[NGW Magazine] Charging for Nigerian power

After years of feet-dragging, Nigeria’s gas-to-power sector could this year see a turnaround – but it will need determination and ruthlessness to bring it about.

Developing Nigeria’s gas-to-power sector has to date proved a frustrating and flawed mission, not because of any lack of natural gas resources, but because of a plethora of reasons ranging from the mismanagement/neglect of basic infrastructure to the low tariffs paid by Nigerians for their energy, say experts.

Another challenge facing the sector is that, over the years, gas has been poorly developed when compared to oil. Much emphasis has never really been placed on gas, because the price of oil was booming in the global market. However since the oil price collapse of 2014-15, Nigeria has been forced to sit up and take note of the many advantages offered by its gas resources, ranked ninth-largest in the world.

In 2017 alone, indigenous and foreign stakeholders have focused much attention on gas. Frontier Oil CEO Dada Thomas, who is also president of the Nigerian Gas Association (NGA), has on several occasions called for an increase in tariffs in Nigeria’s gas-fired sector, so that the value chain can be effectively run and so that Nigerians can have access to regular power. According to him, if people are willing to pay more for power, then power cuts will no longer be a challenge.

Differing view

But this is only part of the picture, according to Sowunmi Olabode, consultant to Nigeria’s House of Representatives committee on power and the Senate committee on gas at the National Assembly. He told NGW December 6 that higher tariffs will certainly not right the wrongs in the gas-to-power sector. He says that feed gas is always priced in US dollars, which affects trade between the gas producers and Independent Power Plants (IPPs) who also buy gas in dollars.

“This has led the Nigerian Electricity Regulatory Commission (NERC) to conclude that the gas component of power tariffs is in US dollars”, Olabode said: “This means that anytime there is a foreign exchange fluctuation, the tariff ceases to be cost-reflective. This ought not to be.” He believes that, if the issue of the sale of feed gas in US dollars is not tackled, higher tariffs will mean nothing.

“So no matter how much you increase the power tariffs, they will not be cost reflective at least to the extent that the component of gas is in US dollars. Increasing the power tariffs without fixing these problems is a simple case of throwing money at the problem. It’s what doctors call treating the symptoms and leaving out the underlying causative factors.” 

Olabode called for gas producers to be paid in naira, instead of Nigerians being be made to pay according to dollar indexation. Naira-based tariffs will not cause an exodus of the mostly foreign gas producers, he argued: “The threats about leaving Nigeria are half-truths. The only aim is to create panic in the minds of those in the industry.  I think it is a bit alarmist to say that the gas producers will leave the country because they are paid in naira. Foreign exchange rates fluctuate every week maybe every day. Imagine the chaos, if electricity tariffs are changed four times in a month. The important thing, in this case, is the protection of the economy and the currency.

“Now, if there are strong concerns from the gas producers, they can approach the regulator or the legislature to mediate a common ground. They can also engage consultants to engage the system in order to produce a solution rather than deciding for the whole country from a limited and self-centred view,” he said.   

It seems though that the federal government is ready to tackle issues affecting the gas to power chain, as opposed to focusing only on higher electricity tariffs.

During the Sixth Presidential Quarterly Business Forum for private sector stakeholders held December 4 at the State House in Abuja, Nigeria’s vice president Yemi Osinbajo said the government will focus now on cleaning up the gas-to-power value chain, with an admission that higher tariffs were unavoidable.”

“I am sure you are aware of the Payment Assurance Guarantee which we put in place for over naira 700 bn [$1.93bn] to ensure that gas is paid for and to bring liquidity to the whole value chain. Today [December 4], we will be meeting with the World Bank on a scheme they have been working on with us to fund the entire value chain and to ensure we transit smoothly from where we are, to a much more market-determined policy for electricity,” added Osinbajo: “This will involve a fair amount of subsidy and help... There is no way of sustaining the current subsidies long term, but we want to ensure the process is smooth.”

Nigerian civil society organisations (CSOs), however, have opposed an alleged 61% increase in power tariffs planned by the Nigerian Electricity Regulation Commission (Nerc). 

Conflict over price, regulation

At a December 18 Lagos rally against higher tariffs, the representative of one such organisation, Toluwani Adebiyi, told journalists that the planned increase would not give Nigerians the power they expect. In the past, he said, the incessant power tariff increases had not been accompanied by a better service.  

The CSOs advised Nerc to ensure that the generating companies generate enough power for the distribution companies, as a way of correcting one aspect of the national power failure. They also believe that Nigerians are being exploited and called on the federal government to revoke the licences of private companies now running the power sector, arguing that  privatisation did not seem to be benefiting the country. 

In order to attract significant local and international investments into the sector, some issues have to be examined. But this is largely dependent on adoption of the Petroleum Industry Bill (PIB), regulatory legislation that has yet to be enacted, as the National Assembly is taking its time to vet the bill.

Commenting on the delay in passage of the PIB,  Olabode said that for the gas to power chain to be truly effective, certain issues still need to be addressed. As one example, he cites state producer Nigerian National Petroleum Corporation (NNPC), which is both a player and a regulator in the gas industry, thus limiting the sector’s capacity to expand. 

“The regulator needs to be properly separated to do the work of regulation. Also, the fiscal laws governing tax need to be made significantly clear. All of this can be achieved in one fell swoop by passing the PIB into law. In other words, the passing of the PIB will revolutionise the operations and activities of the sector,” Olabode tells NGW. 

Omono Okonkwo