Category: Energy

By Ambrose Nnaji

The Director, Technical, Nigeria Extractive Industries Transparency Initiative (NEITI), Dr. Dieter Bassi said contract transparency will allow citizens to understand the agreed terms for extractive projects in their communities; ensure that every party is following them as well as determine who is accountable for non-compliance.

Contract disclosure again will allow communities affected by extractive operations see how revenue from royalties and taxes flow to their national, regional or local governments. They will also get to understand what subsidies and tax incentives are awarded to companies and what obligations are placed on companies to protect their communities and the environment, make social payments or provide local employment, he added.

According to him, knowing about these obligations as contained in the contracts will enable citizens to monitor compliance to these commitments. Contract disclosure also allows for comparison of different contracts, creating a better level playing field which enables citizens to call on their governments to negotiate better deals.

The benefits of contract transparency include the opportunity to compare contracts for the government. Contract disclosure Bassi said therefore incentivises government officials to arrange fair deals, deterring them from signing off on shady contracts that are disadvantageous to the citizens.

In the same development, contract transparency will help to support stronger and more capable management of the extractives sector.  He said contracts that are disclosed can be more easily enforced, since all agencies and ministries within government are aware of the contract terms and can collaborate more effectively and in a timely manner to ensure that the terms are respected and maintained.

Disclosing contracts also helps governments confirm if the contract terms are in-line with the country’s legal framework and increase the capacity for consistency, culminating in good corporate governance, he stated.

Bassi said the 2019 EITI standards, which Nigeria is required to implement through NEITI stipulates in Section 2.4 that implementing countries are required to disclose any contracts and licences that are granted, entered into or amended from January 1, 2021.

According to him, implementing countries are encouraged to disclose any contracts and licenses that provide the terms attached to the exploitation of oil, gas and minerals.

Bassi said the country is expected to make  contracts entered into for the exploration and production of oil, gas and mining from January 1, this year public. He however said the country had made efforts towards making contracts public, especially in the oil and gas sector.

The EITI is a global standard for the good governance of oil, gas and mineral resources which seeks to address the key governance issues in the extractive sectors.

The standard requires information along the extractive industry value chain from the point of extraction, to how the revenue makes its way through the government and its contribution to the economy.

This includes how licences and contracts are allocated and registered, who the beneficial owners of those operations are, what the fiscal and legal arrangements are, how much is produced, how much is paid, where the revenue is allocated, and its contributions to the economy, including employment.

The EITI standard is implemented in 55 countries around the world including Nigeria. Each of these countries is required to publish an annual EITI report to disclosing information on contracts and licenses, production, revenue collection, revenue allocation, and social and economic spending.

Every country goes through a quality-assurance mechanism, called validation, at least every three years. Validation serves to assess performance towards meeting the EITI Standard and promote dialogue and learning at the country level. It also safeguards the integrity of the EITI by holding all EITI implementing countries to the same global standard.

Each implementing country has its own national secretariat and multi-stakeholder group made up of representatives from the country’s government, extractive companies and civil society. The multi-stakeholder group takes decisions on how the EITI process is carried out in the country.

The standard was developed and overseen by an international multi-stakeholder Board, consisting of representatives from governments, extractives companies, civil society organisations, financial institutions and international organisations.

Bassi states that it’s safe to say that contract transparency is a win-win for all major stakeholders in the extractive sector in Nigeria including the government, companies and civil society particularly the citizens. He therefore stresses the need for government and its agents, companies and citizens to work towards achieving the set goal of making all contracts in Nigeria’s extractive industries, transparent and publicly accessible by 2021.

He nevertheless notes that contract transparency also has its advantages for companies. Disclosing the terms of contracts supports open, fact-based dialogue that can help build trust, reduce conflict and reinforce a company’s social license to operate in any given locality or host community. Contract disclosure makes it easier for companies to show that they have complied with their financial and social obligations, helping them to address reputational risks.

Mineral exploration and exploitation are always governed by certain terms that are agreed upon prior to the commencement of their operations. These sets of terms determine the operations, revenues and other conditions and are contained in the contracts between companies and governments on behalf of their citizens.

According to Bassi, a contract is a legally binding document between, at least, two parties that defines and governs the rights and duties of the parties to the agreement. He insists it’s legally enforceable because it meets the requirement and approval of the law. To enter a contract, he says the mutual consent of the parties involved are necessary adding that it’s for this reason that it’s important to make the terms of contracts, especially those entered into on behalf of the people on the exploitation of their natural resources, public.

Bassi expressed concern that despite efforts by the government, there are still numerous challenges and obstacles towards making contracts publicly accessible in Nigeria. Some of these challenges according to him include but are not limited to a lack of legal framework to mandate/facilitate contract transparency.

Presently, the extant legal framework does not require companies or any agent of government to make contracts public. He also identifies the issue of confidentiality clauses which according to him are entrenched in some of these contracts with many of the companies citing commercial sensitivity for non-disclosures.

Bassi however noted that there are some positive advances towards achieving contract transparency in the country. He notes that in the draft 2020 Petroleum Industry Bill (PIB), the principles of contract transparency are contained in Section 83 of the Act under the heading Confidentiality.

According to him, subsection 3 relates to contracts that are in existence or coming into force of the proposed law. This, he says provides that the text of any existing contract, Licence or Lease and any amendment or side letter with the Nigerian National Petroleum Corporation (NNPC) shall not be confidential, be published on the website of the commission within one year after the effective date; and be provided to the commission by a contractor of NNPC, licensee or lessee within one year after the effective date.

