From all indications, gas flaring is a major challenge in Nigeria, a leading African petroleum producer. However, in this interview with Eyo Nsima, Lead Promoter, EnergyHub, Nigeria, Dr. Felix Amieyeofori, speaks on a wide range of issues, including the causes and options for tacking it.
In your opinion, what reasons account for the continued flaring of gas in Nigeria?
Nigeria will continue to flare gas until it provides the right incentives for investment in the gas business. Another problem is that the Federal Government is also not relying on revenue from gas. Gas has not become a sustainable economic product for the country. It over-depends on oil. In addition, until the government wakes up to this reality and enforce the zero flare programme that started since 1984, it would be paying a lip service to gas development. Oil companies will continue to flare associated gas as stopping gas flare would mean shutting in the associated oil wells and reservoirs. Therefore, it is a catch 22 situation.
How has the flaring affected the nation’s economy?
Based on the data on Gas Tracker by NOSDRA, the country flared about 225 billion Cubic feet, BCF of gas as at July 2020, which is a colossal loss of revenue. This is besides its devastating effect on the ecosystem.
What other measures can be taken to stop gas flaring?
The flare gas commercialisation which started since December 2016, must be pursued vigorously. It should not die like other previous programmes. Though there are now penalties since July 2018 labelled as “Flare payment,” where companies that produce about 10,000 bopd or more are fined $2 per 1000 scf of gas, while those that produce less than 10,000 bopd will be fined $0.5 per 1000 scf of gas flare.
The major challenge here is that unless the government truly pursue the flare commercialisation project that will take out the gas, most oil companies cannot sustain such flare penalties, especially under the current global crude oil market uncertainties. I also do not see how the government can sanction the erring companies for gas flare in the face of dwindling oil revenues.
How will the AKK Gas Pipeline Project impact on gas flaring?
We should laud the Federal Government for the award of the 40 inch x 614 km AKK gas pipeline, which is a part of the Trans African Gas Pipeline project that would run from Nigeria to Morocco, especially as it would enable us to export gas to Europe.
Besides, AKK gas pipeline will provide enormous industrialisation and economic development in the northern part of Nigeria. The Federal Government must commit itself to completing this pipeline on record time. The government should also be commended for kick starting work on the NLNG Train 7 in May this year, which is expected to be on stream in 2025.
When completed, the train 7 will increase the existing installed capacity of the train 6 from 22 million tonnes per annum to 30 million tonnes per annum. This will be a significant incentive for gas supply to NLNG when it is completed. Technically, we should see less gas flare in Nigeria.
Can Nigeria still meet its flare out timeline or target?
It is unlikely, as 2020 is already a few months to its end. However, the country can actually see a near zero routine gas flare by the 2030 World Bank Programme of Stopping Routine Gas Flare. That is another five years and hopefully, most of these projects; especially the gas flare commercialisation would be completed.
What advice do you have for producers, users, regulators and other stakeholders?
The major advice at this point is to encourage the government not to politicise projects targeted at ending gas flaring in the country. The present and future administrations should be committed to pursuing them.
They should support or encourage the producing companies to utilise cost effective technologies that will accelerate commercialisation of our gas. Finally，the government should work towards reviewing the domestic gas pricing so as to increase gas penetration in the country.
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To understand the present and prepare for the future, it is important that we critically look at the past. Our last week’s narrative helps foreground the role of the NNPC in the Nigerian economy and its relationship with International Oil and Gas Companies (IOCs) through Joint Venture Agreements (JV). We’ve seen how the corporation evolved from just overseeing oil operations while playing merchant and sector regulator to actually participating as a real oil company.
This week, we will look at how it manages the industry’s resources as it delivers what it says in its mission statement which is about “adding value to the nation’s hydrocarbon resources for the benefit of all Nigerians and other stakeholders.”
A Tortuous Past?
It’s easy to point out the shortcomings of the Nigerian oil-rich economy and lay blames on its custodian, the NNPC. The NNPC remains nothing but a government-owned oil company. Hence, it is important that we examine the relationship between the NNPC and the government that holds it accountable. Notably, the NNPC plays the gatekeeper of Nigeria’s major economic resource on behalf of the federation.
Consequently, it’s crucial that we do a little background check. Inefficiencies, mismanagement crises, and military leadership have plagued the NNPC right from its ancestry. Its predecessors, the Ministry of Mines and Power, and the Nigerian National Oil Company (NNOC) have also made some management decisions that would have karmic tendencies on today’s NNPC. it should be remembered that the Ministry of Mines and Power, and the Nigerian National Oil Company (NNOC) were the entities that merged to form what is now known as the NNPC.
From the 50s to the 60s, the Nigerian oil industry through the NNOC was not making significant domestic input because it was still lorded over by IOCs like Shell. Its operations were run by a permanent Secretary of the Ministry of Mines and Power, the influential Philip Asiodu, whose credentials had no petroleum background. Asiodu was handpicked by the Yakubu Gowon military dictatorship (1966-1975).
According to observers, the autocratic style in which Asiodu and his boss ran the oil industry didn’t position it for much growth. Despite the nation being an OPEC member, the Ministry of Power and Mines had an overwhelming influence on the oil industry, including the outcome of crude oil prices.
Hereafter, we see that in a more different, although previous timeline that the Nigerian oil industry under the defunct NNOC still suffered from a persisting ailment of same mismanagement and system deficiencies. Another military leadership led by the late Gen. Muritala Muhammed would sack Gowon’s regime, and set up a panel to review the cataclysmic situation of the oil and gas sector, and then create a Ministry of Petroleum. According to the panel, the Nigerian petroleum resource was a wasteful mess. Political interference from the ministry and the civil service undermined the performance of the NNOC. The panel would recommend structural reviews suggesting the NNOC functioned without a board member from the ministry.
