, the country has struggled to make this dream come true. Nevertheless, there are emerging signs that the energy sector is reinventing itself.
From refining giant to net importer of petroleum products
On September 28, Festus Keyamo, Minister of State for Labour and Employment tweeted that the Federal Government and Nigeria’s labour organisations had reached an agreement: the two resolutions were that the deregulation of retail petrol prices would stay, as government rolls out palliatives for labour while the electricity service reflective tariffs were to be suspended for two weeks.
These two issues show the inefficiencies and potentials in Nigeria’s energy sector. The Federal Government has been subsidising both petrol and electricity consumption for years.
Nonetheless, in his independence speech on Thursday October 1st 2020, President Muhammadu Buhari said that Nigeria cannot afford to maintain subsidies on petrol. He attributed this to the fall in Federal Government revenues by 60 percent, due to the coronavirus pandemic and an over 40 percent fall in oil prices.
The situation is compounded by the fact that Nigeria exports nearly all the crude oil produced in the country and imports nearly 100 percent of the petrol consumed locally. What this means in reality is that rather than develop a local petroleum industry that refines crude oil and exports petroleum products, Nigeria has remained a crude oil exporting country.
This is despite having four state-owned refineries of a combined operational capacity of 445, 000 barrels a day. None of these refineries have worked at 20 percent capacity in the last five years. In the last two years, they have worked at zero capacity but continue to consume N10 billion monthly, on average, for utility bills, staff salaries and miscellaneous expenses.
With 50 percent equity each, Shell and British Petroleum built Nigeria’s first refinery in 1960 with 38,000 barrels a day capacity. They built the refinery because they were major marketers of petrol, kerosene and cooking gas. As soon oil was found in commercial quantity, a strong business case emerged to refine locally. Two years after, they increased the capacity to 60,000 barrels per day.
When Nigeria joined the Organisation of Petroleum Exporting Countries, (OPEC), it took 60 percent equity in the Port Harcourt Refining Company and by 1978, Nigeria had 100 percent ownership. The Warri and Kaduna Refining and Petrochemical Companies were built in 1978 and 1979 respectively. Today, they are both are at zero capacity utilisation.
Interestingly, from 1990 to 1991, Nigeria was completely self-sufficient in all products, and was exporting products to West Africa. Unfortunately, since 1991 to date, the refineries have not been adequately maintained as and when due.
One of the promises the government made through the Nigerian National Petroleum Corporation to labour on September 27, 2020 was to rehabilitate the refineries, and to reach 50 percent capacity at the Port Harcourt refinery by 2021.
However, the current view among experts is for the refineries to be operated using the Nigeria Liquefied Gas Limited model where government owns minority equity and private sector operators own majority shares.
With the Dangote refinery expected to come on-stream with 650,000 barrels a day refining capacity by 2021, Nigeria may be on a path of self-sufficiency in local refining capacity.
Nigeria, a gas nation?
Nigeria is endowed with abundant gas resources far more than with oil. As at January 2019, the Department of Petroleum Resources (DPR) reported that Nigeria’s proven gas reserve was 200.79 Trillion Cubic Feet (TCF) and about 600 trillion cubic feet unproven gas reserves. Nigeria therefore holds the largest natural gas reserves on the continent and the ninth largest gas reserves in the world.
Recently, government is being more deliberate in the formulation and implementation of gas-centric policies and programmes.
In 2017, the Federal Executive Council (FEC) approved the National Gas Policy (NGP) aimed at ensuring the development of the gas sector to drive gas-based industrialisation in Nigeria. This succeeded the Nigerian Gas Master Plan (NGMP) of 2008. The NGMP was approved to serve as a guide for the commercial exploitation and management of Nigeria’s gas sector aimed at growing the Nigerian economy with gas and guaranteeing long-term energy security of Nigeria.
Three other key government programmes for sectoral development, include the Nigeria Gas Transport Network Code (NGTNC), the ongoing Nigeria Gas Flare Commercialisation Programme (NGFCP), and various efforts to increase Domestic Liquefied Petroleum Gas (LPG) Penetration.
