In the Nigerian ecosystem, there are no strangers to the ups and downs of the energy sector. In this interview with Ola Alokolaro, a thought leader in Energy law and Senior Partner, ADVOCAAT Law Practice, Onyinyechi Ukegbu, Head, Legal Business, discusses fuel prices post-subsidy, the future of Nigerian gas and which presidential candidate has the best energy sector plan. Here are excerpts…
Which presidential candidate do you think has the most feasible plan for Nigeria’s energy sector in the coming term?
Whoever emerges as president post February 27th has a huge burden of expectation of Nigerians, particularly in this difficult economic period. The President and Commander-in-Chief will have to first and foremost appoint advisers with in-depth knowledge of energy policy and planning, economics and law to undertake within a very short period an assessment of all energy-related policies and ongoing projects with a view to integrating all for the purposes of implementation cohesion and rapid roll-out of critical infrastructure, particularly gas infrastructure. This core team would work with the MDAs to ensure that all projects are conducted in line with appropriate procurement and public-private partnerships.
One of Obi’s three-pronged strategies to tackle the teeming inefficiencies of the energy sector is to build a green army to identify opportunities to tap into the $3 trillion international climate financing. How much do you think we need and what would you expect Obi’s next steps to be with the financing we may receive?
This is a laudable and noble vision. However, it is important for us to be realistic and move beyond mere rhetoric. The global financial markets are struggling, and the promoters of climate financing will find it difficult to make the funds available to Nigeria within the 4-year tenure of any president emerging from the 2023 elections. I believe the intrinsic focus for any incoming administration is how to harness and rapidly develop our gas resources both for domestic utilization and export. To source the finance to do this, we must not only look to our traditional trading partners but look to other Asian markets and the African market for some of this funding.
The highest reported number of oil barrels per day was 2, 533,000 in 2010. As of last year, Nigeria produced 1.6 million bpd. How soon do you think Nigeria can achieve 4 million barrels a day?
When you look at the fact that we are only producing 2% of our reserves annually and you juxtapose that with the reluctance of the global financial institutions to finance crude oil development, you will see that attaining 4m barrels per day is not on the horizon and we are ultimately not in a position to maximize the resource. I believe with the ongoing implementation of the PIA – marginal field bid rounds and the proposed mini bid round we are taking steps in the right direction. I would however prefer to see more consolidations in terms of mergers and acquisitions of indigenous E&P companies that are financially healthy and technically sound to take advantage of the underdevelopment of our reserves. With the introduction of these super E&Ps, we can have to introduce more bid rounds for rapid maximization, particularly for domestic use.
Where do you see mergers and acquisitions in the sector?
Given the paucity of funds for crude oil development, as I stated earlier to be able to access the scarce financial resources available there will be a need for mergers of indigenous E&P companies, particularly for the purposes of acquiring and enhancing development from divested assets from the IOCs. The technical and financial capacity in terms of a robust management team with varied experience and the requisite balance sheet will serve the industry well. It will be interesting to see who the leaders of the industry will be in this regard.
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Atiku, in his outline for the energy sector, stated that he would propose the removal of the entire electricity value chain from the exclusive list and give states the power to generate, transmit and distribute electricity for themselves. What are your thoughts on this?
I am not sure this is an issue as some of these items are already on the concurrent list and states can legislate to undertake these activities; some states have taken steps to pass their own electricity laws in anticipation of a state electricity market. That said, if we are indeed to embark on the rapid industrialization of this country, the most important tool required is electricity. We have already created an electricity market on the national level with private generating companies generating electricity from different sources of energy across the country and distribution companies operating in various franchising zones across the country. We must therefore be careful how we further delineate the market to the state level so as not to negatively impact existing investments. A useful starting point however would be the unbundling and restructuring of the Transmission Company of Nigeria and its eventual privatization. If this is done correctly and efficiently, it may serve as the platform upon which state markets can be created. Such state markets can utilize energy sources peculiar to their terrains such as hydro and solar in the north and gas in the south and those with the requisite minerals could also develop and complement their energy sources with battery storage. This would guarantee the states’ security of supply. Having said all this, the mere devolution of powers to generate and distribute electricity to states will not necessarily bring about the stable electricity supply that Nigerians need. The are other attendant issues such as effective regulation, gas supply constraints, gas pricing, electricity pricing and lack of investment in distribution infrastructure that contribute to the current unreliable power supply and need to be addressed.
Last year, David Ige, Immediate past Group Executive Director– Gas & Power, at the Nigerian National Petroleum Corporation (NNPC) between 2011-2015 was quoted as saying, “that the Nigeria Gas Masterplan is a policy document, not an implementation document”. Does this mean that Nigeria currently has no implementation plan?
