Nigeria’s Energy Crisis -Part 1: Crash Or Cruise? By Michael Oluwagbemi
It has been said severally that if all that the new administration of President Buhari does is to save Nigeria from bleeding by securing the nation and tackling corruption, then he would have given a good account of his stewardship. But this won’t make him a great president. President Buhari...
It has been said severally that if all that the new administration of President Buhari does is to save Nigeria from bleeding by securing the nation and tackling corruption, then he would have given a good account of his stewardship. But this won’t make him a great president. President Buhari will go into Nigeria lore as a great -if not the greatest President the nation ever had, if he is able to return our ailing economy to productivity and redistributed prosperity that impacts the very poor. To achieve this herculean task however, he must get to the bottom of Nigeria’s perpetual energy crisis.
In Nigeria, only 40% of the nation’s 170 million people are connected to the electricity grid, which only works partially 60% of the time. Invariably, Nigeria only produces an average of 4 hours a day of continuous electricity to her citizens. In addition, these citizens pay the most in the world on average for electricity when private sources are factored in, at 30 Cents per kWH compared to 4 cents in comparable economies in South East Asia. Worsening this reality of inefficient generation using private generators is the compounding fact that one of the world’s highest producers of oil and gas actually imports 70% of its local petroleum needs: spending over $40bn last year!
Effectively, this reality ensures that the economy (demand) is constrained by the lack of supply, with Nigeria consuming a pittance of 950.5 W per capita last year: far below countries like Gabon, Zimbabwe and even North Korea! In fact, we are ranked the 40th worst country in a world with just a little above 180 countries; so depressing for an energy rich country. This leads to unemployment and poverty!
Energy is central to the development of any economy; its importance is underlined both in availability (supply) and optimal pricing to underpin a sustained domestic economy growth agenda. In Nigeria, like in most African countries, the energy mix of the nation have remained perpetually external focused; developed to generate export revenue, rather than to provide power to drive domestic growth. This has been the underbelly of the continent’s perpetual underdevelopment since the 1960s. A continent that seats atop the largest desert (Sahara), largest river by volume (Congo), and large gas reserves in Nigeria, Algeria and Egypt is still routinely referred to as the Dark Continent because of a lack of leadership and lack of vision of its Lilliputian ruling class!
As a result of this neglect of the needs of the domestic economy, a country like Nigeria invested billions in the 1990s in an export oriented Bonny Liquefied Natural Gas Project and West Africa Gas Pipeline, but made no provision for sufficient domestic consumption of gas as her population tripled. Indeed, between 1980 and 2000, a single additional net capacity of electricity was not added to the grid, even as the population doubled and economy naturally expanded. This drove Nigeria farther into the abyss of economic under-development and the paradox of washing her hand with a spit even though it resides on a beachfront property! Blackouts and long petrol queues quickly became the norm not the exception.
To this end, Nigeria’s energy complex despite subsequent investments of over $50 billion in the last 16 years since the return to Democracy (in 2009) has remained epileptic, and could only produce 750 MW on the eve of the President’s inauguration on May 29. When a nation like South Africa with a fifth of our population easily produces 40,000 MW, we celebrate the achievement of 4,000 MW few months later.
Nigeria’s Energy Complex as such suffers from the same basic problems the larger society ails from – corruption, poor structure/vision, poor security and sense of ownership and inadequate investment. This energy complex is a long chain that has increasingly been broken, while its parts are warped and grossly ineffective to draw the economy out of the doldrums of poor outcomes including unemployment and low productivity. In Nigeria, the invisible energy tax is almost 40-50% on small and large businesses, even as a lack of energy results in related problems of insecurity in our urban areas and poor infrastructure as construction is limited to daytime when the benefit of sunlight can be harnessed.
To be clear when we speak of the Energy Complex, one refers to the exploitation of the various resources that underpins the mix (water, sunlight, coal, oil & gas, wind and uranium inclusive of Power GenCos) or the upstream, the development of the required human and physical assets to transport and convey them to market or the midstream (pipeline, rail, transmission lines, storage tanks), and the market to the end user that underpins its consumption for economic growth or the downstream (i.e. DisCos for power and retail filling stations for Petroleum Products). Only a due consideration for the right mix of policies and investments to encourage the growth of each of these linkages along the value chain will return Nigeria to a growth platform. This requires righting past wrongs in critical sectors of the economy including Petroleum, Water, Mining, Power and Transportation – a holistic strategy.
In order to achieve meaningful reforms that will translate into measurable impact on the economy, the response of patriotic and seasoned leadership as such has to be quick, correctly sequenced and outcome oriented. The issue of corruption by far is the easiest to tackle in the short term, as the industry have suffered from a lot of political interference and beset with unpatriotic individuals that can be reversed with the right political will. The structural maladies that also provide incentives can also be fixed without requirements for legislation – inclusive of reforming how the national oil company works.
Aside from the quick fixes on the corruption and reforms front, there is also an immediate need to create a single Ministry of Energy to oversee the energy complex (combining petroleum, power, mining and water basin authorities) instead of the disparate organizations that leads to turf fights and protections. As it stands today, one requires the permits of varying agencies in varying ministries (up to four) to get a single megawatt produced in Nigeria. This has to be fixed and it does not require a legislation as the constitution empowers the President to create ministries.
Also, the regulatory agencies in the Ministries need to be strengthened and be removed from the operating behemoths like Nigeria National Petroleum Company (NNPC) or Niger Delta Power Holding Company or Transmission Company of Nigeria (TCN). If it helps, the headquarters of NNPC should be moved away from Abuja to an operating environment, while the Ministry of Energy should take over its complex and supervise the overall industry properly instead of being in the pocket of the few. The Department of Petroleum Resources (DPR), PPRA and National Energy Regulatory Commission (NERC) should develop some back bone and coordinate their regulatory action, especially in the area of gas utilization to maximize outcomes. NERC specifically should ban estimated billing and require all last mile supply to be metered and return accountability to the sector, which stimulates (and validates) the necessary investment in generation and transmission down the line.
When these actions are taken, alongside bringing the various ongoing projects albeit currently poorly executed by his predecessors in refining, pipeline and power to completion (including provision of the gas necessary to drive them), then Nigeria should at least return to some semblance of stability i.e. domestic refining meeting 60% of needs, 10-12 hours of stable electricity daily (i.e. 7,500 MW steady generation) and optimally priced energy across board. Only then would the new administration truly settle to fix what really ails Nigeria in the long term.
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