A Review of the Nigerian Energy Industry

Energy sector outlook under Buhari

Chuks Isiwu 21 July 2015, Sweetcrude, Lagos – Going by the recommendations of a reform committee set up by President Muhammadu Buhari and the views expressed by the president’s advisors, his administration would likely witness a merger of the Oil and Power Ministries, so also the DPR and NERC. The new government could also see to the passage of the PIB. Additionally, there could be a “Reform Czar”  within the president’s office while the Amnesty programme could be extended by one year.

President Mohammadu Buhari.
President Mohammadu Buhari

All things being equal, the new Buhari administration will witness a root and branch overhaul of the country’s energy sector.

It could also see a slash in the size of the civil service, an overhaul of the much-criticised state oil company, the Nigerian National Petroleum Corporation, NNPC, and removal of costly petrol and kerosene subsidies.

The new regime would likely also resort to increased borrowing to help pay off $20.6 billion (N4.1 trillion) of government arrears, including 400 billion naira in unpaid salaries, N200 billion in arrears to fuel importers and 1 trillion naira to the oil industry.

These form the kernel of an executive summary of a reform document for the government obtained by Reuters in Abuja. The 800-page report was submitted by the Ahmed Joda-led transition committee set up by President Muhammadu Buahari to assist the smooth take off of his administration. Details of the reform document were, however, yet to be made public.

If the government would follow the recommendations of the committee it would likely appoint a “Reform Czar”, as recommended by the committee, within the president’s office to oversee changes.

The report also recommends cutting costs in governance, outlining part of the streamlining to include establishing a new ministry of energy to oversee power and oil and gas, a merger that would create a powerful and important portfolio.

Buhari has yet to announce his cabinet and may not appoint ministers until September.

Also, a merger of the Department of Petroleum Resources, DPR, and the Nigerian Electricity Regulatory Commission, NERC, may be in the offing as the committee has recommended the establishment of an inter-ministerial energy committee that would undertake the regulatory functions of the two agencies in the gas/electricity value chain, to ensure uninterrupted supply of natural gas from the oil companies to the power plants in the country.

To guarantee the energy necessary to drive productive activities in the economy, the Finance and Economy sub-committee of the Ahmed Joda-led Transition Committee recommended the creation of the committee that would merge and streamline decision making processes between the two agencies and increase regulatory certainty and investor confidence in the power sector.

Also, the committee advised the government to consider the establishment of a uniform electricity pricing template for operators in the power sector, including the NERC, Transmission Company of Nigeria, Nigerian Bulk Electricity Trading Plc., Nigerian National Petroleum Corporation, NNPC, and its Nigerian Gas Company subsidiary as well as the Niger Delta Power Holding Company.

The committee also proposed the adoption of a new technological solution for streamlining and auditing all energy industry transactions at the NNPC, expressing the conviction that if the proposal was accepted by the government, it would help manage risks in the above oil industry agencies and optimise operational and financial decisions in real time as well as report progress on activities, prepare balance sheet and project backlog on investment plans.

Under the National Gas Master Plan, the DPR is mandated to implement a Gas Pricing Regulation framework of 2007, which provides the legal basis for gas supply to domestic market, particularly the power sector, to provide the energy required to power productive activities in the economy.

On the other hand, NERC has the responsibilities under the Electric Power Sector Reform Act to undertake the technical and economic regulation of the tariff, approval of capacity expansion and business plans in the electricity industry value chain.

The committee noted that the new solution would not only guide operators in monitoring key performance indicators by these agencies, it would also boost efforts to block leakages in the system, by providing real-time ability to capture and audit all oil and gas transactions, production, imports, tax obligations and payments to the Federal Government.

The president himself has said he wants to recover funds stolen by former government officials and oil companies. A 2013 investigation by former central bank Governor Lamido Sanusi found NNPC had failed to pay $20 billion in revenues to government accounts. NNPC denied the charges.

Contracts between NNPC and oil firms and fuel traders should be reviewed, the Joda committee committee suggested. NNPC works alongside oil majors such as Shell, Exxon, Chevron as well as global oil traders, including Trafigura, Vitol and Glencore.

As part of what should be expected in the new dispensation, President Buhari’s advisors said he should pass into law the Petroleum Industry Bill, PIB, a complex and wide-ranging piece of legislation that has been delayed for eight years due to wrangling between the oil industry and government.

The Joda committee recommended passing an old version of the PIB, which includes creating incorporated joint ventures between oil majors and NNPC, a policy strongly opposed by foreign oil firms.

Industry experts believe passing the PIB could take months or even years and a more realistic approach would be to break it up into more manageable pieces of legislation.

In 2009, Nigeria’s government agreed an amnesty and stipend payments with former Niger Delta militants, who during the height of their attacks on pipelines cut up to a third of the country’s oil output and moved world oil prices.

The amnesty should be extended for another year, the committee said. The report proposed a plan for the “reconstruction, rehabilitation and development” of the northeast, which has borne the brunt of Boko Haram violence.

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