Upon the assassination of Muritala Muhammed, General Olusegun Obasanjo succeeded him and create the Nigerian National Petroleum Corporation (NNPC) from the Ministry of Petroleum Resources, the Department of Petroleum Resources (DPR) and the NNOC in 1977. For the first time, the NNPC had the opportunity to transform the Nigerian economy with all the powers it had absorbed from ministry, regulator, and company. Nothing was stopping it this time. The current president of Nigeria, Muhammad Buhari was its first chairman.
Unfortunately, heavy allegations of fraud and mismanagement threatened its existence up to the civilian rule of Shehu Shagari (1979=83). Over $4 billion was unaccounted for. The Shagari administration set up a tribunal to investigate the scandal. Shehu Shagari was more than motivated to dissolve the then corporate leadership of the NNPC. The corporation’s jurisdiction suffered heavily from the repercussions of mismanagement, impunity, and negligence.
Standing agreements with IOCs were left unattended as no systems were put in place to check their operations. They in turn acted out their excesses in all manners that also questioned their corporate status in host oil communities, raising serious questions on their corporate social responsibilities and environmental obligations. This would escalate into severe conflict in the Niger Delta region, a constant nightmare, the Nigerian oil industry still confronts, to date.
As of 1980, the NNPC still had accountability allegations which were of apocalyptic proportions. As Shagari’s tribunal and later findings would discover, there were no accounting systems in place to reconcile oil sales and production records. Yet, the civilian government made no further attempts to demand accountability from the forces that governed the NNPC, custodian of the oil and gas sector at that time.
In a dramatic turn of events, General Muhammad Buhari (1983-1985) would sack the Shehu Shagari government and launch an aggressive national campaign for discipline and order. He pulled out the Ministry of Petroleum Resources from the NNPC. But the NNPC still retained its indefinite jurisdiction, playing the same merchant and regulator. In the coup of 1985, Babaginda’s military regime sacked Buhari and a full restructuring of the NNPC began.
Restructuring the NNPC
The regime created five sectors from the NNPC, the Oil and Gas, Pipelines and Products Marketing, Refineries and Petrochemicals, and the Petroleum Inspectorate. The corporation’s infamy for wastage and mismanagement motivated the regime’s attempt to commercialize it in 1988. It inspired the NNPC’s major stakeholding in the Nigerian Liquefied Natural Gas Company (NLNG). The corporation also became a holding company, with twelve subsidiaries handling its several affairs.
This same regime saw that the corporation was managed by an individual who wasn’t in the ministry. The privatization and indigenization campaigns of the Babaginda regime helped the upstream sector flourish. However, corruption was still the menacing evil the regime left unchecked. Several petroleum scandals were pulling the sector meters deep into regression.
In attempts to fulfill his promise of handing over to a civilian government, the Babaginda regime set up an interim government in 1993 led by Ernest Shonekan to aid the power transfer. Although, he launched his own anti-corruption campaign and began uncovering several shady deals that will prompt his Petroleum Minister, Don Etiebet to sack the entire leadership and management team of the then NNPC.
Ultimately, the General Sani Abacha regime’s intrusion came in 1993-98 and disrupted the planned transition to civilian rule. His regime restored the old system similar to Philip Asiodu’s template, where the ministry interfered in the affairs of the corporation. But Abacha’s team excelled in creating the Petroleum Trust Fund (PTF). It was an intervention fund derived from the gains of refined petroleum product prices. The fund went to infrastructural development and rehabilitation.
The Abdulsalami Abubakar regime (1998-1999) would remove the Department of Petroleum Resources and replace it with the Office of the Special Adviser of Petroleum Resources.
In 1999, Olusegun Obasanjo’s election as civilian president ushered in new reforms to whatever was left of the military-ridden systems. Its joint participation as a partner with the IOCs is best underscored by the reforming energy sector programmes of the Olusegun Obasanjo administration (1999-2007).
In the administration’s agenda, the focus was to reposition the oil and gas sector to be an active driver of economic progress and development. In this suggested role, the corporation would be more than just a foreign exchange earner of oil-centric exports. The corporation would actively involve itself in actual oil production, exploration, and other revenue-yielding operations as a Joint Operator with the IOCs. However, this vision didn’t seem to have materialized. The NNPC still largely remains a foreign exchange earner.
The Obasanjo reforms sought to rebrand and prepare the oil and gas sector, through the NNPC, for actual economic performance and public accountability. The corporation would adopt a robust corporate culture and a responsibly transparent leadership structure that published its operational and transactional data as and when due. For example, the Ministers of Petroleum and Energy oversee the board of the NNPC and the affairs of the industry. On the other hand, the NNPC maintains a deep corporate structure with a Board of directors, General Managing Directors, and Group Executive Directors.
All structural units in the above examples were created to manage the Federation’s interest in all sectors of Nigeria’s petroleum and energy industries. The sole aim was to drive economic progress by properly managing her oil-rich sector.
NNPC, other NOCs and the rest of the World
Interestingly, the performance of NOCs in other oil-producing countries like Brazil, Malaysia, and Venezuela easily outshine whatever the NNPC has on its emblem. It should be noted that these nations benefited from the OPEC move to make the oil industries of its oil-producing members independent of IOC control. For instance, one of them, the Brazillian NOC Petrobras, which is listed on the New York Stock Exchange, was recently among the Fortune 500 companies with over $70 billion revenue as of 2019.
Unfortunately, this same performance remains imaginary for the NNPC in Africa, despite being the official national oil company of Nigeria, Africa’s largest oil producer. Angola’s NOC Sonangol founded in 1976, a year before the NNPC, reports $17 billion as its revenue for 2018. These examples betray the NNPC’s competence and its management of Nigeria’s oil and gas industry, a sector with a domino effect on Nigeria’s oil-dependent economy. In the wake of eco-criticism of fossil fuels, most of these NOCs have boldly stepped out of their petroleum boundaries to take on projects in biofuel, and futuristic energy forms.