According to Bassi, subsection 4 proposes an administrative penalty of $10,000 per day of default to be imposed on a contractor, licensee or lessee who does not or partially provides the commission with the required information within the stipulated time.

Subsection (5) he notes relates to the disclosure of new contracts to be executed after coming into force of the proposed law. It provides that the text of any new licence, lease or contract or amendment to it shall not be confidential and shall be published by the commission immediately following the granting or signing of such texts, the director technical adds

 

The outbreak of COVID-19 pandemic set the oil and gas industry on a tail spin. Major oil consumer, China, shut down its factories while the price of Brent crude sunk below $20 per barrel in second quarter of last year, putting spanners in the economic wheels of oil dependent economies such as Nigeria’s. This led to oil majors scaling down their investment projection in the sector for this year. Experts say this may negatively impact the industry, reports LUCAS AJANAKU.

The impact of the outbreak of coronavirus on the oil and gas industry across the world became clearer when the oil majors started releasing their yeraly reports for the year.

Nigeria, according to the upstream investment arm of the Nigerian National Petroleum Corporation (NNPC), the National Petroleum Investment Management Services (NAPIMS), has risen very fast and steadily to host the world’s 10th largest reserves at about 25 billion barrels. Within the Organisation of Petroleum Exporting Countries (OPEC), Nigeria is the sixth in terms of reserves and daily production.

Six oil companies – Shell, Chevron, Mobil, Agip, Elf and Texaco – dominate the oil industry in the country and together, they hold some 98 per cent of the oil reserves and operating assets. All have taken a hit of the pandemic.

French oil major, Total reported a massive drop in full-year profit, following a tumultuous 12 months in which commodity prices collapsed amid the coronavirus pandemic.

The energy major said full-year 2020 net profit came in at $4.06 billion, beating expectations of $3.86 billion from analysts polled by Refinitiv. It compared with $11.8 billion for the 2019 fiscal year, reflecting a drop of 66 per cent year-on-year.

Another top U.S. oil producer ExxonMobil posted its first annual loss as a public company after the COVID-19 pandemic hammered energy prices and sliced over $20 billion off the value of its shale gas properties in Q4.

The company reported a net yearly loss of $22.44 billion for last year, compared with a full-year profit of $14.34 billion in 2019.

The oil majors have warned that the ongoing coronavirus crisis is likely to continue to impact their performance in the near-term while seeking to reassure investors about their future profitability.

Total reaffirmed this trend in its full-year results, saying the oil environment “remains uncertain and dependent on the recovery of global demand, still affected by the COVID-19 pandemic.”

Another oil major, Chevron said its group revenue plunged 31.2per cent from last year to $25 billion, again missing analysts’ estimates of $26.38 billion tally.

Its CEO Mike Wirth, said:”2020 was a year like no other. We were well positioned when the pandemic and economic crisis hit, and we exited the year with a strong balance sheet, having completed a major acquisition and increased our dividend payout for the 33rd consecutive year.

“When market conditions deteriorated, we swiftly reduced capital spending by 35 per cent from 2019 and also reduced operating costs, demonstrating our commitment to capital and cost discipline.”

Excluding severance expense, 2020 operating expenses were down $1.4 billion from the prior year, he added. Chevron also completed an enterprise-wide transformation programme and the integration of Noble Energy, positioning the company for the future.

Last month, the oil giant cut its  capital spending forecast for this year to around $14 billion, including around $300 million in costs linked to the lower carbon transition, as it looks to shift investment away from traditional oil markets and into lower carbon alternatives.

That followed news that Chevron would cut around 25per cent of the workforce at Noble Energy, which it acquired in a $4.1 billion takeover in October, adding to its aim of reducing it global workforce by as much as 15per cent.

The impact of the tumult is not lost on S&P Global ratings, one of the most influential rating companies. It warned last month that it may cut the credit score on a number of major producers, including Total, Royal Dutch Shell and ExxonMobil.

The rating firm said it believes “the energy transition, price volatility, and weaker profitability are increasing risks for oil and gas producers.”

Following an unpredictable and shocking 2020, stability and sustainability are set to be the two major themes in the oil and gas industry this year, according to Oilprice.com.

Companies in the sector will continue prioritising financial resilience to boosting upstream investments, as global oil demand, although higher than in 2020, will still be below the pre-crisis levels.

Energy research and consultancy firm, Wood Mackenzie, in its 2021 outlook into the biggest themes in the oil gas industry this year said more and more oil and gas firms will include sustainability, the energy transition, and Environmental, Social, and Corporate Governance (ESG) considerations in their strategic and investment plans.

Its Senior Vice President of Corporate Research, Tom Ellacott, said: “New businesses, and new business models, are emerging from the wreckage of 2020. Companies will focus their investment on building a foundation which will be sustainable across a range of scenarios.”

Diversification into green energy, including renewable electricity generation, hydrogen, and carbon capture, is set to accelerate, as a growing number of oil and gas firms will start talking about decarbonisation and net-zero emissions targets.

The upstream will continue to be a core business for the major oil corporations at least for a few more years, as it will continue to be their cash cow.

The reshaping of the portfolios and the careful capital allocation after the third major shock to the industry in just over a decade will see continued underinvestment in oil and gas, analysts say.

The declining upstream investment, if not reversed in the next few years, could lead to a crude oil supply gap later this decade, regardless of when peak oil demand will occur. The world will need large amounts of oil even when global oil consumption stops growing.

