Nigeria’s energy sector undergoing reforms

No Comments » May 3rd, 2016 posted by // Categories: Energy Development Project


Nigeria’s energy sector undergoing reforms

*Petroleum Industry Governance Bill sent to NASS

*Industry becoming more transparent

*Power challenges to be tackled

When the President Muhammadu Buhari’s administration took over on the leadership of Nigeria on May 29th last year, it ignited a lot of hope and great expectations in view of his change mantra to tear down the walls of corruption and bring back good values for all Nigerians.



Sebastine Obasi writes that for the petroleum industry, which lays the golden egg that feeds the economy; expectations are even higher, as current reforms indicate that there could be a change for the better, even as Nigeria braces up for the power challenges.

Is the present leadership of Nigeria’s energy sector taking the nation to the promise land? Are the ongoing reforms sustainable and in tune with the desired hope that the country will join the comity of oil producing nations, whose citizenry benefit from the God-given natural resource?

These are the questions agitating the minds of Nigerians, who have waited for a long time to see their country develop like other countries endowed with oil, otherwise known as the black gold.

Revised industry legislation

The ongoing reforms in the industry have led to the introduction of a new version of the petroleum industry bill, otherwise known as the Petroleum Industry Governance Bill, PIGB, which seeks to eliminate the group structure of the Nigerian National Petroleum Corporation, NNPC.

The draft law split the NNPC into two commercial entities and scrapped the office of the Group Managing Director, GMD. Under the new law, Dr. Ibe Kachikwu, may well be the last GMD of the NNPC.

Under the new draft legislation, the NNPC will be split into a national oil company that will be partly privatised and a Petroleum Assets Management Company that will be responsible for the management of the NNPC’s oil and gas investments in assets; a role currently played by the National Petroleum Investment Management Services, NAPIMS.

Each of the companies will comprise boards with non-executive chairmen, a managing director and executive directors and other members with many years’ experience in management positions in oil companies.

According to the Director, Centre for Petroleum Energy Economics and Law, University of Ibadan, Prof. Adeola Adenikinju, unbundling the NNPC would allow the new national oil company to operate independently and more efficiently.

He said: “To be able to function like a business enterprise that will be attractive to the capital market to raise funds and take decisions promptly, the corporate governance will be what is obtained primarily in the oil sector.”

Also speaking, the Senior Manager, Civil Society Legislative Advocacy Centre, CISLAC, Mr. Kolawole Banwo, said the separation would give a clear cut distinction between the independent regulator and a national oil company, NOC, that operates commercially with profit in mind.

He noted that the new NOC will have the ability to seek capital and investment outside the usual joint venture calls or tax payers’ money.

He added that unbundling the NNPC would make the Corporation become a brand that can be commercially viable and efficiently managed. “That way it will be more efficient to compete for space in the commercial world, as merit will become the basis of engagement,” he said.

Also, the Nigerian Programme Coordinator, Natural Resource Governance Institute, NRGI, Mr. Dauda Garuba, argued that Nigeria ought to have a national oil company that should not be limited to doing business in Nigeria.

“Petrobras of Brazil is doing business in Nigeria. Can’t Nigeria go to another country and have its own business? That is the huge gain we are going to have from this (unbundling),” he said.

Instituting transparency

A policy analyst, Mr. Nantim Joseph, identified transparency as the evolving culture the Minister of State for Petroleum Resources and GMD, NNPC, Dr. Ibe Minister introduced to stimulate investments in the industry.

He said: “One of the first steps that Kachikwu took towards building a new culture of transparency in the NNPC was to open up its books to the public in October 2015. He was forthright about his motivations, which he predicated on the need for Nigerians to know. The practice has become a monthly tradition.

“NNPC’s financial and operational statements are now easily available and accessible online and are no longer classified state secrets and subject of speculation and controversy,” he said.

Joseph also said that the introduction of transparent bidding enhanced competition and saved Nigeria about $150 million monthly. “Kachikwu in August 2015 cancelled all contracts for delivery of crude oil to refineries because they were unjustifiably expensive and checks showed that due process was not followed. It is estimated that this action saved the country an average of $150 million monthly. He conducted the first recorded public competitive bid for lifting Nigeria’s crude oil by the NNPC.

“The field was thrown open for competent industry players with track records of integrity and financial strength to bid. From 278 local and international companies that submitted bids, only 21 with the most responsive bids got the contracts in a process that was widely hailed as transparent and world class. The same open bidding process was applied to the coastal bid and the Offshore Processing Agreement, OPA bids,” he said.

Improving business models

For Mike Osatuyi, National Operations Controller, Independent Petroleum Marketers Association of Nigeria, IPMAN, Kachikwu has set NNPC on the path of profitability, by creating business units and making them autonomous.

According to him, “Since Kachikwu became Minister; we have seen progress being made in the industry. He promised to make NNPC profitable; he created some business units by making them autonomous; he appointed managing directors for the units. That means they will be run like private entities, as against the old order, where bureaucratic bottlenecks have marred the administration of the NNPC.

