Policy intervention series 1: Roundtable on the Future of Energy

 

Friday April 26, 2024

Radisson Blue Hotel, Victoria Island
Overview
This report addresses the significant challenges and potential solutions in Nigeria’s electricity
and oil sectors, emphasizing the need for transparency, investment, and strategic reforms to
improve efficiency and reliability. It also includes insights from industry stakeholders on fostering
local content development and improving contracting processes.
Speakers and Panelists
Olu Verheijen Special Adviser to the President on Energy; Clementine Wallop Director, Sub-
Saharan Africa, Horizon Engage; Huub Stokman MD, NNPC Retail Limited / Chairman,
MEMAN; . Biodun Adedipe Founder & Chief Consultant, B. Adedipe Associates Limited (BAA
Consult); Tonna Ejiofor Head Debt Solutions, FBNQuest Merchant Bank; Sina Sipasi Partner &
Head, Energy & Natural Resources Practice Group, AELEX.
Electricity Sector Challenges and Solutions
Challenges

1. High Electricity Costs: Nigerians face high electricity costs despite unreliable power
   supply. Comparatively, Ghana has lower electricity costs despite having less developed
   infrastructure.
2. Lack of Transparency: The cost structure for electricity remains unclear, raising
   questions about inefficiencies and accountability.
3. Stagnant Power Generation: Despite Nigeria’s vast gas reserves, total power generation
   has not increased since the late 1990s.
   Solutions
4. Improve Metering: Enhance metering systems to identify areas of energy loss, ensuring
   more accurate billing and reduced theft.
5. End Regressive Subsidies: Reform subsidies to target those who need them most, and
   increase tariffs for high-consumption customers who receive reliable power. This
   approach balances equity and financial sustainability.
6. Accountability: Hold distribution companies accountable for their service delivery,
   ensuring they meet standards and improve customer satisfaction.
7. Attract Investment: Create an enabling environment to attract private sector investment
   in the power sector by ensuring regulatory stability and providing incentives.

Oil Sector Challenges and Solutions
Challenges

1. Stagnant Oil Production: Nigeria’s oil production has not grown since the 1990s, despite
   the country’s potential and past goals.
   Solutions
2. Fiscal Incentives: Provide fiscal incentives to encourage investment in deep-water oil
   fields, which require significant capital but offer substantial returns.
3. Streamline Approvals: Simplify and expedite the process for approving investments to
   make it more attractive for investors.
4. Balance Interests: Carefully balance attracting foreign investment with protecting
   Nigerian interests to ensure sustainable and mutually beneficial development.
   Backward Integration and Local Manufacturing
   Challenges
5. Competition: Local manufacturers struggle to compete on price due to lack of economies
   of scale.
   Solutions
6. Bulk Procurement: The government will use bulk procurement and international
   benchmarking to drive down prices, making local production more competitive.
7. Encourage Localisation: Support local manufacturers to participate in these procurement
   processes, gradually building capacity and localizing production.
   Contracting Thresholds
   Actions
8. Governance Structures: The Nigerian National Petroleum Corporation (NNPC) is
   amending its governance structures to implement a $10 million contracting threshold,
   aimed at improving efficiency and transparency.
9. Contracting Timelines: The directive also addresses the need to streamline contracting
   timelines for major contracts, reducing delays and fostering a more business-friendly
   environment.

Final Investment Decisions (FIDs)
Focus

1. LNG: The government is focusing on LNG (NLNG) due to low utilisation rates. The
   construction of Train 7 is nearing completion, but Final Investment Decisions (FIDs) for
   supply projects are needed to ensure a stable gas supply.
2. New Directives: The government is confident that at least three FIDs will occur due to
   the new directives, bolstering the gas sector’s growth.
   Integration and Alignment
   Achievements
3. Duty Waivers: The government has successfully implemented duty waivers for
   Compressed Natural Gas (CNG) equipment, facilitating the adoption of cleaner energy
   sources.
   Industry Feedback and Responses
   Gas Debts
   ● Legacy gas debts remain a major issue, complicated by disagreements over whether
   debts are owed in dollars or naira. The government is working on resolving this by
   reviewing contracts and reconciling amounts.
   ● Current gas debts also pose challenges, necessitating an increase in electricity tariffs to
   ensure sufficient funds to pay distribution, transmission, and generation companies, as
   well as gas suppliers.
   Energy Transition
   While renewables currently make up a small percentage of the primary energy mix, gas will
   continue to play a significant role in Nigeria’s energy landscape. The government emphasises a
   data-driven approach to ensure energy security and affordability.
   Electric Vehicles (EVs)
   ● Recognising the potential of EVs, the government is providing fiscal incentives for EV
   companies to set up assembly plants and is exploring opportunities for mass
   transportation using electric vehicles. However, significant government intervention to
   drive EV adoption at scale is currently limited by fiscal constraints.

Panel Session Insights

1. Energy Efficiency: There is a critical need for increased investment in Nigeria’s
   downstream sector to modernise infrastructure and enhance reliability and safety.
2. Deep Water and Onshore Investments: Clear and consistent government regulations are
   crucial for attracting investment. Streamlined processes for contract approvals and tax
   incentives are necessary to encourage investment.
3. Local Content Development: Encouraging collaboration between foreign contractors and
   local companies is essential for effective utilization of resources and capacity building.
   Commercial Lending and Investor Confidence:
   ● Establishing a Naira-denominated infrastructure fund could provide long-term financing
   for energy projects. Directing a portion of pension funds into this fund could significantly
   benefit the private sector.
   ● Successful replication of embedded power and smaller-scale investments, as seen in
   recent 20-megawatt power plant deals, could alleviate grid pressure and reduce the
   frequency of grid collapses.
   Conclusion
   The discussions highlighted the need for urgent reforms, increased transparency, and strategic
   investments to address Nigeria’s energy sector challenges. Continued collaboration between
   stakeholders is essential to maximize the potential benefits and drive growth in the sector. The
   government’s efforts in promoting energy efficiency, local content development, and integration
   of renewable energy sources are commendable, but sustained effort and strategic planning are
   required to achieve long-term success.