Agenda for Energy Sector in 2015

By Anayo Korie and Obas Esiedesa


With the exception of Norway and Saudi Arabia among the oil producing nations that have saved several billions of dollars for the rainy days and had bank-rolled several development projects as well as made provisions for the welfare of their citizens, and Qatar and Kuwait to a lesser extent, due to  the size  of their population,  other oil producing countries, namely Nigeria, Iran, Iraq, Algeria, United Arab Emirate, (UAE) Malaysia, Indonesia Venezuela Gabon, Trinando & Tobago, Russia, and Mexico  that depend on oil to finance the development of their economies will tread on rough part in 2015 if the oil prices continue to tumble the way it happened in 2014.

Oil prices dropped from $100 to below $63 per barrel at the beginning of the first quarter of 2015.

Experts have said that the diversification of their various economies remains the only remedy to eliminate or reduce the woes arising from the sharp drop in oil prices, which had sent shock and apprehension to the spines of the leaders of these countries. They also argued that the diversification of the economies will also reduce over dependence on oil as a veritable source of revenue.

For instance, Alhaji Aliko Dangote, Chairman of Dangote Group of Companies, who spoke on the implications of slump in oil prices in Lagos recently, noted that Nigeria should accelerate the diversification of the economy to reduce its dependence on oil as the main source of revenue and improve on governance and broad-based inclusive socio-economic development.

He identifiedd the United States as one of the factors responsible for the drop in oil prices, explaining that the fall in oil price was due to the development of Shale oil and gas which is now a threat to fossil oil, warning that an extended period of low price of oil would hamper the development of projects in oil producing nations.

“Could the drop in prices be linked to the flexing of muscles by the Super Powers? Is the USA and Saudi Arabia playing the oil card against Iran and Russia?  Think about this for a moment. “The Obama administration wants Teheran to come to the position of the U.S over its nuclear program. It also wants Vladimir Putin to back off Eastern Ukraine. After recent experiences in Iraq and Afghanistan, the White House has no desire to put American boots on the ground to force their position. Instead, it is in alliance with Saudi Arabia to drive down oil price by flooding an already weak market with crude oil,” he noted.

Dangote explained that Nigeria is bolstering along in her democratic experiment, which he noted has recorded a mixed grill after one decade and a half of practice, as democracy is beginning to take root in the country, urging governments in the Gulf region to focus on raising human development indices, social equity and transparency in governance as part of measures to raise the managers who will run the economy.

Dr. Austin Nweze of School of Media and Communication, Pan Atlantic University (PAU) Lekki, Lagos, in his contribution urged the Federal government to review the 2015 budget oil price benchmark from $65 per barrel to $50 as part of measures to mitigate the shock arising from the continuous slump in oil price from $100 recorded in the last two years to below $63 per barrel being currently experienced.

Nigerian government had pegged the budget benchmark to $65 per barrel when oil price had gone further below $63 per barrel at the international market.

Dr. Nweze, who gave the suggestion in a telephone interview with Daily independent in Lagos, said that such measure will enable government to stabilize the economy.

According to him, by next year when oil price at the international market would have moved up before the meeting of the Organization of Petroleum Exporting Countries (OPEC) in Vienna, Austria, by the middle of the year, government could have saved the excess crude revenue to develop other sectors of the economy.

He appealed to government to look inward by supporting local investors and entrepreneurs who will assist in stabilizing the economy through venture capital and job creation that will lead to wealth creation.

“Nigerians should be ready to support government through new tax regime, especially the rich, in raising funds to run the economy. This is one of the measures that will address the situation now,” he stated.

He also advised government to act fast by diversifying the economy from oil to non oil based economy through mechanised agricultural sector as well as improving the industrial sector, as part of the strategies to move the economy forward.

Chairman of PETAN, Engr. Emeka Ene, who spoke in the same vein, noted that Nigeria’s current oil price dilemma was a universal concern that affects all interests in the oil sector, adding that operators must face the new reality by adopting cost efficient measures to keep afloat.

He made it clear that local content remains the only path for the oil industry to scale through the prevailing market turbulence.

He said gas demand for local industries and power plants have become imperative in the domestic environment in the face of the new realities in the industry, noting that local content journey have started yielding fruits after 13 year.

He affirmed that local content policy of government has significantly transformed the industry landscape in a manner never experienced in the Nigerian petroleum industry

Daily Independent discovered that Petroleum Industry Bill (PIB) is another serious matter bordering on the survival of Nigeria as an oil producing nation. The two Chambers of the National Assembly should eschew their differences in passing the bill into law before the end of tenure of the current legislative arm.  It is obvious that some members of the National Assembly who participated in the drafting of the bill, which has stayed so long without passage, may not return back to the Chamber due to their inability to secure the tickets of their parties for re-election to, which may further hinder the passage of the PIB.

Nigeria has arguably lost over $500 billion of investment opportunities to other emerging oil and gas nations in Africa, Europe, and Asia, over the delay in the passage of the bill. This is as a result of the disagreement between government and International Oil Companies (IOC) over fiscal regime in the industry, which IOC says is one of the highest in the world and which the bill could have given clarification to.