Conclusively, one can see the many flaws that mar Nigeria’s oil and gas industry, and the integrity of her manager, the NNPC. There is the debilitating effect of corruption, the political instability that stall policies, and the strong disregard for law and its retribution, which has created a big hole in the nation’s oil industry. These deficiencies have limited the impact of the enormous oil wealth on her population.
Now, the talks for a Petroleum Industry Governance Bill cast the industry in a new light. Hopefully, if passed, the bill will bring respite to the Nigerian oil and gas industry where it intends to trigger growth, sectoral transformation, and prosperity. It hopes to internationalize the Nigerian oil and gas industry and bring it on a competitive par with other top oil industries.
As an EnergyHub customer, you may have come across numerous articles talking about cryptocurrencies being the next big thing. As we’ve learnt over time, global trends have a way of finding their way into the discussion of energy and propelling marketing forces. Therefore, it is essential that we project the realities of the outside world into our discussions as they are influential indicators of progress and development in any industry. For all the fuss it is worth, this article will look at what the digital currency “cryptocurrency” entails, its prospects, in a digital future that starts today.
The thought of a global village might seem utopian in the past. But with digital transformation gaining momentum, connecting the world has been just one of the numerous feats of today’s human civilization. We have seen how the internet alongside its digital tools can empower us, drive our business operations, economy, and society. Now, it seems to be nearing the cutting edge of finance, and banking. So what promise does it hold for man and his money?
In 2019, Facebook gathered the biggest tech alliance of Uber, Paypal, Visa, Spotify, etc to launch “a new global money” Facebook ‘s cryptocurrency called Libra. Mark Zuckerberg gave one million reasons why cryptocurrency will affect the future of business. With the emergence of technology and the success of fintech companies, our tech decisions may begin to affect our market choices, our politics, our business, and the value of our money.
We are nearing an era where businesses would not just care about their account balances but also the kind of banking systems and technologies that manage their finance and transactions. You may wonder why several parliaments in Europe and America are trying to regulate the behaviours of many tech companies from Google to Facebook.
Today, the following realities drive the current technologies of our finance systems:
Our payment systems are getting old. It used to be cash. Now, cards may be cards going too.
The current process of banking and stock brokerage might be slowing down transaction speed but can be faster and less expensive.
Banking services like loans and other financial services are still inaccessible to about 3billion persons globally.
There is still a major global financial crisis.
Our Nigerian economy and the future of our SMEs depend on these existing systems to thrive.
Do these issues call for a better way of managing finance? With the adoption of cryptocurrency by China, Ecuador and Senegal, there may be a cryptocurrency revolution in the works. Yet, there is no doubt that a world-wide and fair financial system will favour the explosive growth of businesses, boost scalability, and even fast-track access to capital resources and credit.
What can Cryptocurrency offer the world?
For newbies, cryptocurrency is a new type of digital money. One of its major selling points is the idea that we can perform daily transactions, maybe even access loans, buy and sell globally without needing cash, not even a connection or third-party approval from our banks.
This is only possible because of a decentralized (distributed) technology called a blockchain. No one has total control over it. Rather, every computer in the network is given the ability to verify and confirm transactions to avoid irregularities.
When social media giant Facebook announced its plan to launch its own cryptocurrency, Libra in 2019, there was a backlash. The announcement by Mark Zuckerberg triggered a worldwide controversy from governments and caused some supporters to back out of the ambitious project.
Major concerns include the location of the Libra HQ in Switzerland, the traditional systems the new project might break, security and privacy issues, its management of user data, and many other fears.
Why should we be concerned in Nigeria?
Zuckerberg strongly believes that cryptocurrency might be the inevitable future of money, capable of breaking barriers while bringing financial services closer to those who are unable to access banking services. It’s a year since Zuckerberg’s announcement and the trend seems to be going as predicted. Despite the criticism, countries are introducing their own national cryptocurrencies.
How would this play out for energy players? Would it be a win or should it pass?
Last week, we began a series on Nigeria’s unique national oil company known as the Nigerian National Petroleum Corporation (NNPC). We covered its historic background as the nation’s oil and gas unicorn. This week, we look at its role in Nigeria’s oil revenue reliant economy.
NNPC at the forefront of Nigeria’s economy
Over 90 percent of Nigeria’s export income is from oil. As of 2006, Nigeria received about $11 billion as revenue for 198 million barrels of crude export for the first quarter. Oil proceeds made up over 76 percent of her overall revenue and one-third of her GDP. In 2019, it reported $5 billion proceeds from the export of oil and gas.
From 2006 and now, the fourteen years of continual crude oil export has only ranked Nigeria as one of OPEC’s top exporters of crude oil. But the income has not translated to the socio-economic alleviation of her masses from abysmal poverty. As of 2019, the country currently occupies a dreadful position as the Poverty Capital of the World. The NNPC’s presence might seem alien in this economic evaluation. However, as a major custodian of the nation’s oil interests and major revenue vehicles, the NNPC’s position is paramount to the Nigerian economy.
For an oil-driven economy like Nigeria, oil is everything. Her fiscal policies are overly dependent on it, making the management of its oil sector very significant to either economic boom or recession. This is why all fingers point to the corridors of the NNPC when transparency and capability issues are raised in the oil sector. Most of the concerns are because of the corporation’s indefinite role in the sector. Through its many departments and subsidiaries, it is able to play an oil merchant, regulator, asset manager, and more.