There are implementation plans and the Petroleum Industry Act which is to give teeth to the policy document has now been passed and is being rapidly implemented. The Act specifically provides for the creation of a gas market by designating the regulator, participants and licensing requirements, applicable fees, rules such as third party and non-discriminatory access to infrastructure domestication of gas and gas pricing. The Act also recognizes the creation of the Midstream Gas Infrastructure Fund. With these elements and once the necessary regulations are gazetted, the coast should be clear for the full implementation of the gas masterplan. With our current economic plight though, we may need to fast-track and implement certain tasks concurrently.
What is your assessment of the status quo in Nigeria vis-a-vis the Gas Masterplan? Where should we be? What should be our next steps?
Well without the necessary laws in place, we would be putting the cart before the horse. It is unfortunate that the PIA took 20 years before it was passed into law as we have lost a lot of ground. If we had moved faster, not only would we have created a robust domestic and regional gas market, we would have been in a position to economically benefit from the ongoing Russo-Ukraine war. All is however not lost provided that the incoming administration is focused and dedicated to having Nigeria have its pride of place as a gas-producing nation. Note that I said gas-producing and not oil-producing!
There is a shortage of gas across European markets and Europe is looking for ways to meet the shortfall. Unfortunately, Nigeria, so far, has yet to position itself as a source. In your estimation, can we increase LNG to meet demands? How?
Well, if you recall I stated that we are only producing 2% of our crude reserves which means a lot of the associated gas that we could be producing and utilizing either domestically or for export is not being produced thereby reducing our revenue. Secondly, for us to develop some of our Non-Associated Gas assets there must be a long-term firm commitment from off-takers and recently representatives of the EU were in Nigeria looking to secure alternative supplies to that from Russia. We must, however, bear in mind that the war in Europe will end at some time and Russian gas supplies will resume so we need to review our gas export marketing strategy and identify new LNG markets such as India and more particularly other African countries such as South Africa
While the passing of the PIA is still lauded by stakeholders, many say that they have not seen the multiplier effect it was expected to have on the economy – Is it a matter of implementation or was it passed too late in the day?
It is a bit of both. Firstly, it took too long to the extent that we were not prepared to take advantage of the present opportunities. Secondly, some of those who held back on FIDs on major projects are still waiting on the regulatory authorities for the full implementation of the Act. There are ongoing stakeholder consultations with respect to critical regulations which will impact investment decisions. Once the necessary regulations and guidelines are in place, we should begin to see the multiplier effect in terms of new investments and swift execution of delayed projects.
The current fuel scarcity in Nigeria is appalling, going on for as long as a year in some parts of the country. However, in general, we have fuel scarcity issues in Nigeria at least twice a year. Is there a long-term solution?
There is only one inevitable long-term solution which is the full deregulation of the downstream petroleum sector. The current subsidization of the sector is unsustainable, and we are merely ploughing funds that we could use for education to bridge the skills gap that is widening in the sector to fund the artificial pricing of petroleum products.
Today, reports of fuel prices in Nigeria range from N185 to N1,000. One of the mainstays of subsidy removal is that the sale price of PMS will reflect the market rates. Seeing how Nigerians react to this price hike, how do you think the authorities should prepare to handle this?
Well, if, as you say, people are already paying N1,000 which is contrary to the pricing policy of the government, it is indicative that they are able to absorb the true market price. That said any removal of subsidy must be gradual and the regulator must ensure adequate supply and adherence to pricing regulations by the marketers.
The energy sector remains high on the list for investors today and in the foreseeable future. Where do you see more investments coming in the sector in Nigeria?
With the introduction of the PIA, there is now more certainty for investors as to the rules guiding their investments. The entire value chain from upstream oil and gas production (just concluded the marginal fields bid round and about to embark on the mini bid round) to midstream processing and transportation (the LNG Train 7, FLNG project Nigeria Gas Flare Commercialisation auction taking place and the proposed PPP for crude oil pipelines across the country) and downstream refining (Dangote refinery about to come on stream), we are seeing major investments. Once the elections are over and there are no issues with political risk, we are bound to see an influx of investments in the sector.
How should we prepare as a nation by legislation and by profession as lawyers for the threats and opportunities that you see?
As a nation, we must understand the importance of swift implementation of our various laws and how these impact investments and income to the country and as lawyers, we must encourage continuous education, particularly in novel areas such as climate financing and carbon trading as these are areas of opportunities in the not too distant future.
