Lack of political will drags Nigeria’s energy gains in 2021

The year 2021 was predicted to herald a return to normalcy marked by oil price recovery, accelerated push towards energy transition and bold reforms that will transform Nigeria’s floundering oil sector, but the absence of political will rained on planned reforms.

In 2021, the Nigerian government enacted a new oil sector law, restarted bid rounds for marginal oil fields after an 18-year hiatus, bumped up electricity tariffs, ordered a decade of gas and shepherded new, smaller refineries on stream but a large chunk of these feats were not fully implemented.

It was also the year Nigeria confronted headlong the reality of its perverse petrol subsidy regime, but the Buhari-led government could not muster enough courage to end it.

The oil sector, reeling from lockdowns to restrain a rampaging pathogen, witnessed contraction for six straight quarters, the most recent being by 10.73 percent in the third quarter of 2021, according to data by the National Bureau of Statistics (NBS), but oil still accounts for the bulk of Nigeria’s exports.

Analysts say the most consequential event in the sector this year was the passage of the Petroleum Industry Bill into law (now Petroleum Industry Act) after a 20-year wait. “It brought certainty and investors can evaluate its impacts on the existing and future investments,” notes Chiwendu Enechi, associate director, oil, gas and power at Anderson.

Ayodele Oni, energy lawyer and partner at Bloomfield law firm, says the PIA while allowing for some certainty for investors, “has been quite controversial but overall, a very good step considering the age of the Petroleum Act and its inadequacy in modern times.”

The PIA set new fiscal and regulatory terms, revamped the structure of the state-oil firm, created new rules for administering the sector but failed to acknowledge the reality of energy transition and did not fix gas pricing hurdles to investments.

The PIA also provided that 30 percent of Nigerian National Petroleum Corporation’s (NNPC) profits would fund exploration in frontier basins, allocated 3 percent of oil companies’ capital expenditure to host communities and demolished government structures that aided subsidies. The government it seemed have been walking back the policy pushing deadlines for implementation up to year.

Read also: Seven takeaways from Seplat Energy’s 9-month results

Local oil firms such as A.A Rano, Petrogas, among others, were awarded marginal oil fields in the first bid round since 2003. The process started in June last year, when over 600 companies applied for 57 marginal fields that span across land, swamp and offshore areas. Unlike previous rounds, gas was the priority rather than oil, this time around.

However, the bids were not without wrinkles. Some bidders were unable to raise the financing to pay the pricey signature bonus, which ranges from $5 million to $20 million. Also, the erstwhile regulator, the Department of Petroleum Resources, revoked and re-awarded some undeveloped fields previously awarded leading to legal suits. The government had planned to raise $500 million from the project; available evidence indicates it did not come close.

In 2021, the world’s biggest single-train refinery being built by Africa’s richest man, Aliko Dangote, inched closer to completion. The Federal Government also awarded contracts to rehabilitate Kaduna, Warri and Port Harcourt refineries at a cost of $2.9 billion.

According to Timipre Sylva, minister of state for petroleum resources, the logic is to revamp the refineries to make them attractive to investors who would operate them for a fee. While the move is to appease labour groups who insist on the creaking refineries working before subsidy is removed, it is yet to be seen if this would work.

Nigeria declared a decade of gas in January and six months later reported that its proven natural gas reserves have risen to 206.53 Trillion Cubic Feet (tcf) up from 203.16 tcf. The Federal Government’s gas expansion programme spurred investors into the space and saw a flurry of deals, including NLNG gas supply agreement with three local power firms in June.

In 2021, petrol subsidies became a national nightmare when the NNPC said it could no longer fund FAAC allocations to meet up with the rising payment. Oil smugglers had a free rein when petrol consumption rose to 100 million litres per day and subsidy bill surpassed $250 million monthly. The government proposed paying 40 million poor people N5,000 monthly to convince labour groups not to shut down the economy when it removes the policy next year.

Rising oil prices have forced OPEC and its allies to impose an output cap since 2016, and this was maintained in 2021. Nigeria’s new quota is 1.683 million bpd for January, but it has struggled to meet previous lower quotas in 2021.

In the downstream sector, tanker drivers and oil workers delivered their regular strike threats in reaction to government policies. Cooking gas prices went through the roof as natural gas prices rose in Europe and the Nigerian government introduced VAT for the commodity.

Some key deals were announced, including the acquisition of majority shares in Eterna plc by Rainoil and the recent purchase of Enyo by Ardova after it rebranded from Forte Oil in February.

This same year, the NNPC published its audited financial statements which showed how the corporation manicured its book to arrive at a N287 billion profit. Heirs Holdings expanded its oil and gas portfolio with the acquisition of 45 percent of OML 17 from Shell Nigeria in January. Shell and other IOCs began talks to sell-off their onshore and shallow water assets.

In November, an oil spill at the Santa Barbara oil field, OML 29, located in Nembe Local Government Area of Bayelsa State attracted global attention. Earlier in February, a Dutch Court in the Hague had found Shell liable for spills in Nigeria.

Power sector challenges continue

In the power sector, old troubles persisted with the power grid collapsing half a dozen times. The Federal Government/Siemens project that aims to modernise the creaking grid to reduce losses commenced in 2021, and the power sector regulator, the Nigerian Electricity Regulatory Commission (NERC), tried to consolidate on the gains of an earlier increase in 2020 but ran into an impasse with labour leaders.

The government then promised Nigerians 6 million free meters, which only complicated the Meter Asset Programme aimed at delivering meters to customers by third party investors. However, in February, the World Bank approved $500 million to support Nigeria in improving operations of electricity distribution companies (DisCos).

The lacklustre minister, Sale Mamman, was fired and Muazu Sambo was nominated in his stead. A glimmer of hope rose for the $5.8 billion Mambilla project when Sunrise Power Transmission Company agreed to out-of-court settlement for the billion dollar contract breach suit it filed at the International Court of Arbitration in France against the Federal Government.

Following the re-award of the contract to Chinese firm Sinohydro Corporation Limited, Sunrise Power filed breach of contract claims seeking $2.354 billion.

The Lagos State government draw up plans for its own power market, an autonomous regulatory agency that will license participants to undertake market monitoring and ensure that prices charged by market participants are cost-reflective and fair to end-users.

The renewable energy space saw a flurry of new investments from private investors and multilateral organisations. All On, Odyssey Energy Solutions and the recently launched Global Alliance for People and Planet (The Alliance), a global aggregated procurement programme for renewable energy companies, supported by a $10 million Financing Facility in Nigeria.

Many early stage entrepreneurs received millions of naira worth of investments by All On, Bank of Industry, the Rural Electrification Agencies and the African Development Bank, and some federal universities were powered by solar from the proceeds of Nigeria’s green bonds.