Emerging issues in Nigeria’s energy sector
In April1982, the Nigerian Government invited a World Bank/UNDP mission to visit country and assess the problems facing its energy sector, particularly to identify policy options for gas utilisation, analyse investment priorities, provide a framework for technical assistance and advise on the implementation of energy programs.
After several of these visits, a full-scale energy assessment and gas utilisation study was done and the mission came out with a report; where it captured issues ailing the sector alongside recommendations. Below is a short excerpt from this report;
“Nigeria is one of the leading oil exporting countries of the world. Oil income underwrites almost all development and public expenditures. However, known and inferred oil deposits are limited, and output is expected to start declining within the next 15-20 years. Rapidly growing domestic demands for petroleum products may reduce the exportable surplus further if no deliberate steps are taken to substitute more abundant energy resources such as gas, LPG, hydro and coal…..”
Thirty-one years down the line, this increasing demand and inadequate supply of energy in Nigeria is still a huge challenge to the development of the sector and the economy, as energy needs continue to rise globally. Nigeria is said to have the biggest gap between supply and demand for electricity in the world. The demand for electricity is currently estimated to grow from its present level of around 30 Tera Watt Hours in the year 2010 to around 72 Tera Watt Hours by the year 2020 and subsequently to around 166 TWHs by the year 2030.
In a world where adequate and reliable energy supply has become the mainstay of economic development and enhanced productivity, Nigeria’s power supply remains grossly inadequate.
To address the issues of low power generation in the country, the Federal Government in 2004, initiated the National Integrated Power Project (NIPP). The project was to boost the nation’s generating capacity and to end gas flaring from oil exploration in the Niger Delta region. However, these power plants built under NIPP still have issues of gas supply and disruption of supply, which greatly affects transmission lines.
The federal government is however coming to terms with the trends and characteristics of energy supply and demand and thus has made several attempts at tackling the challenges of the sector with a global perspective. These challenges range from technical, to institutional and financial; hence the privatisation of the power sector.
The privatisation of the power sector was primarily driven by a number of factors, such as the need to enhance the business an investor-friendly environment, by providing reliable and constant power supply; to tackle to the increasing demand for sustainable power, and to address the need for an efficient distribution, generation and transmission network.
Towards this goal, The Nigerian Electrical Power Authority (NEPA) metamorphosed into The Power Holding Company of Nigeria (PHCN) Plc in 2005. Also in 2005, the Nigerian Electricity Regulatory Commission (NERC) was created as regulator for the sector; followed by the incorporation of 18 successor Companies comprising of 6 generation companies (GenCos), 11 distribution companies (DisCos) and one transmission company (TCN), and the establishment of a Liquidation Committee to wind down the operations of PHCN in 2011. With this, the FG successfully relinquished its exclusive hold on the power sector, though it retained the management of the Transmission Company.
The major goal of the privatisation of power assets by the Federal government is to boost the capacity of the Nigerian Electricity Sector Industry. Thus with a view to enhancing the transmission network, the FG recently unfolded plans to privatise transmission assets, and is now considering the best way to achieve this. The three options currently open to it are; full privatisation of the Transmission Company, regional privatisation and concession of the Transmission company to private investors.
The privatisation of the sector with all its teething problems is a welcome development, given the opportunities it has thrown up for both local and foreign investors. The sector has become open to Independent Power Projects, investments in information Technology in electric power generation, consulting, advisory, training and research opportunities for GENCos, equipment supplies, transmission services, services relating to metering, collection, recharge cards and the provision of card technology, financing, etc.
Experts and analysts in the sector however point out that For Nigeria to come close to achieving its goal of 40000MW by 2020, it will require alternative sources of power, rather than just being dependent on gas and hydro plants.
Speaking on the issue, Ayodele Oni, a commercial lawyer and energy expert, Banwho & Ighodalo law firm, explained this position. “A number of developed countries around the world generate about 50% of their electricity from coal power plants. Although, the initial cost outlay may be high, in the long run such plants are cheaper to run. Coal is also a viable option considering that Nigeria has component states endowed with coal and the cost of coal being only 1/5(one fifth) of other fuels,” he said.
The current shortage of gas supply continues to hamper the availability of new gas-fired power stations to generate electricity in sufficient quantities. Also, the lack of a gas pricing framework is a clear and present danger to the entire framework of things, as supply is greatly affected by inadequate gas transportation infrastructure.
On oil production, though ranked as one of the largest oil producers in the world, the country currently has only 4 refineries in operation in the country, operated by the Federal Government. These refineries if not operating at a 22% capacity, could nonetheless meet the current demands in refined products in the country, which is estimated to be about 270,000 bpd, but this is unattainable, as the crude oil extracted is transported out of the country to be refined, re-imported back to the country as refined product at highly exorbitant prices, before it can meet domestic demands.
There have been attempts however, by the Independent Petroleum Marketers Association of Nigeria (IPMAN) and a few individuals, to build ultra modern refineries to boost Nigeria’s current refining capacity.
While the sector continues to make remarkable progress with ongoing reforms, it is hoped that the Federal Government consider a wholesome approach in its search to meet the Nigeria’s energy needs. It is important to note that the execution of subsisting agreements between the FG, the GenCos and DisCos, is very vital to the entire reform process. It is also hoped that a full implementation of the gas master plan will ensure the adequate supply of fuel.
The nation is no doubt endowed with energy and other resources, which if properly exploited, would sufficiently address its current energy deficiency and economic challenges.
Theodora Kio-Lawson