Indeed, Timipre Sylva, the Minister of State for Petroleum Resources declared 2020 as ‘the year of gas for the nation,’ an announcement that set the theme for the year and also coincided with the Final Investment Decision (FID) on the Train 7 project by the Nigeria Liquefied Natural Gas Ltd (NLNG).
The Federal Government appears to be keen to sustain this momentum as the Guidelines for the Establishment and Operations of Downstream Gas Facilities in Nigeria (liquefied petroleum gas (LPG), compressed Natural Gas (CNG) and liquefied natural gas (LNG)) was recently issued. Even more interesting is that this contains the Guideline for the establishment of an AutoGas Refuelling Station and Add-On Gas Facility in Nigeria which is expected to potentially drive the use of natural gas for vehicles in the country to reduce emissions.
As always, the implementation of these policies and plans would tell how successful Nigeria’s move to maximises its gas resources will be.
A grid-connected power sector gasping for breath
Seven years ago, the Nigerian government undoubtedly completed what can be described as the largest power sector privatisation in Africa but the industry is failing to harness vast opportunities that the market offers.
Additionally, fifteen years ago, Nigeria enacted the Electric Power Sector Reform Act (EPSRA), which established a regulatory authority, the Nigerian Electricity Regulatory Commission (NERC) for the Nigerian Electricity Supply Industry (NESI). The EPSRA enabled the unbundling of the electric power sector into generation, transmission and distribution with separate operators.
Nigeria has an installed capacity of 12,500 megawatts (MW), however, Nigeria’s highest peak generation as at 28 September, 2020 was 5,420MW, with an average output of 3,375MW. With a population of over 200 million people, only 56.50 percent of Nigerians had access to electricity as of 2018. Even more, there are about six million unmetered customers, of the over 10 million registered customers, from a population of over 200 million people. This gap presents a business opportunity in the sector.
However, the Nigeria’s electric power sector continues to grapple with severe liquidity challenges. This stems from the fact that the downstream collections (tariffs) from electricity distribution companies (Discos) do not cover the cost of electricity sold to the end-users. There are also technical losses as a result of old and obsolete infrastructure.
The shortfalls from tariff collections mean that Discos are unable to satisfy the cascading upstream obligations from the Transmission Company of Nigeria, the Nigeria Bulk Electricity Trading (NBET), the generation companies (Gencos) and down to the gas suppliers.
As at April 2020, distribution companies owed NBET at least N173 billion. As of 2019, the exposure of Nigerian banks to the power sector was about $1.70 billion, representing one fifth of non-performing loans. The Federal Government’s has intervened in the sector to the tune of N1.5 trillion so far.
Most recently, service reflective were introduced to enable the Discos increase tariffs to ease the liquidity challenges in the sector. The idea of tying the level of tariffs to the ability of Discos to meet certain service parameters is, prima facie, a brilliant idea: it acts as an incentive for Discos to improve service levels for electricity supply in order to benefit from higher tariffs and also ensures greater customer satisfaction by ensuring that customers pay for the quality of services they are provided. As always, the key to success is in the implementation, which has now been halted for a 2-week period.
Over the years, there have been policy efforts to fix the power sector. For instance, the Power Sector Recovery Programme (PSRP) 2017 – 2021 issued in January 2018 set out a series of policy actions, operational, governance and financial interventions to be implemented by the Federal Government of Nigeria over the period to restore the financial viability of Nigeria’s power sector, improve transparency and service delivery, resolve consumer complaints, reduce losses and energy theft, and to reset the Nigerian electricity supply industry for future growth. The World Bank Group was ready to provide Nigeria with support of $2.50 billion to finance the programme.
By 2018, the implementation of PSRP had little steam. But in 2019, the Nigerian Electricity Regulatory Commission appeared to be reviving the PSRP when it requested that the eleven Discos submit performance improvement plans for the next five years. NERC also carried out minor tariff reviews in September 2019.
A major event in the sector was when in July 2019 the Federal Government signed a Memorandum of Understanding with Siemens to implement the Nigeria Electrification Roadmap (NER). The plan is to increase the power delivered to Nigerians to 7,000 megawatts (MW), 11,000MW and 25,000MW in phases one, two and three respectively. The third phase is expected to have been reached by 2025. In July 2020, the Federal Executive Council (FEC) approved the release of N8.648 billion as counterpart funding for the deal with Siemens AG.