For public affairs observers, this would only yield inefficiencies, continually shifting the focus of the corporation and causing it to underperform. Trends such as the Petroleum Industry Governance Bill bring more institutional and structural issues of the Nigerian oil sector to the forefront. The bill suggests the current governance structure of the petroleum sector alongside its ministry and national oil company (NNPC) all lack the proper statutory definitions to function optimally and internationalize the nation’s oil sector.
Although, the absence of corporate sovereignty in the NNPC makes it overly vulnerable to political interference. For example, Nigeria’s President and Executive Head, Muhammad Buhari currently doubles as the Minister of Petroleum. Although the intention may have been to promote synchrony in decision making and policy implementation, such presence might frustrate attempts at demanding accountability or the initiation of checks and balances by organs outside the executive organ of government.
A Jack of all Trade?
This is one question that pervades the governance of the petroleum sector. Is the corporation structured to perform efficiently? Current situations say the national oil company has a lot of weight tugging it back. The NNPC is still able to meet socio-economic obligations as well as fiscal ones like servicing the domestic petroleum consumptions, no matter the price. The monopoly the corporation drives, is also complemented by its ability to control supply and regulate market forces such as price. Similarly, as both sole importer and market governor, the corporation is able to absorb the financial risks of supply and retail prices using price recovery mechanisms.
This year alone, the NNPC disclosed that it spent N58 billion on fuel subsidy for the months February and March. Crude oil prices were incredibly low at this period due to the coronavirus crises. The corporation revealed that it kept battling with subsidizing the premium motor spirit (called petrol in Nigeria) because of the failed refineries. The three domestic refineries in the country were under rehabilitation and still unable to fully power domestic process crude oil locally. From January to March, the domestic refineries were still able to generate an income of N4 billion naira, expenditure of N33.55 billion and a trading deficit worth N29 billion.
Inevitably, these situations impact the corporation’s financial profile and its annual remittance to the Federation Account. With the culture of checks and balance absent, the management integrity of the corporation’s management is easily questioned.
Since 2017, the government has made concerted efforts to help the NNPC realise a sustainable funding mechanism. The corporation will be able to thrive on the revenues of its subsidiaries and rations of oil-generated revenues which it remits to the Federation. Again, clarity seems absent on its financial allocation. How much should it specifically deduct to foot its operational cost? An open cheque will only breed imprudence and raise further questions on resource management.
Behind the Curtain
Much of the corporation’s income comes from the daily allotment of crude which is about 44, 000 b/d. Through a JV (Joint Venture) partnership agreement with International Oil Companies (IOCs), the Nigerian government (through the NNPC) has been able to continue massive oil production projects in its oil rich regions. Categorically, the western IOCs have had a historic presence in Nigeria’s oil and gas space due to their affiliations with the colonial governments. As indicated last week, platforms like the OPEC would drive oil exporting countries like Nigeria to wrest control of their oil production bases from Western IOCs, and then oversee their oil production through the establishment of national oil companies in 1973. For Nigeria, the final outcome was NNPC.
The NNPC era (1977 till date) would prompt the need for new partnership agreements to continue oil production. Once again, the IOCs would be needed for their production expertise. For Nigeria, it involved revisiting production agreements with big names like Shell, Total, Chevron, Agip, Mobil, Texaco and Elf who will become long-coming partners of the NNPC. As of 2004, the IOCs had produced over eighty percent of Nigeria’s crude oil. The Obasanjo era would extend such production concessions to other non-western IOCs from China, Japan, India and Indonesia. The NNPC would continually contract more partnerships with these players in its upstream and downstream sectors. On the other hand, indigenous companies were also licensed and full proprietorship to produce and to solely bear the risks therein.
The joint venture (JV) production partnership agreements with IOCs were also unique instruments. To facilitate oil production, the partners, the Nigerian Federation (represented by the NNPC) and the IOC partners would make available investment capitals as indicated in the equities designated in the partnership agreements. As at 2006, the NNPC held around 55 percent stake of the upstream Joint venture operations. Hence, the NNPC was required to make the same percentage contribution in capital investment toward production. However, many emerging trends will affect the JV agreements and the nature of the contracts. Then, the NNPC would no longer be able to keep up with the investment funding. It was going broke because of investments. But the question was, what kind of investment crippled an oil rich NOC like the NNPC?
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In this series, we will take a critical look at the uniqueness of Nigeria’s National Oil Company – Nigerian National Petroleum Corporation (NNPC) and its evolution in the nation’s oil and gas space. We will examine its regulatory functions in the oil and gas industry, and the complexities of its relationship with Nigeria’s executive and legislative organs of government and more. It is also crucial that we closely evaluate its behaviour as it fulfills certain socio-economic obligations while driving production and exploration activities for Nigeria.
Nigeria benefitted from the 1970s revolt of the third world oil-producing countries against the IOCs. The oil producers were determined to have control over their oil assets, as against the prevalent situation where the IOCs dictated terms of their contracts and mining leases – often carryovers from colonial dominance. For instance, in the years before commercial oil discovery, the whole of Nigeria was one oil block assigned to Shell!
The drive to form national oil companies and wrest control from the IOCs was driven on the platform of the Organisation of Petroleum Exporting Countries. Nigeria attended her first OPEC meeting as an observer in 1971 through a delegation led by Chief Phillip Asiodu, who was Permanent Secretary in what was known as the Ministry of Energy.
In line with Nigeria’s compliance with the OPEC resolutions on indigenising the oil industries in member countries, Chief Asiodu led the formation of the Nigerian National Oil Corporation in 1973. At the same time, Chief Meshach Otokiti Feyide led the establishment of the Inspectorate Division of the Ministry of Energy, which later broke off to become the Ministry of Petroleum Resources. However, disputes over leadership of the NNOC, plus a protest from the staff of the ministry who felt cheated by the new salaries and welfare packages of the new National Oil Company led to the merger of the NNOC and the ministry by the military government in 1977. Chief Festus Marinho was appointed as the pioneer Managing Director of the resulting entity, which was renamed Nigerian National Petroleum Corporation.