Following the shock of last year, most oil and gas companies will be very careful with capital spending this year, and upstream investment is set to remain flat over 2020, although oil prices are expected higher than last year.

Wood Mackenzie said the industry will invest around $300 billion in upstream oil and gas this year, flat compared to 2020, and close to a 15-year low.

Its Head of Upstream Analysis, Fraser McKay, said: “Falling prices would mean rapid cuts, whereas at higher prices, contingency and resilience will outweigh enthusiasm to take advantage of a nadir in service sector costs.”

Around 20 large-scale oil and gas projects are expected to be endorsed this year, up from only 10 in 2020, but half of the final investment decisions (FIDs) that were being taken each year before the pandemic. Moreover, projects will be increasingly judged by their ESG credentials, Wood Mackenzie said.

For many companies, reducing debt will take precedence over boosting investment, while many others will optimise their upstream portfolios to turn in faster cash generation.

“We expect to see short-cycle opportunities move even further up the capital allocation pecking order, with exploration and marginal long-life projects losing out in the competition for capital,” Ellacott said in the 2021 outlook.

 

Rising renewables investment

 

Last year, the crash in oil prices and the look into what reduced oil demand could mean for the industry prompted many European oil majors to unveil strategies for net-zero emissions within three decades.

Rather than stalling, the pandemic accelerated the efforts toward a lower-carbon energy mix, also supported by growing pressure from shareholders, society, and many governments vowing to ‘build back better’ with a focus on clean energy.

The oil and gas industry will be raising investments in green energy this year, according to new research by DNV GL, a technical advisor to the sector.

A record two-thirds, or 66 per cent of senior oil and gas professionals said their organisation was actively adapting to a less carbon-intensive energy mix in 2021, up from 44 percent in 2018. Around 57 per cent plan to increase investment in renewables, up from 44 per cent in 2020, the global survey of over 1,000 senior industry professionals and executives showed this week.

To compare, a fifth of respondents, or 21 per cent, reported their organisation would boost investments in oil projects this year.

“Decarbonisation has moved from something on the horizon to an immediate priority, and there are signs that our sector may invest to transform rather than cut its way out of the present crisis,” Group President/CEO of DNV GL, Remi Eriksen, said.

According to Oilprice.com, the growing industry focus on low-carbon energy solutions could leave the oil market exposed to a supply deficit in just a few years.

Non-memeber countries of the Organisation of Petroleum Expoting Countries (OPEC+) has a lot of spare capacity that could come on stream when demand recovers. But sustained investments in oil and gas will be needed to meet global consumption of oil, which the world will continue to need, peak demand or not.

“The world may be sleepwalking into a supply crunch, albeit beyond 2021. A recovery in oil demand back to over 100 million b/d by late 2022 increases risk of a material supply gap later this decade, triggering an upward spike in price,” says Simon Flowers, Chairman and Chief, Analyst at WoodMac.

 

 

At least $10 billion investments are going on in the Nigeria energy sector. The investments are the first step in getting the country delisted from the list of most energy impoverished nations in the world. To enhance Nigeria’s energy investments, the Nigeria National Petroleum Corporation (NNPC) insists on the need for sustained deployment of oil and gas resources into Nigeria’s infrastructural development. The agency also calls for increased tax collection and economic diversification to boost investments in the energy and other sectors of the economy, writes COLLINS NWEZE.

The state of a country’s energy infrastructure speaks volume of the investments opportunities it is likely to attract, locally and internationally.

For Nigeria, energy infrastructure has for years remained below expectations, with adverse impact on the country’s development agenda.

But a new disclosures by the Nigerian National Petroleum Corporation (NNPC) on new investments in the energy infrastructure shows emerging light at the end of the tunnel.

According to the Group Managing Director, NNPC, Mallam Mele Kyari, there is at least $10 billion worth of investments currently ongoing in the energy sector. The projects, he maintained, would help to reverse the perception of Nigeria as one of the most energy impoverished nations in the world.

Kyari, who spoke on the second day of the Atlantic Council Global Energy Forum, 2021 on the topic “Delivering Energy Access in the Developing World,” noted that although the country aligns with the push for renewables, it is now focused on using its oil and gas resources in developing infrastructure till when the commodities become less relevant in about four decades.

For him, Nigeria with significant gas reserves, has approximately $3 billion to $4 billion projects currently going on, some of which have reached advanced stages. This, he said was in line with the country’s efforts to rev up production for domestic use and export.

He said: “We are not a petroleum country in the real sense. It’s agreed that we have the 10th largest reserve of oil and a significant gas reserves. Of course, what everybody recognises is the oil. The reality today is that we have a country over 200 million people. Seventy per cent of this population is well below 30, with a growing middle class and one of the fastest-growing economies in Africa.

“More importantly, for us today, an energy deficient country, over 60 per cent of our country is not electrified, the poverty level is very high, extremely challenging. But so much is going on to see how we can reverse this trend. When you combine all these, you will see that as a country of focus today, many things are happening in the energy sector.

“For instance, we are seeing investment in our energy infrastructure, especially in the area of gas in excess of $10 billion; this is ongoing. There are a number of gas-based projects about $3 billion to $5 billion and some of them are at the Final Investment Decision (FID) stage.”

According to him, Nigeria as a country is currently in transition and not necessarily in energy transition, adding that the country is not oblivious to the changes in the global oil and gas sector.