It has, however, become imperative for the Federal government, for the sake of the nation, to liaise with the International Oil Companies (IOC) to strike a balance or rather agreed on a win-win situation with the OICs on areas bordering on fiscal regime, taxes and incentives, which have hindered the bill from being passed into law over the years.

Meanwhile, at the downstream sector of the oil industry, the Federal Government, through the Nigerian National Petroleum Corporation (NNPC), was able to sustain the flow of refined fuel to retail outlets in the country throughout last year. Though this was achieved through the importation of refined products from abroad at exorbitant prices, which industry analysts said could be curtailed if the Federal Government could encourage the building of new refineries. This, they argued has become the culture of the Organization of Petroleum Exporting Countries (OPEC). They noted that the building of new refineries to complement the existing ones, either on stand alone or in partnership with the private sector, will eliminate fuel subsidy as well as the importation fund given to oil marketers for importing fuel into the country.

In the gas subsector of the oil industry, industry watchers appeal to the warring communities in the Niger Delta area to give peace a chance for the Federal government to perform the ground breaking ceremony of the $15b Ogedingbe industrial park patterned after the Xenel Petrochemical Plant in Saudi Arabia and the Nagarjuna Fertilizer Plant in India, noting that the park, when completed and streamed up, will create more jobs and revenue for government and other shareholders.

Also, efforts should be geared at reversing the gas flaring trend, which has ranked Nigeria as the second largest gas flaring nation after Russia and Iraq to a nation that can earn more revenue from gas that will surpass the income generated from oil production. This will also help the nation in its bid to diversify the economy.

Experts and participants across Nigeria, Africa and Europe, who attended the 32nd   edition of the National Association of Petroleum Explorationists’ (NAPE) conference held in Lagos recently, called for the fast-tracking of gas revolution agenda as part of the agenda to diversify Nigeria’s economy through the promotion of gas exploration and development that will generate more revenue for the development of the economy.

According to them, Nigeria still flares about 2.0 billion cubic feet of gas daily and is ranked among some of the highest gas flaring countries in the world with over 100 flare sites in the Niger Delta region, making the country the highest emitter of greenhouse gas in Africa.

The Minister of Power, Prof. Chinedu Nebo, who spoke at the event, said Nigeria will require about 70 per cent of gas produced to meet its power supply need. He explained that with the number of households in Nigeria standing at 29 million, with an average consumption of 1mw for some 500 homes, electricity supply for consumers will stand at 60GW of power daily.

With last year’s refinancing of the power sector and the New Year’s Day declaration of the Transitional Electricity Market (TEM), a lot of progress in terms of improved electricity supply and general customers’ services are expected from the operators of the Nigeria Electricity Supply Industry (NESI).

In the last months of 2014, the Federal Government, through the Central Bank of Nigeria (CBN), provided the sector N213 billion to pay off N36b gas debts owed gas suppliers and also to bridge the revenue shortages in the sector due mainly to inadequate supply and low pricing of electricity.

In 2015, the opportunity for the sector to be self financing has been broaden with the commencement of TEM where all contracts entered into at privatization of the sector will be activated and activities in the electricity market will carry the obligations outlined in the contracts. A framework of contracts, regulations, market rules, systems and processes will drive the electricity market under TEM.

The challenges for the New Year also derive from those of the past year, inadequate gas supply to power plants which has led to stunted generation growth, lack of metering or unwillingness of electricity distribution companies to provide meters, poor service deliveries, especially by discos in areas of provision of transformers and response to customers’ complaints.

For consumers, lack of meters has left them at the mercy of the distribution companies, which arbitrary impose ‘crazy bills’ on them through estimated billing system. This, with the new Multi-Year Tariff Order (MYTO-2) approved by the Nigerian Electricity Regulatory Commission (NERC), has led to fears that consumers would have to pay more without getting commensurate service.

But the Minister of Power, Professor Chinedu Nebo said last week that tariff would eventually come down as the quantity generated increases and supply to homes and businesses improve.

Nebo explained that just as improvement occurred in the telecommunication sector when it was privatized 15 years ago, the power sector would also witness such phenomenal growth.

“We are the largest economy on the continent and we got there without having electricity the way we should have it. So like what happened in the telecom sector, the power sector will also grow.

“If you look at South Africa that is now second largest economy in Africa, it generates 40,000mw of electricity for 43 million people. We generate 4,000mw for 170 million people. So, if we want to be at par with South Africa we should be generating 160,000mw. But you realise that all the power companies in the world and the entire turbine manufacturers in the world cannot make that happen overnight.

“So you can imagine what the demand for electricity is to development, industrialization, and manufacturing. They all follow the trail of electricity. The demand for electricity in Nigeria is huge and that is why it is a place for us to invest as doors get opened because it is going to grow rapidly,” the minister explained.