On its official website, the NNPC defines itself as an “integrated Oil and Gas Company,” with a mission to “adding value to the nation’s hydrocarbon resources for the benefit of all Nigerians and other stakeholders.”
After the merger of 1977, the NNPC was tasked with the responsibility of representing the Nigerian government and managing her petroleum assets in collaboration with the operators, who were foreign petroleum multinationals. Through these joint ventures, the Nigerian government was able to power all petroleum exploration and production ventures.
Originally headquartered in Lagos, the headquarters moved to Abuja along with several other Federal Government agencies as the new Federal capital developed. Zonal offices were subsequently located in Lagos, Port Harcourt, Kaduna and Warri. The NNPC also has its international office in London. In a recent restructuring of the NOC, seven business units were created, each presided over by a Chief Operating Officer, while Group General Managers lead the Divisions. The affairs of its many subsidiary companies are managed by Managing Directors.
The mission of the NNPC shines bright on its emblem. But its ability to translate the statement into performance has been questioned over time. Judging from its national reverence as the proverbial goose that lays the golden egg (oil), the corporation has occupied a major position in Nigeria’s current political and economic space which is in fact, almost oil wealth-driven.
However, its leadership and jurisdiction have also been a source of intense controversy and public debate. “Who should control the corporation?” and “How powerful should it be?” In a multi-ethnic entity such as Nigeria, matters of national wealth are always brought to the fore. The NNPC controls the nation’s lifeblood, hence the public scrutiny it is always exposed to.
Also, it is against this backdrop that the creation of the NNPC in 1977 may be seen as a major milestone for all Nigerians in the nation’s post-colonial journey. Little wonder the mission of the corporation indicated “the interests of all Nigerians” was paramount. At that time, just 10 years young, discovering one of man’s most prized jewels in an infant Nigerian republic was worth all the fuss and public interest. NNPC, therefore, must be for all Nigerians.
This perspective will shape how the nation’s socio-political elites and civil service perceived Nigeria’s oil industry. Such views will also antagonize the NNPC’s struggle for autonomy. Since 1999, the Corporation has had to move under close surveillance from both the presidency and the legislature.
Moreover, the above concerns still seem basic compared to the challenges in the last decade. While the corporation makes some giant strides in the petroleum sector, many transparency issues still overwhelm it. There are the attending issues of corruption, misappropriation of funds, product theft, subsidy management, and even security issues that threaten the source of the petroleum resource itself.
The nation’s Niger Delta region, a major mine for the Nigerian crude, remains a hotbed of security and environmental crises. Locals in the region constantly demand special allocation and some sort of control over the oil resources. The tensions in the region spotlight new corporate social responsibility perspectives for International Oil Companies (IOCs). All these issues have someway undermined the efforts of the corporation in fulfilling what it has scribbled in its mission statement.
Recent events have further proven the volatility of the global oil market, now that the stable access to energy is becoming a crucial factor for determining growth, power and economic security for global economies. More than ever, environmental activists are getting very vocal about the environmental damages caused by oil production.
With oil and gas being a major source of energy in Nigeria and the rest of the world, the NNPC must grapple with its internal struggles and also listen closely to the external markers that shape today’s global energy market.
Welcome to this week’s Energy Feeds. This article is a continuation of our series on Nigeria and her Power Sector Reforms. The content purpose is to inform and educate EnergyHub customers, and visitors who have various business interests or investment plans for Nigeria’s power sector.
In the past two weeks, we have examined the various electricity industry reforms from the Obasanjo Era (1999-2007) to the Yar’Adua administration (2007-2010).
The Obasanjo government successfully passed the Electric Power Sector Reform Act (EPSRA). This was expected to create the momentum needed to transfer the assets of the age-long power monopoly NEPA to the Power Holding Company of Nigeria (PHCN), a sort of special purpose vehicle to be unbundled into eighteen corporate entities.
However, several of the Obasanjo era strides in power sector reform were either halted or reversed by Yar’Adua’s administration who felt the previous administration was imprudent with the over 10 billion dollar power sector capital investment. Before his untimely death, Yar’Adua would also fault the procedures of the Obasanjo administration in privatizing the power sector, halt the process and then call for a review of the plan.
Goodluck Ebele Jonathan
Upon the untimely exit of the late President Yar’Adua, his vice Dr. Goodluck Ebele Jonathan took over the baton. Goodluck was not a new face to the game plan. He had chaired the National Economic Council and also replicated this same role in the National Council on Privatization. He had firsthand knowledge of the blueprints of the Electricity Sector Road Map and the visions of the Power Sector Master Plan. In the shoes of his former boss, Goodluck Jonathan was going to navigate troubling waters. He must avoid the blame game template as well as the forces that plagued past administrations to deliver electricity in the best way possible.
Surprisingly, Jonathan adopted the template designed by the Obasanjo Era. Power sector privatization was an inevitable task and Jonathan was vocal about seeing it to fruition. He was able to bypass the red tape to deliver quick reforms and policy implementation plans like the Power Sector Transformation Plan. This would set the 2005 Electric Power Sector Reform Act (EPSRA) into full action. Jonathan would then make investments in power sector infrastructure and policies preparing the ground for private sector participation.
Jonathan’s transformation agenda seemed blurry to many until he commenced and completed infrastructure upgrades in several power plants in the country. The Azura-Edo power plant was a product of Jonathan’s privatization agenda. It would become the nation’s first private-sector owned power plant, totally independent in a corporate and administrative sense. He finalized all outstanding processes obstructing the unbundling of the 18 companies from the PHCN, which included selling off the government’s major stakes (60per cent). The companies included eleven power distribution companies (the Discos), and six Generation Companies (the Gencos). The Transmission Company remained under the jurisdiction of the Federal Government. But its management would be awarded in a $24 million three-year contract in 2013 to the Canadian company Manitoba Hydro International.