He explained that Nigeria is at the moment witnessing increased domestic gas demand in the industrial and power sectors, leading to increased production and reduced gas flaring.

Kyari added that the country is also witnessing increasing household access to gas networks and natural gas in the main cities, while there are deliberate plans to expand that access to rural areas.

He said the federal government’s recent plan aimed at deepening domestic gas consumption, led to the advent of Compressed Natural Gas (CNG) and Liquefied Petroleum Gas (LPG) and that it was part of the policy to deploy resources in the right places.

According to him, “The best of forecasts have said that in 30 years we will still have at least 100 million bpd of oil consumption.

“So, oil and gas will still remain relevant in the near future, but the transition is real. What countries and nations are doing is to move towards much cleaner fuel and this cleaner fuel is clearly gas and that’s why we as a company are focused on gas resources, making sure to supply the domestic market and create export opportunities.

“So, what we see as an energy resource-based country is to utilise the available resources of today to create the enabling environment for growth and prosperity in the country and that clearly aligns with the reality on the ground.

“We have significant goodwill and understanding across countries, nations and companies. For instance, we have significant engagement with the United States Department of Energy in the sense that we receive some support in our transition to cleaner fuels so that we can develop our gas infrastructure so that we move away from the liquids to gas ultimately.”

On whether or not Nigeria can survive without oil, especially given the current crisis in the global oil market, Kyari explained that Nigeria is gradually moving away from its dependence on oil.

“What does this mean for a country like ours which depends on oil for cash? Obviously, we have seen how we can transit to something better for our country, so we don’t depend on that today. You may be aware that today, the country’s resources are mostly coming from taxes and those taxes are growing because population and prosperity is growing and we want to get more work done”.

“As a country, we are facing the new realities and we are moving towards the use of gas and also we are developing our resources as quickly as possible so that when the real transition comes in 30 to 40 years, we will be in a position to say this is a developed country that has taken advantage of its resources,” he stated.

New investments in refineries

There Africa’s richest man Aliko Dangote is erecting the world’s largest single-train refining facility with a capacity of just 650,000 barrels per day at the Ibeju-Lekki axis of Lagos.

Although the Dangote refinery is yet to be completed, but when it eventually comes on stream, it is expected to boost Nigeria’s foreign exchange earnings, support job creation and economic growth.

Aside the Dangote Refinery, there also some modular refineries undergoing construction in Nigeria.

Speaking on energy and other investment opportunities in Nigeria, the Central Bank of Nigeria (CBN) Governor, Godwin Emefiele said the apex bank will do everything possible to support local and foreign investors interested in investing in the Nigerian economy.

Emefiele, who spoke during an assessment tour of the Dangote Refinery, Fertilizer Plant and Petrochemical Company in Ibeju-Lekki, Lagos, said local and foreign entrepreneurs will be encouraged to explore investment opportunities in the country and also enjoy government protection.

According to him, entrepreneurs should embrace the opportunity presented by low interest rate regime to thrive.

“We want to support any foreigner or Nigerian that finds Nigeria as a good investment destination. We support the person through the banking sector and foreign exchange allocations. Government stands ready to give them the needed protection and support they want,” he said.

The refinery, which will be refining 650,000 barrels per day and will not only satisfy local consumption, but also position Nigeria as major exporter of petroleum products.

“The refinery will serve the whole of Africa. This project is strategically positioned that it will only make the final cost of petrol within and outside Nigeria lower. Everything in Nigeria that has plastic will be produced from the plat and will satisfy not only domestic production but also for export,” Emefiele said.

The apex bank chief said the Dangote Refinery will employ over 70,000 Nigerians when it begins operation.

President of Dangote Group, Alhaji Aliko Dangote said he is on a mission to aggressively reduce the unemployment in the country.

He said the plant would also retain foreign exchange as Nigeria becomes self-sufficient in petroleum refining.

“Besides, we are going to help in terms of not only creating jobs but also in reducing the outflow of foreign exchange, not only in petroleum products but also in petrochemicals and fertilisers. We would be one of the highest foreign exchange generating companies, going forward,” Dangote said.

According to him, the company’s $2 billion granulated urea fertiliser plant at Ibeju-Lekki in Lagos State would make Nigeria the only urea exporting country in sub-Saharan Africa and biggest producer of polyethylene, which is capable of generating $2.5 billion annually.

He said: “Nigeria will soon become the biggest and only urea exporter in sub-Saharan Africa, for the first time. And we are not only exporting, we would be exporting, big time.

“We are also going to have polyethylene, which is about 1.3 million tonnes annually. These two products would bring in about $2.5 billion annually in terms of foreign exchange. A lot of forex would now come in and that $2.5 billion is only about 10 per cent of remittances.”

Dangote said the size of the project necessitated the construction of a jetty to take care of  over-dimensional cargoes.

“It is a huge project. That is why we have built a jetty and the pipeline through which we are bringing in the crude.

“One of the reasons the CBN is supporting us is that by the time we become operational, we will not only be creating jobs but we will reduce the outflow of foreign exchange not only in petroleum products but in petrochemicals and fertilisers”.

Tax collection, economic diversification crucial

Aside oil revenue, government is also encouraged to boost non-oil income from taxes, levies and loyalties.

Speaking on the need to increase revenue generation by government, President of African Development Bank,

Akinwumi Adesina, said building back the economy in the face of the COVID-19 pandemic would require a lot more resources, adding that taxes form a significant part of government revenue.