He said: “Electricity tariff will come down. Not now, not tomorrow. It will go up before it will come down but think of the first sim card you bought and think of how much it is sold now and you will understand what I am talking about. Power will get there and will become so affordable too.”

Speaking on the outlook of the sector, the NERC Chairman, Dr. Sam Amadi, said in Abuja that it is not true that the sector has grown worse since private sector took over in November 2013.

“From the empirical evidence we have, it is actually not true that electricity has done worse from takeover. Some of the operators have done fairly well. Ibadan Disco is fairly doing well in terms of grappling with the challenges. Surprisingly, Yola, that used to be lagging behind, has done well and it is also noteworthy that both Discos are owned by the same people and they are doing well; financially, they are doing more than most Discos.

“If you look at metering now, Ibadan is doing well but Benin claims to be the best; but our evidence does not support that claim. Eko has tried; Ikeja has surprisingly fallen short of standard. Before now, it used to do well but the new guys there are not doing well in terms of dealing with consumers and market settlement and so there are mixed grill of Discos performances,” he explained.

Amadi explained that the commission expects better improvement this year because it will be regulating operators against their commitment which has figures in terms of metering and transformers, explaining that if the commission could guarantee the operators a new tariff, then it means that operators are under obligations to reduce the losses to consumers.

“We want to see more accountability and transparency in the management of the distribution networks. We want the consumers to be able to see the transparency and clarity in the system as well as more accountability such that even if we don’t have so much power, we are still able to accountably manage whatever we have,” he said.

He noted that with last year’s increase of gas price, the commission expects some increase in power production. “Already some of the gas suppliers have made commitments but we are certain that this new gas price will help in the longer term because people will now on that basis begin to make investments in gas infrastructure knowing that the price is good and will be indexed.

“It has the potential of enhancing the capacity of gas to power going forward. It will unlock the sector for more investment and in the interim, it will ensure that we have more gas to power our generators but ultimately, the value is down the road when these investments have been made and matured,” he added.

Amadi urged consumers to remain steadfast and bring their complaints against the operators to the notice of first, the service providers, and then to the commission through the forum offices.

“There is a possibility of consumer fatigue”, he admitted “but it is not in their best interests. If consumers don’t complain, it means that the regulator will not have enough information to monitor consumer service. Discos will give their reports indicating that everything is fine but it is complaints from consumers that trigger the regulator to ask questions. If a disco shows us records that are favourable, how do we match them with realities from the consumer end if there is nothing from them?

“Abuja disco, for instance, has what is claimed to be a world-class customer call centre and if you go there they show you computers but whether calls from consumers pass through them, nobody can testify except if people actually call and give their feedbacks, we will then know from them if that is efficient because the day the regulator decides to go there, they will make it work.

“My message, therefore, is that it is consumers who really hold the greater responsibility of enforcement because if they are not actively seeking for remedies, then the regulator will be deceived but when they are active, the regulator will also be under pressure to justify their confidence and so we will encourage consumers not to be fatigued but remain active because it is their rights; they are paying bills by the way and should continue to insist on quality service,” he informed.

He insisted that NERC has started penalizing distribution companies but noted that the problem is that penalties for such silly acts are difficult to undertake when the commission does not know and especially when people don’t complain. “If you didn’t raise this with me now, I wouldn’t have known and the people who have such bills at home decide to stay quiet without complaining or petitioning the regulator.

“There are always the elements of arbitrariness which is human psychology and of course there is the temptation to make money by the discos because most of them are in a very rough financial states and the tendency for some of them to try to make some money through these arbitrary means will be there.

“Our job really will be to address these kinds of issues with samples. We will ask questions that bother on the frequency of such complaints and then mandate them to do this and that with a closer check on them because there are 11 discos across the country and the best way to deal with them is through general sampling and not a one-by-one case as the consumers may prefer, we can zero in on them through patterns of consumer complaints.

“The enforcement of consumer action is usually done as an aggregate and that is when the regulator sees patterns of misbehaviour and not on case-by-case basis. We encourage the consumers to file their cases, copy us and sometimes refuse to pay bills and ask that the content of their bills be explained and justified to them.

“That is why we also have forum offices which are designed in such a way to say that if there are many cases at the forum offices, it means that the discos are not doing well in terms of customer care while less cases means that a disco is proactive to customer issues.

“The system is designed in such a way that we pick up issues when they have become a pattern. Consumers should also realise that parts of the key performance indicators are the number of complaints against a disco and how well it handled them.

“The regulation and enforcement is based on smoking gun; something comes up, you now ask questions and request for records but if nothing shows up, you will not have anything to do and that was what triggered our recent CAPMI consultation across the country when we discovered that some discos have up to N4 billion somewhere in the banks doing nothing.

“Now we have mandated that any month they fail to provide meter for consumers who have paid for meter to be installed in their homes, they have to refund to the consumers N5000 and we will tell them the duration of their order.

“It is because we have seen a pattern that is why we stepped in but when one customer writes to us, we have to make sure that such customer exhausts the available options at the disco level before reporting to us for further action,” he explained.

Source : Independent

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