Gas, electricity hub: Nigeria’s dream, Egypt’s reality

Eight years ago, the Egyptian government, burdened by electricity and petrol subsidies, could not pay gas companies as frequent power cuts paralysed cities.

The prime minister advised people to conserve energy by congregating in small rooms and wearing cotton clothes. A summer of rage, which culminated in massive protests, toppled his government.

All that is in the rear-view today because the North African country is a short crawl away from becoming a regional energy hub, exporting its excess production of natural gas and electricity to neighbouring countries.

This is everything Nigeria wants to be in West Africa, but an inability to wean itself off petrol and electricity subsidies, coupled with a derelict government animated by corruption and inefficiency, continues to rain on its parade.

Last year, Egypt with 100.4 million people ramped up power production capacity to 54,000mw, with about 24,000mw of excess power production during the winter season and 15,000mw during the summer.

Natural-gas production in Egypt has risen to an estimated 7 billion cubic feet per day as of September 2019, compared to 6.8 billion during the 2018-19 fiscal year, which ended in June, 5.6 billion in 2017-18, and 4.5 billion in the previous fiscal year. Egyptian production of renewable energy has grown to 7,000mw, providing more than 20 percent of consumption needs. Its investment in renewable energy reached about $8 billion as of 2019.

Even by global standards, this is a feat. An analysis of this growth reveals that to drive reform, a country’s leader needs to be courageous and competent, assemble a capable team, communicate reforms clearly and stick to a long-term growth plan.

Egypt’s energy reform began one year after Nigeria started the power sector reform programme of 2013. But Egypt has risen electricity generation from less than 30,000mw to 54,000mw, while grid-connected power in Nigeria has hovered around 4,000mw roughly the same size nearly eight years ago.

Egypt’s success began with President Abdel-Fattah al-Sisi in 2014 convincing his cabinet to prioritise power generation, pay off its debts, float the currency and remove wasteful subsidies.

The government swallowed some bitter pills when it began repaying arrears to foreign gas-exploration companies. These arrears had accumulated after the 2011 uprising that toppled President Hosni Mubarak and rose to $6.3 billion in the 2012 fiscal year.

Though the country’s fiscal plans took a beating, it stayed the course and by 2019 these arrears have fallen to $900 million.

“We reduced dues to foreign partners by more than 80 percent, which contributed to restoring confidence and has reflected positively on increasing investments by our current partners and the entry of new investors,” Tarek el-Molla, the petroleum minister, said during an oil forum in Cairo in February.

In contrast, Nigeria’s cash call arrears to international oil companies (IOCs) has lagged. Nigeria announced exit from cash call arrears in January 2017, a debt burden that rose to $6.7 billion according to NNPC data, by reaching an agreement with IOCs to trim down the amount to $5.1 billion knocking off $1.6 billion. By the terms of the agreement, Nigeria was to repay the balance in five years.

Four years later, Nigeria has only paid $1.5 billion even after the initial $5.1 billion has been further trimmed down to $4.6 billion.

The net effect of this along with poor fiscal, regulatory, and production challenges including insecurity is that investment dollars fly to other climes.

Government officials say the fall in oil prices limits what they can do but analysts say Nigeria is not only spending more but spending wrongly.

“Personal and overhead accounts for about 70-75 percent of our budget estimate and the remaining 25-30 percent goes into the capital expenditure; this shows that the cost of governance in Nigeria is very high across the three tiers of government,” Moses Ojo, chief economist at PanAfrican Capital Holdings Limited, told BusinessDay.

Unlike Nigeria’s confused petrol subsidy policy, Egypt embarked upon a phased removal of subsidies and in the last three years has dropped by more than 65 percent, as part of an IMF-backed economic reform programme.

Egypt not only has become self-sufficient in energy production, it has embarked on several projects connecting the electricity grids of Arab, African, and European countries. It currently has electricity interconnection projects with Sudan, Jordan and Libya. The project with Sudan is in its first phase with a capacity of 70mw out of a total capacity of 300mw.

It is electrically connected with neighbouring countries in the East with Jordan, with a project having a capacity of 200mw and a study under way to raise this to 400mw, and in the West with Libya, with a capacity of 100mw and studies being conducted to raise this capacity also.

Egypt and Saudi Arabia this year will start an electricity interconnection project with a total capacity of 3,000mw. It will allow Egypt to establish energy links with the Gulf countries and Asia.

Analysts say Nigeria’s energy reforms have been slow, lethargic and uninspiring in a world racing away from oil. A child born when the PIB was first discussed two decades ago has completed his first degree.

Nigeria’s oil buyers have become its fiercest competitors, its key markets are betting on green energy as concerns about climate change steer the world away from fossil fuels.

Yet oil rent clouds policy-making and debates about how to share revenue take precedence over the hunt for new investments.

While gas development has progressed in Nigeria, poor pricing policy reins in its growth even as Egypt has shown what is possible when sensible market policies are applied.