“It is crucial to ensure that the tax base expands. Given that over 60 percent of Nigerians are in the informal sector, priority should be to support measures to move a large part of this from informal to formal sectors. Making tax codes simpler and reducing administrative burdens and formalities are important to move from informality to formality. Doing so will allow people to be able to better assess their tax obligations,” Adesina said.

He said digitalization of tax collection and tax administration is critical to ensure greater transparency of the tax system, widening of the tax base while mitigating compliance risks and encouraging voluntary tax compliance.

“The government should focus a lot on corporate taxes, and ensure full compliance. But it is important to ensure that such taxes do not discourage investments. Nigeria can learn from the case of Estonia, which taxes corporate incomes but based on distributed profits. This allows corporations to re-invest their profits in expanding their businesses,” he said.

Electricity consumers are angry over the hike in electricity tariff without a concomitant improvement in power supply. Rather than giving its nod to tariff hike, the government ought to have compelled the power firms to improve power generation, distribution and relative stability in supply, LUCAS AJANAKU reports.

 

FOR electricity consumers across the country, these are certainly not the best of times. Battered by the ravages of COVID-19, which had destroyed lives and livelihoods, they have to pay about 50 per cent increase in tariff through their noses for electricity not supplied.

A retired civil servant in Abesan Estate, Lagos, expressed shock at the electricity bill that was slammed on him last November. The octogenarian who identified himself as Pa Isiaka, said he receives N5000 monthly as pension but now had to pay N27,000 monthly bill for his two-bedroom apartment in the estate.

He said: “I am an 85-year-old retiree. I get only N5000 monthly as my pension. I pay my bill regularly because it was N5000. My children used to help me, but unfortunately, the one that had the strength was affected by job loss occasioned by COVID-19. I was owing only N500 as at October 2020. Now they brought N27,000 for November. Because of my condition, I paid N3000 out of the bill. Now they brought another N27,700 for December 2020. Where do they expect me to get this kind of crazy bill?”

Two of the bills sited by our correspondent read: “Your Bill for DECEMBER 2020:  Tarrif: C – Non MD; Rate: 37.95; Read Code: D; LAR: PAR: Consumption: 679; Curr. Charges: N 27,700.65; Previous Balance: N28,500.68; Payment: N 3,000.00; Adjustment: 0.00; Amt Due: N 53,201.33; Due Date: 18/01/2021; For enquires, call 017000250; Detail: eservices.ikejaelectric.com/billing.

Another read: Your Bill for DEC 2020: Tariff: C – Non MD; Rate: 37.95; Read Code: D; LAR: PAR: Consumption: 677.00; Curr.Charges: N27,619.06; Previous Balance: N205,575.57; Payment: N0.00; Adjustment: N0.00; Amt Due: N233,194.63; Due Date: 18 Jan 2021. For enquires call 017000250; Detail: eservices.ikejaelectric.com/billing.

The owner of the second bill who identified herself as Mama Chibike, said before the recent hike, she had been battling the menace of crazy bill. “I don’t run a factory in my house. I am a retired civil servant being supported by my children. I don’t know why they were sending between N20,000 and N30,000 bill to me monthly. I went to complain to them, but they just kept promising that they will do something. Nothing was done until the recent hike,” she lamented.

Another customer, Lizzy Chioma, said the officials of Ikeja Electricity (IE) stopped coming to read the analogue meters installed at her apartment. She alleged that each time the field workers of the power firm came around with their ladder threatening to disconnect, residents would start running helter-skelter to avert being disconnected.

She said: “I challenged one of them why the electricity tariff was suddenly hiked from N5000 to N27,000, the young man said he was helpless and expressed sympathy with the consumers. He told me the order came from their boss in the office. He advised me to pay N45,000 to get pre-paid meter. I thanked him.”

These are few of what the average electricity consumer in the country passes through. Electricity tariff and fuel price have been increased. While the Federal Government has legislated a minimum wage of N30,000, it is not clear if five, out of the 36 states, have started paying.

The era of crazy billing under the guise of estimated billing has been replaced by an uncompassionate billing system backed by state actors.

Pa Isiaka and Mama Chibike represent the poor the Nigerian Electricity Regulatory Commission (NERC) Chairman, Prof. James Momoh, assured that the tariff hike would not affect.

Momoh said a strategy had been put in place to ensure that whatever happened, the poor would no longer subsidise the rich.

Hear him:  “It is not going to affect the poor; we will make sure that the downtrodden and the people you feel for at the moment will not be affected by any increase we will be bringing forth.

“It will be based on the hours of service and the quality of power available there. We don’t want the poor to subsidise the payment of the rich. In other words, we must make sure that the poor are not sacrificed in the process of tariff increase.”

 

Cap on estimated billing

Woried by mass outrage over estimated billings, NERC made an order capping  estimated billing in the Nigerian Electricity Supply Industry (NESI), which took effect from February 20, 2020.

By Order No/NERC/197/2020, dated February 20, 2020 (the ‘Order’), NERC repealed the NERC (Methodology for Estimated Billing) Regulations 2012 (the ‘2012 Regulation’), and made an order capping estimated bill to unmetered customers by DisCos in NESI.

The main objective of the Order is to protect unmetered R2 (Residential-single and three-phase meters, who consume more than 50kWh per month) and C1(Commercial-single and three-phase meters, small businesses) customers from arbitrary billing and expedite their metering process.