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The Off-grid sub-sector rising to the challenge
Studies conducted showed that Nigerians and their businesses spend almost $14 billion (₦ 5 trillion) annually on inefficient generation that is expensive ($0.40/kWh or ₦140/kWh or more), of poor quality, noisy, and polluting.
To bridge the grid supply gap, reduce this spending and emissions from the inefficient alternatives, the off-grid renewable energy sector in Nigeria has become a keen area of focus by industry players.
The sub-sector which complements the grid and, in some cases, acts as a substitute is said to be a $9.2B/year (₦3.2T/year) market opportunity through mini-grids and solar home systems that will save $4.4B/year (₦1.5T/year) for Nigerian homes and businesses.
The Rural Electrification Agency (REA) which was established through the EPSRA has been a keen driver for the off-grid sector. Through its 2016 Rural Electrification Strategy and Implementation Plan (RESIP), it has been at the forefront of coordinating funding and implementation of rural electrification expansion in Nigeria. Indeed the World Bank and the African Development Bank are working with the Federal Government through the REA on the Nigeria Electrification Project (NEP) providing $350 million and $200 million respectively for this program.
One key regulation that has boosted the off-grid energy sector is the Regulation for Mini-Grids 2016 which provides the framework for the registration and operations of mini-grids in Nigeria to promote off-grid energy generation and distribution in Nigeria. It has been said to be one of the best and is now a benchmark across the African continent.
Very recently, the Economic Sustainability Plan by the Economic Sustainability Committee (ESC) led by the Vice President of Nigeria brought some excitement into the off-grid solar industry. It highlighted the solar connection Scheme by the Federal government with the objective of expanding energy access to 25 million individuals (5 million new connections) through the provision of solar home systems (SHS) or connection to a mini grid; increasing local content in the off-grid solar value chain and facilitating the growth of the local manufacturing industry; and incentivizing the creation of 250,000 new jobs in the energy sector.
To drive this forward, the Central Bank of Nigeria in September 2020 issued the guides for the $2 Billion Solar Connection Intervention Facility which complements the Federal government’s Solar Connection Scheme through the provision of long-term low interest credit facilities.
The drive to achieve access to sustainable electricity for all has required that we look to past programmes and see how to build and improve upon them for a sustainable future.
It is clear that for the future of energy in Nigeria and Africa to be sustainable, it will require a number of elements to work in alignment – excellent implementation of existing policies and programmes, integrated planned to ensure alignment between energy demand, supply and the development of required energy assets, innovative financing and capable developers.
We are hopeful that through strong collaborations and innovation, by 2040, Nigeria would have recorded some progress in energizing our industries, lighting up our homes, schools and hospitals, reducing the dependency on diesel generators, increasing the competitiveness of our businesses through sustainable energy, emancipating ourselves from depending on imported fuel, creating new jobs, and eventually taking millions of people out of poverty.
About the author:
Name: Ujunwa Ojemeni
Title: Energy & Development Finance Executive
Ujunwa Ojemeni is an energy expert, a development finance executive and gender inclusion advocate in the energy sector with an aim to help Africa achieve SDG 7 by 2030.
At the Office of the Honourable Commissioner for Energy & Mineral Resources Lagos State, she drives policies, investments opportunities and implementation strategies to deliver reliable energy to the citizens of the State. She is also an Advisor with the Private Finance Advisory Network (PFAN) and has coordinated several gas and power development opportunities as well as energy funds worth over $400 Million. She was selected as one of 60 young African Clean Energy Leaders by Enel Foundation, and a finalist at the IFC Sustainability Exchange Youth Innovation Contest in 2019.
Ujunwa is the founder of African Women in Energy Development Initiative (AWEDI Network). She has spoken on several regional and international platforms including: MIT Solve 2020, ECOWAS Sustainable Energy Forum in Accra, West Africa Power and Energy Cooperation Conference in Dakar. Her articles have been published both locally and internationally by Forbes, Devex and Business Day.
She holds a Master’s degree in International Development – Development Finance and a first-class degree in Banking and Finance from the University of Nigeria, Nsukka.