The sale of the 17 companies (Gencos and Discos) to private investors was consummated in a deal worth over $3 billion. Interests of the Nigerian Federal Government were represented by her Bureau of Public Enterprises. This development also created more investment opportunities in Nigeria’s gas industry.
Three years after accepting the mantle, Jonathan’s efforts had driven the power sector’s generation installation capacity to over 12,000 MW. But the available capacity which was about 7,000 MW was still not sufficient. So while the national transmission was at around 7000 MW, distribution was 5000 MW. Jonathan had met a paltry 2000 MW in 2011.
Empowered with an act and a template, the Jonathan administration was able to give form to the privatization process. The Electric Power Sector Reform 2005 Act was intelligent in itself and also made provisions for review of the privatization process and adjustments.
Moreover, the achievements were not enough to foster the continuity of his tenure. His attempt at getting reelected in the 2015 polls would fail and then stall future commitments and investments in transforming the power sector. He lost to Muhammad Buhari. A new administration was coming to be with a new agenda. Jonathan’s privatization processes and Manitoba deal would be probed by the members of the new National Assembly in December 2016. The allegation was that due process was not followed in the sale.
Muhammad Buhari 2015
President Buhari on his part was determined to deliver 40, 000MW in 8 years (two terms). This was double the promise made by the late Yar’Adua.
He appointed a former Lagos state governor, Babatunde Fashola to head the Ministry of Power, Housing, and Works. In his speech, “Nigeria’s electricity challenges, a road map for change” Fashola expressed his dissatisfaction with the electricity industry.
He also cited the need to discontinue the maintenance culture that had plagued the sector’s capacity to deliver. He mentioned the vandalism of energy distribution assets like pipelines and transformers, including unpaid electricity bills, unmetered electricity consumption, as some of the factors that negatively affected power generation and distribution capacity.
In the quest for incremental power, we must not overlook the things we have done poorly in the past. They range from improperly erected distribution poles, characterized by poor quality materials, poor workmanship, and poor standards by local and foreign contractors who were employed to deliver the services and did not give us value for money.
Babatunde Fashola, Minister for Power, Housing and Works on “Nigeria’s electricity challenges, a road map for change” in 2016
Reminiscent of Yar’Adua’s decisions, Buhari’s move was to sign a six-year contract with German company Siemens. The firm was to handle a three-phased upgrade and technical installation that would yield about 25000 MW. But like previous administrations, the Buhari team was also concerned about initiating probes of accountability and heaping blames on its predecessors.
Reports were that the Nigerian power sector had gulped over six trillion dollars since 1999. But there were no tangible results to show for such investments. Homes and industries still relied on generators to meet their electricity needs. This has caused a massive exodus of companies from Nigeria.
Energizing Economies Programmes
Moreover, Buhari was still prepared to ride on the reins of the Rural Electrification Agency, an agency created by the 2005 ESPRA Act. He kicked off a public-private partnership in 2017 called the Energizing Economies Programme to supply stable electricity across commercial centres and market zones across the nation. He also drove the initiative of the over one trillion naira Assurance programme to ease Gencos and gas suppliers’ access to liquidity and minimize their losses.
The news was that the Gencos were suffering incessant loss because Discos were not efficient and transparent in their distribution of generated electricity. The Discos would reply that it was the consumers who were not paying for electricity consumption. The government then stepped in to subsidize the incurred losses by paying Gencos the aforementioned 1.3 trillion naira for undistributed power. The intervention was eating into the government purse as the power supply was still not improving.
Muhammad Buhari 2019 till date
After a successful reelection attempt in 2019, Buhari appoints Engr. Saleh Mamman as the Minister of Power. Under Mamman’s leadership, the Ministry introduced a distribution policy called the Willing Buyer, Willing Seller. This policy was necessary to ensure all investments in power generation and distribution were compensated with adequate returns.
This means that the barricades stopping GenCos and DisCos from getting paid would be lifted and electricity will be supplied to communities and industries willing to settle their electricity bills. Under this new policy, loss of investments will be curtailed and GenCos will be assured of getting full payments for electricity services rendered. According to the Minister, it will also discourage inefficiencies and corrupt practices which have prevented the sector from rising to its true potential.
This full potential shines in its promise of improved power supply. But it may also come with a sacrifice. Looking at the cost of power generation in Nigeria, consumers will have to prepare for an upward review in electricity billing. The growth trajectory of Nigeria’s Power Sector is a clear indication that change is inevitable. The sector has had to confront a lot as it embraces the reforms that will open her up to necessary changes: The government need not spend so much in areas where private players can deliver much more efficiently.
It seems, therefore, that this full potential of Nigeria’s power sector lies in the hands of private participation, and perhaps, a reduction of politicization of the power sector. Reforming the power sector is necessary to kick start the discussion for growth where a healthy competition can yield the improvement the industry requires.
The Willing Seller, Willing Buyer policy opens the gates of the Nigerian power sector to many industry players and consumers who desire valuable returns for every investment made.
“In a petroleum-product-deregulated environment, there can be no PPPRA (Petroleum Products Pricing and Regulatory Agency) and PEF (Petroleum Equalisation Fund), as they exist today.Unfortunately, Nigeria seems too preoccupied with rent-seeking, rent sharing, and Esau syndrome in the execution of her policy framework, with not enough consideration for mutuality of interests among stakeholders, investors, and government”.