The Order, among other things, stated that DisCos are to ensure tariff class A1 customers (customers using grid-connected premises for agriculture, schools, water boards, religious houses, government and teaching hospitals, etc, that require single or three-phase meters) are properly identified and metered by April 30, 2020; All unmetered R2 and C1 customers shall not be invoiced for consumption of energy beyond the price capped in schedule 1 of the Order, (by illustration, N1, 872 for R2, where consumption is capped at 78kWhr per month at a tariff of N24/kWh); All residential customers who consume not more than 50kWhr (R1 Customers) per month shall be billed N4/kWh at a total maximum of N200 per month; All other customers on higher tariffs shall be metered by April 30, 2020 otherwise they shall remain connected to supply but without further payment to the DisCos until a meter is installed.

It was also directed in the Order any customer whose estimated bill is below the capped price shall remain so without upward review until the installation of a meter; and any customer who rejects the installation of a meter must be disconnected by the DisCo.

The purport of the Order as stated in its objective and as succinctly captured above is quite apposite in the pursuit of customer satisfaction, however, there is need to point out that the energy cap on estimated bills for R2 and C1 customers is on a case by case basis and not a uniform base tariff of N1,800 popularly held.

Schedule 1 of the Order makes clear provisions for Area/Business unit-specific billings per kWh for R1 and C1 customers. For example, in Abuja, whereas Kubwa is billed 114kWh for R2 and 120kWh for C1, Maitama is billed 432kWh for R2 and 548kWh for C1. In Lagos, whereas Apapa is billed 376kWh for R2T and 300kWh for C1S, Island is billed 774kWh for R2T and 648kWh for C1T. Whereas, Jigawa North is billed 61kWh for R2A and 60kWh for C1A, Kano Central is billed 83kWh for R2A and 86kWh for C1A.

 

DisCos kick

The DisCos, however, screamed blue murder to the capping initiative, saying it was causing them huge monthly revenue loss.

Ibadan Electricity Distribution Company (IBEDC) said it lost more than N1.8 billion to capping of estimated billing, describing it as a disservice to the energy industry.

The power firm’s chief, Mr John Ayodele, said: “As a result of capping, IBEDC is losing more than N1.8 billion every month for the energy delivered because those on capping do tell us that they don’t need meters because the capping is cheaper for them.

“With this, they can use electricity as much as they want. It is not in our interests to do capping, based on what has been delivered to them,” he said.

 

Mass metering to rescue

The Federal Government had unveiled a National Mass Metering Programme (NMMP),  designed to bridge the metering gap estimated at about five million.

Last November, under the first phase of the NMMP, one million meters were given to electricity consumers free in Kaduna and Kano, Lagos states with the Federal Capital Territory (FCT).

The Central Bank of Nigeria (CBN) has disbursed N14.35 billion to DisCos to cover the procurement of 263,860 meters under the  NMMP.

Reacting, the spokesman for IE, Felix Ofolue, said the customers were being billed according to their bands. He said there was an increase in tariff in November, last year for customers in bands A, B and C in line with Service Reflective Tariff (SRT) approved by NERC.

NERC had okayed tariff hike but said the DisCos must consult with customers first.

“Following consultations and directions on tariff policy, the Commission (NERC) hereby approves a deferment of the applicable tariffs for customers in service bands D and E (that is customers with a service commitment of less than an average of 12 hours of supply per day over one month) for  September 1, 2020 to January 1, 2021,” it had said.

Momoh  said under  Service Based Tariff (SBT) model, DisCos were expected to consult with the customers before any arbitrary hike.

“Under these service-based principles, DisCos will only be able to review tariff rates for customers when they consult with customers, commit to increasing the number of hours of supply per day and quality of service.”

According to a public notice entitled: Implementation of Revised Service Reflective Tariff by Ikeja Electric, the power firm said the hike in tariff was sequel to a consultative meeting among the Federal Government, labour unions and other stakeholders following concerns raised about the basis of the MYTO 2020 SRT, which were earlier planned to be implemented from September 1, 2020.

On why the firm stopped reading meters, Ofolue said: “The integrity of most of the old meters have been compromised, so they don’t capture the actual consumption. The extortion claim is an allegation so we need proof to be able to investigate appropriately. We have always had a whistle-blowing channel where customers can report ilegalities.

“Yes, prepaid meters are a means to capturing the actual consumption, so we always advise customers to apply for meters. However, we have commenced the National Mass Metering programme, so installation is free. Roll out is based on our scheduled plan.”

The tariff hike has been described as ill-timed by stakeholders. They say it will not alleviate poverty but further aggravate it.

They may be right. According to figures from the National Bureau of Statistics (NBS), unemployment rate in the country jumped to 27.1 per cent in Q2 2020 from 23.1per cent in Q3 2018.

Highlights of the statistics showed that the number of persons in the economically active or working age population (15 – 64 years of age) during the reference period of the survey, Q2, 2020 was 116,871,186. This is 1.2 per cent higher than the figure recorded in Q3, 2018, which was 115,492,969.

The unemployment rate among young people (15-34 years) was 34.9per cent, up from 29.7per cent, while the rate of underemployment for the same age group rose to 28.2per cent from 25.7per cent in Q3, 2018. These rates were the highest when compared to other age groupings.