“It therefore means that any of the business units that don’t make profit will lose out. This no doubt will engender competition among the various units and by so doing they will strive to be afloat.”

Refinery co-location

Speaking on the government’s plan to embark on co-location of refineries, The former Group Managing Director, GMD, NNPC, Chambers Oyibo, said it is cost effective. “It is a laudable idea. Two refineries can be located in the same place. It will be faster and cheaper. The investors would not have to acquire new land or do environmental impact assessment, EIA.

“It is a good idea provided the companies have expertise to run a refinery with NNPC. That will encourage private sector mentality. The refineries have not been working due to lack of crude. We should solve the issue of pipeline vandalism so as to enable the refineries get products as at when due,” he added.

Industry leadership Chambers Oyibo, believes that the present leadership, as represented by Kachikwu, has shown an encouraging attitude that gives hope for positive changes in the industry.

He said: “The Minister came from a multinational company that is mostly in the upstream sector. He has a positive attitude to the running of NNPC. He got the refineries working before the pipelines were vandalised; he is trying his best.

“In the Upstream, he has reached an understanding on how to settle NNPC debts. That will encourage more investments than before. Remember he has submitted the revised Petroleum Industry Bill, PIB, to the National Assembly. It should be passed as expected, because Nigeria has lost billions of dollars due to the non-passage of the PIB. Just recently, we were told that Angola has overtaken Nigeria in oil production. With the positive attitude of the Minister, the nation’s oil industry will improve.”

More hurdles to cross

However, for the Managing Director, Frontier Oil Limited, Dada Thomas, the challenges in the industry are enormous and should not warrant much criticism, as the Minister should be given time before critical assessment.

“The complexity of the challenges is huge. It is always easy to criticise when you are outside. I still give benefit of the doubt to the Minister. Let’s give him time. We were told the refineries will be working; let us see them work. Reorganisation is still going on; let us see the NNPC put on a sound footing,” he said.

His view was corroborated by that of Godwin Igwe, Professor and Pioneer Director, Centre for Gas, Refining and Petrochemicals, Institute of Petroleum Studies, University of Port Harcourt, who also said that Kachikwu is doing his best, given the Nigerian terrain he is operating on.

According to him, “I will rather discuss institutions than particular individuals. However, he has just been appointed and it will be premature to start assigning blame. I think he is trying to do his best given the fact that Nigeria is a difficult country to manage technically, economically, and security-wise. I think he should seek more contributions and input from Nigerians in diaspora who have downstream refining experience with IOCs the world over.”

Overcoming power challenges

As regards power, Nigeria has also made some milestones, especially in the area of investment in infrastructure since the sector privatisation two years ago.

Although PricewaterhouseCoopers, PwC, a firm of management consultants, identified Nigeria as the country with the biggest gap between supply and demand for electricity in the world, going by the progress report on the roadmap for power sector reform.

But PwC also admitted that a number of private equity players are interested in Nigeria and in the power sector in particular, but are looking for extraordinary returns, especially given the uncertainties in the industry.

Also, Sovereign Wealth Funds from the Middle East are increasingly looking to Nigeria as the next source for phenomenal economic expansion. It further said that although the IMF and World Bank have identified Nigeria as one of the 11 economies to watch out for, Nigeria is still not doing well in a tough world.

It said: “About $10 billion investments are needed all the way along the electricity supply chain; generation transmission and distribution. With an estimated population of 160 million residents, Nigeria presents a huge market. And with only 40 percent of the population having access to electricity supply, there is big room for growth.”

Progress made

PwC listed some of the achievements to date to include: successful review and implementation of Nigeria’s Multi Year Tariff Order, MYTO II, and additional 1000 megawatts, MW, of power generation by the National Integrated Power Projects, NIPP.

Justifying the progress being made in the power sector, President Muhammadu Buhari said that his administration would ensure steady power supply before the expiration of his tenure in 2019, through the provision of additional 10,000MW.

According to him, 2,000 of the anticipated 10,000MW will be added to the national grid in 2016. “Nigerians’ favourite talking point and butt of jokes is the power situation in our country. But, it is no longer a laughing matter.

“We must, and by the grace of God, we will put things right. In the three years left for this administration we have given ourselves the target of 10,000MW distributable power. In 2016 alone, we intend to add 2,000MW to the national grid. In our determination to change we must and will put a stop to power shortages,” he said.

The President, who said the nation was facing the classic dilemma of privatisation of the power sector, noted that no remarkable improvement in the quality of service had been recorded after the exercise.

He however, challenged the National Electricity Regulatory Commission, NERC, to ensure that consumers get value for money and over-all public interest is safe-guarded as government will complete the process of the privatisation.

Buhari assured that government will hasten the completion of pipelines from gas points to power stations. He also promised to provide more security to protect gas and oil pipelines, while power companies should be

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