When it comes to petroleum and energy economics in today’s global petroleum arena, they do not come better than Wumi Iledare. He has left huge footprints across the globe in the disciplines of petroleum engineering and petroleum economics, notably being the first African to hold the position of President of the International Association for Energy Economics in 2014 (and helping found the Nigerian affiliate of that association). He is currently Africa Regional Director of the Society of Petroleum Engineers and an eminent member of the rare group of Nigerians groomed in petroleum engineering by the famous duo of Professor Gabriel Falade and Dr. Emmanuel Egbogah, during the pioneering years of the School of Technology at the venerated institution.
Having cut his teeth in the field in Nigeria and several other assignments elsewhere, he landed at the Louisiana State University in Baton Rouge, USA, where he was the Director of that university’s Centre for Energy Studies. It was from LSU (where he is Professor Emeritus) that he was headhunted by Dr. Egbogah to come and drive the Emerald Energy Institute at the University of Port Harcourt, which the latter found. Iledare was appointed for two terms as Director of the Institute and was named by Dr. E as Chirota and Emmanuel Egbogah Distinguished Professor of Petroleum Economics.
Professor Iledare has been very involved in policy activism in the energy industries, especially in Nigeria and Ghana – playing key roles in the previous efforts to pass Nigeria’s petroleum industry reform legislation. He is currently GNPC Professor and Chair in Petroleum Economics and Management, University of Cape Coast Institute for Oil and Gas Studies, Cape Coast, Ghana. He is also Executive Director, Emmanuel Egbogah Foundation, Abuja.
Professor Iledare shared with Ikechi Ibeji, his perspectives on the continued efforts to pass the petroleum industry reform bills and what should be Nigeria and Africa’s post-COVID 19 policy strategy.
How would you say the COVID 19 pandemic has accelerated or impacted the global energy transition, which was a threat to the African petroleum industry, even before the pandemic broke out?
To a large extent, Covid-19 pandemic impacted energy demand growth projection because of the downturn in the global economy. OPEC did not act quickly enough to reduce oil production in time to effect a decrease in supply. As a result of that, crude prices collapsed. The collapse in crude oil prices makes the transition fuel production less profitable without subsidies. Unfortunately, there are limited funds to continue to subsidies under the Covid-19 global economic downturn.
With more people migrating online during the worldwide lockdowns, digital technology has taken centre stage for post COVID recovery. Placed against the backdrop of huge deficits in broadband connectivity and technology infrastructure, what are possible options for African governments to create enablers for application of big data, Artificial Intelligence, machine learning, and the Internet of Things, especially in pivotal industries such as energy and mining?
An excellent question that I may not have a direct answer to give within the context of advising the government. My indirect answer to your question is to look at education more holistically. This begins with the quality of education across the board—primary, secondary, and tertiary. The applications of AI does not begin on the street. Quality education is critical going forward and we are not even a match to the standard in the developed world. I am sure you know what we tried to do at EEI through the efforts of Dr. E, and how it was scuttled for no reason than governanceincompetence.
“African governments should deemphasize paying too much attention to early rent extraction”
There is no way we can create enablers for the application of big data if we continue to ethnicize our institutions with respect to students, staff, faculty, and administrators. We must try to bring the best critical mass in one, place using the inherent strength in diversity.
With Nigeria becoming uncompetitive by the day in several areas of the E&P value chain, do we still have any viable projects that could attract big-ticket investments?
Of course, we do. Nigeria has prolific geologic basins of promise to explore. In natural gas terms, 200TCF proved reserves and 600TCF probable reserves speak to that fact. What will spur action is industry governance and fiscals that are competitive and attractive. Unfortunately, Nigeria seems too preoccupied with rent-seeking, rent sharing, and Esau syndrome in the execution of her policy framework, with not enough consideration for mutuality of interests among stakeholders, investors and government. Of course, there is softness in the LNG Market in Europe and Asia, but the Africa market is there to explore. There is a room for Mini LNG projects for the West Africa Market.
As a follow-up to question (3) above, we note that the hitherto promising Olokonla and Brass LNG projects appear to have been torpedoed partly by the divestment of some of the promoters like Shell and British Petroleum, who cashed out from many of their Nigerian assets to invest in the humongous LNG project in Australia. Today, Trinidad and Tobago in the Caribbean; Mozambique, Equatorial Guinea and several other African countries are competitive LNG plays – even having the upper hand against Nigeria that was already a dominant LNG player before these countries discovered gas. Is the world LNG market a lost cause for Nigeria?
Nigeria missed the opportunities mentioned because of prebendalism in my opinion. There is no way Olokonla and Brass LNG projects would have been as viable as NNLG without the same incentives granted to NLNG extended to them. Somehow, the Nigerian government failed to understand these essential ingredients. It is sad and of course, you can trace these to industry governance that is amorphous, ineffective and inefficient. The protracted industry reform efforts did not help matters either. Let me add, however, that Nigeria may be better off using the gas for the domestic economy and by extension the West Africa economies. Remember, NLNG came into being to reduce flaring and the cost of gas to NLNG remains highly subsidized.
However you want to look at it, there is unprecedented uncertainty for the oil and gas business in the length and breadth of Africa. There has been no major investment in exploration in Nigeria for the past ten years, with the consequent zero discoveries and a decline in reserves. Based on this uncertainly, some prophets of doom are saying that exploration and production are now past tense in Africa. How close are they to the truth?
These are not prophets of doom but false prophets. You cannot have exploration and discoveries without new block allocations. You cannot invest in E&P in Nigeria without concluding the reform Nigeria started in 2000, nearly 20 years. You have discoveries in other West African countries. The resources are there to discover, but you have to create an environment to attract investments. The business environment is not conducive, so the best the industry is doing is to develop existing assets and that is why nearly every indicator is moving in the opposite direction in Nigeria, more so since 2015. Again, the government missed the opportunities in 2018 because of election politics. I am optimistic that if the government passes the fiscal bills that will be competitive and attractive by Dec 2020, things can turn around. Government just needs to avoid too much emphasis on early revenue extraction mechanisms in the fiscal bill.