The damage the hike in electricity tariff could cause for the people is captured in a World Bank report.  “Nigeria is highly vulnerable to the global economic disruption caused by COVID-19, particularly due to the pronounced decline in oil prices and spikes in risk aversion in global capital markets. Nationally, 40 per cent of Nigerians (83 million people) live below the poverty line, while another 25 per cent (53 million) are vulnerable. With COVID-19, many of these 53 million vulnerable people could fall into poverty. The magnitude of the health impact depends on the duration and the domestic spread of the outbreak, while the economic impact hinges on oil prices. Oil accounts for over 80 percent of exports, a third of banking sector credit, and half of government revenue. Oil prices also affect growth in non-oil industries and services, with additional pressures arising from foreign portfolio investors’reassessment of risks and domestic liquidity management,” the global lender said.

The Director-General, Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, said for investments to thrive in the power sector, cost-reflective tariff was inevitable.

He said the alternative was for government subsidy. “Cost reflective tariff is a difficult option, especially given the prevailing economic conditions. But it is the most sustainable option that would salvage the power sector and attract investment. It is important to fix the numerous inefficiencies that characterise the entire power sector value chain,” he said.

Analysts say fixing the numerous inefficiencies that have become the hallmark of the power sector post-privatisation should have come before overkilling tariff hike.

“It’s like putting the cart before the horse. Increase in power generation and attainment of relative stability in power supply should have come before a hike in tariff. To me, it’s just adding to the burdens of the ordinary man like me,” Bankole Joseph, a barber said.

There are indications that private investors are picking interest in domestic refining of oil with the coming on stream of two modular refineries. But there seems to be no clear policy that will guarantee cost recovery by these private investors, writes LUCAS AJANAKU.

 

IT is a shameful paradox that Nigeria, the sixth oil producing nation in the Organisation of Petroleum Exporting Counties (OPEC) depends entirely on imported fuel to run the engine of her economy.

Efforts by the administration of former President Olusegun Obasanjo to encourage domestic refinery of petroleum products were not backed by the political will. For instance, his former Group Managing Director, Nigeria National Petroleum Corporation (NNPC), Funsho Kupolokun, said the government will put a policy in place that would require all the multinational oil companies (MOCs) operating in the country to refine 50 per cent of their oil locally. That policy, logical as it sounded, never saw the light of the day.

The government issued about 20 licences to private investors to build refineries. None of the licencees is refining oil in the country.

The reason for this is not far-fetched. The private sector investors said it would be unwise for them to raise offshore cash from lenders, site the plant while the government caps the price of the finished.

Building more refineries and expanding the capacities of existing ones was one of the electioneering promises of President Muhammadu Buhari. Nigerians trusted him because they recalled that most of the current downstream infrastructure, including the four refineries (one has been sold to Indorama) with combined daily production capacity to process 445,000 barrels of oil per day (bopd) were built when he was Federal Commissioner for Petroleum and Natural Resources and pioneer chairman, NNPC.

About six years into the administration and several hurtful adjustments in the pump price of petrol, hope of domestic refining is on the rise. Buhari had increased petrol price to N145 per litre, a 67 per cent hike in 2016.

But he had identified modular refineries as one of the four elements in the government’s refinery roadmap unveiled in 2018.

 Elixir

At the end of last year, two modular refineries driven by private investors were inaugurated.

They are the  11,000bopd Ogbele Expanded Refinery and the 5,000bopd Waltersmith Refinery in Ibigwe, all situated in the eastern part of the country. The first phase of the Waltersmith plant has 5,000 bopd while the second phase increases this to 50,000 bpd capacity. The facility is close to the Ibigwe flow station located in Imo State.

Crude will come from Waltersmith’s own marginal field, Ibigwe. Seplat Petroleum also has assets in the area is considering working with Waltersmith on potential processing.

The company will build the second phase in two parts. One is a 25,000 bopd standalone condensate refinery and aims to complete this by 2023. The second part will be another 20,000 bopd crude processing plant.

Buhari said domestic refining of oil would eliminate imports and increase availability. The president had named modular refineries as one of the four elements in his refinery roadmap launched in 2018.

“There is increased momentum in the other three focus areas under the roadmap covering the rehabilitation of existing refineries, co-location of new refineries, and construction of greenfield refineries.

“The realisation of the refinery roadmap will ultimately lead us to becoming a net exporter of petroleum products not only to our neighbouring countries but to the worldwide market. This modular refinery is the largest commissioned modular refinery in the country today,” the president had said during the virtual inauguration of Waltersmith refinery.

According to latest update from oil industry regulator, the Department of Petroleum Resources (DPR), another 7,000bopd OPAC Refinery in Kwale, Delta State, would likely be the third functioning, privately run refinery, having just been completed and awaiting commissioning.

Under construction too are two others- the 500,000bopd Dangote refinery which is 71 per cent completed, says the DPR‘s report, and the 6,000bopd Edo Refinery.

The DPR had issued licences to 25 investors, but aside these five, no other refinery is under construction in the country.

The widely publicised Elko Petrochem & Refining Company is not yet under construction, according to the DPR update nor is the Petrolex Oil and Gas refinery, for which an ‘authority to construct’ (ATC), was granted in December 2018. There are 16 proposed refineries that have been granted authoritisation to construct, but are not in construction stage.

Importation as forex depleter, harbinger of corruption

The Federal Government said it spent N1.5 trillion on fuel subsidy in 2019 alone. Senior Special Assistant to the President on Niger Delta Affairs, Senator Ita Enang, disclosed this in a communiqué in Abuja.

Worried by the large scale fraud uncovered under the regime of fuel subsidies payment to importers which ran into several billions of naira, the programme was discontinued in 2016, while the NNPC became the sole importer of petrol into the country and introduced the oil-for-fuel swap deal.