If you were President or Minister of Petroleum in Nigeria or any other major African oil producer, what key policies would you drive to reverse the gloom hanging over the African E&P business?
Fortunately, I am not President or Minister of Petroleum but let me advise the countries in Africa, as a distinguished and professor emeritus in petroleum economics. First, deemphasize paying too much attention to early rent extraction. Second, separate governance institutions with well-defined institutional responsibilities. Third, promote indigenous participation apolitically by avoiding the temptation to create millionaires with carry-me mentality. Fourth, optimize the entire petroleum value chain with less emphasis on crude oil exportation and product importation. Finally, enact a petroleum revenue management act that forbids the use of petroleum for concurrent expenditure.
Given the hard work you put into the passage of the Petroleum Industry Governance Bill in the last National Assembly, are you optimistic that the renewed effort by the Minister of State for Petroleum will succeed?
I was very optimistic during the last assembly but disappointed with understanding the plausible inevitability of it’s not being passed because it was a member bill and the executive did not own the bill. It is different this time because the bills originate as executive bills. Also, the National Assembly and the Executive are in sync this time around and there is an understanding that a failure this time may have dire consequences. Nigeria must come to terms with the fact that there is no perfect law and that is why laws are termed. If the professionals will bury their egos and work to perfect the provisions to the extent possible, it is more likely than not that we will get the President to assent to the bills by December, ceteris paribus.
What were the issues for which President Buhari withheld assent to that Bill? Have the issues been resolved?
Interesting question. I just realized I am not as knowledgeable on the subject matter or not trusted enough in Nigeria to have access to the ongoing draft bill. Luckily I am trusted by international organizations to review the bill when it is out (LoL)
But if my guess is worth anything to dwell on, the reasons for not assenting to the bill last time around bothered more on political interests than policy or economics. For example, the gripe concerning single regulatory institution in the governance bill that was in sync with Petroleum and Gas Policy documents gazette by FEC leaves much to be desired. In a petroleum product deregulated environment, there can be no PPPRA (Petroleum Products Pricing and Regulatory Agency) and PEF (Petroleum Equalisation Fund), as they exist today. Neither can you continue to have PTDF (Petroleum Technology Development Fund) and NCDMB (Nigerian Content Development Monitoring Board), doing the same thing, indirectly.
My instinct is that there will be no single regulatory institution in the new governance bill, but at least two—upstream and downstream. I can live with that. Financing them was an issue the last time around and responsibility overlaps may be a concern. I also think breaking the PIB into four was an issue, and I understand it is now a two in one bill.
There is also a concern that the FIFB last time paid too much emphasis on output expansion, which may be stochastic. Some professionals were not happy with emphasising profit-based instruments, termed delayed rent extraction. They tend to prefer early rent extraction using royalty by volume and value, which to me is regressive and can make Nigeria less competitive and attractive to investment flow. I want to hope that the new fiscal bill will find a balance such (that there will be) a combination of both classical instruments to make the entire system move towards progressivity.
Finally, the last time around, the tax structure was problematic concerning the ease of implementation. Implementation of the PIT and APIT looks complex. I want to hope for a dual tax mechanism this time around. Dual tax is not synonymous with double taxation by the way. The tax base is not the same and one is a resource tax and the other is a corporate tax. The resource tax is nothing but a special petroleum tax which is common worldwide. Best for us to wait and see the bill, and I promise I will review and make meaningful contributions to improve the bills as always.
Over time, the IOCs have had an overwhelming influence on government policy relating to the oil and gas business. Do they still wield such influence? And have such influence played any part in the protracted delay in passing the PIB?
Honestly, I do not share that view. The delay cannot rest on the IOCs. They are entitled to make contributions to the provisions of the bill to ensure the profitability of their assets. They have the right but they do not have a vote. The Esau syndrome of those responsible for reforming the industry, but fail to act is to blame not the IOCs. Let me say again that the IOCs have no votes to defeat the passage of the legislation.
What should be Nigeria’s first post COVID priority?
Pass the petroleum industry reform bills and hit the ground running for the post COVID environment that is guaranteed to add much more value to the economy than years before.
Next is to find a way to reform the education sector. It is critical going forward in the new norm. What Nigeria has today in the education sector is dilapidated. The world is not waiting and the digital age is here.
Petroleum Revenue Management legislation is long overdue. I am worried that if Nigeria does not do something with the way petroleum revenue is managed, we may end up like Venezuela and that may be the beginning of the end. Too much of the petroleum revenue is used for a national lifestyle that is not sustainable with little regard for future generations. This must stop post-COVID 19.
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It is difficult to take out the thinkers from our much-discussed future of energy. It is also interesting to see that the world has been so vocal in a future where alternative and clean energy forms reign supreme. However, it’s important not to sidestep Africa’s reliance on fossil fuels as we advocate for this clean future. Whether we are ready for an instant transition to clean energy is still a huge debate. But one point is clear, fossil fuels still remain our current and major source of energy. The conversation should now be on how to stabilize and sustain the supply of fossil fuel for African economies while seeking optimal strategies for minimizing hazardous emissions. This strategy will also be complemented by a long term plan to ease Africa’s transition to clean energies in time to come. The question before us now is how do we go about these lofty ambitions?
The Value of Energy-based Research
As is the norm with all human industries and advancements, science and research are usually at the forefront of new thinking and new developments. The critical role that the access to reliable energy will assume in redefining the destinies of growing and developed economies is becoming the core agenda of today’s energy research. Today, supply and access to energy are sparking a conversation between power, economy, and existence.
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EnergyHub and Digitization
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