Nigeria is almost entirely reliant on imported fuel because of years of neglect at its own refineries. It has leaned heavily on the swap arrangements to get fuel, particularly petrol, as other would-be importers struggle to make money due to price caps.

NNPC said it had saved the nation $2.2 billion and supplied some 90 per cent of its import requirements.

End to subsidy era

In a bid to deregulate the downstream oil sector, the Federal Government, had removed what it called fuel subsidy and under-recovery costs.

NNPC GMD, Mele Kyari, Kyari said: “There is no fuel subsidy anymore in Nigeria. It is zero subsidy forever. There would be no resort to either fuel subsidy or under-recovery of any nature. NNPC will play in the petroleum marketplace, just like any other marketer in the space. But we will be there for the country to sustain the security of supply at market price.”

Hope for neglected refineries

NNPC said it is ready to adopt the Nigeria Liquefied Natural Gas (NLNG) model for its three ailing refineries to optimise performance.

Kyari said having removed under-recovery (fuel subsidy) on petrol, the next line of action is remodelling the operations and management of the three refineries, Warri refinery, Port Harcourt (I & II) refineries and Kaduna refinery, after NLNG model.

NLNG model is a successful business model in the oil and gas industry, where the Federal Government owns 49 per cent stake while other shareholders control 51 per cent. The model allows the Board to take business decisions like privately owned businesses except in some cases where national interest needs to be considered like the Train 7.

“We made a very conscious decision to shut down our refineries. Today, after proper scoping, which was not done in the past, we know exactly what to do to get them back on stream. We have also secured financing to make sure they work optimally.

“Aside from proper scoping, we are also going to have an Operation & Maintenance (O&M) contract, a different model of getting the refineries to work. We are looking at the NLNG structure where world-class processes will always be in play. We’ve seen it work before with success,” Kyari said.

He said the stoppage of subsidy or under-recovery payment will ensure monies are freed up for the government to fund critical infrastructural projects such as education, health, roads and others  for the benefit of the ordinary man.

“Ultimately, having the market to take care of consumption is the best way to manage the issue. Once the market forces come into play, the over-reliance on the oil Industry will cease and other sectors of the economy will quickly pick up.

“We decided that the fuel subsidy/under-recovery has to be stopped. In any case, the subsidy is an elitist thing because it is the elites that benefit. They are the ones that have SUVs (Sports Utility Vehicle), four, five cars in their houses. The masses should be the ones to benefit.

“The stoppage of subsidy or under-recovery payment will ensure monies are freed up for govt to fund critical infrastructural projects such as education, health, roads & many others, for the benefit of the ordinary man. There are many things wrong with the under-recovery (fuel subsidy) because we are supplying more than we need; we are supplying the whole of West Africa. Therefore the under-recovery (fuel subsidy) itself is so over-bloated because we are subsidising the whole of West Africa! That has to stop,” he said.

Inconsistent policy

Stakeholders have faulted the Federal Government’s inconsistent approach to policy implementation, especially as it relates to sale of petrol in the country.

The Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed said the Federal Government is putting the enabling environment in place for private sector players in the downstream oil sector.

Hear her: “What we are doing is enabling the petroleum sector to actually grow. There have been a number of refineries that have been licensed for several years. None of them was willing to start refining under the regime that we had where fuel (price) was controlled.”

It is strange the role an agency such as Petroleum Products Pricing Regulatory Agency (PPPRA) still has to play in a deregulated environment.

Oil marketers believe the Federal Government is paying lip service to the implementation of total deregulation of the downstream oil sector.

Acting under the aegis of Major Oil Marketers Association of Nigeria (MOMAN), the group faulted the continued interference of the government with the pump price of the product, a situation it said is antipodal to the spirit of deregulation.

Its Chairman, Tunji Oyebanji, in a telephone interview, said as the situation stood today, the Federal Government is still determining the pump price of petrol in the market. He said what stakeholders prefer is authentic deregulation in which case, the market forces of demand and supply, at equilibrum, determine the prices that are agreeable to the final consumers.

Oyebnji who is the CEO of 11 Plc, said what the Federal Government said the government is not working its talks.

He said:  “What government says is that it wants deregulation. However we from time to time see situations that are confusing such as the announcement that government and labour have agreed to a certain reduction in the pump price of petrol.

“PPRA has recently unveiled guidelines which will determine how things are done in the industry. This is not consistent with deregulation.

“We like the Federal Government’s pronouncement about deregulation but their action is not consistent with the spirit of deregulation. We are however hoping that the government will live to its promise this year.”

Oyebanji faulted the argument that if the price of petrol was left to the whims and caprices of market forces, considering the fact that crude oil is subject to the volatility and shock of the international community, it might go far beyond what would be affordable by the average Nigerians.

According to him, Nigerians are also members of the global community that depend on the importation of other products that are subject the instability in foreign exchange (forex). He said should the exchange rate fall to about N600/$, would the country stop the importation and consumption of essential goods.

He said the root of the problem is that Nigerians are used to price fixing and wondered if the prices of crude oil go up in the international market, country stops exportation of the commodity for that fact.

Like Kyari, Oyebanji said the propensity of Nigerians to waste is what must be stopped. He said the habit of one person putting three, four, five cars on the road simultaneously is what must be addressed to adjust and save cost.

It is not clear if the Federal Government is waiting for big players such as Aliko Dangote to stream his plant before taking the bull by its horns.