The National Energy Council (NEC) and Sustainable Energy and Power Sectors Reforms in Nigeria

By

Abubakar Atiku Nuhu-Koko

aanuhukoko@yahoo.com

Wednesday, 05 September 2007

With the much awaited establishment and inauguration of the National Energy Council (NEC) by President Umaru Musa Yar Adua, the nation may not be far away from getting  new national energy and power policies from the President. The NEC is President Yar Adua’s own “COBRA”[1] team that will from now on, deal with the emergency situations in the nation’s energy and power sectors respectively. Already, a new oil and gas management regime for the country has been unveiled by President Yar Adua at the Wednesday, 29 August 2007 Federal Executive Council (FEC) meeting.[2]

The harmonised reports of the Oil and Gas Sector Reform Committee (OGRC) and Oil and Gas Reform Implementation Committee (OGIC) inherited from the immediate preceding administration of former president Obasanjo were adopted by the FEC and formed the basis for the new oil and gas management regime for the country. The new regime unbundled the behemoth Nigerian National Petroleum Corporation (NNPC) into five separate entities and made public the composition of the much awaited National Energy Council (NEC).

In addition to the unbundling of the NNPC by the FEC, President Yar Adua informed the nation to get prepared for the long awaited declaration of the National Emergency on Energy (and Power?), which he sounded words of caution and warning in advance that it may contain some drastic and unpalatable ingredients, which may intrude into our fundamental human rights! Nothing more can be said on this issue until the contents are made public by the government. President Yar Adua is contemplating taking such drastic measures in order to tackle the myriad problems besetting the oil, gas and power sectors of the country. For example, apart from the allegations of massive corruption, and lack of transparency and accountability in these sectors, all the targets set for these sectors by their technocratic managers and the government, have always been missed considerably over the years.

Therefore, the culmination of failures of government policies, governance and management of these sectors landed Nigeria where it really did not belong – a net importer of petroleum products and chronically short of sufficient electric power generation capacity even though, Nigeria has about three decades of direct involvement in these sectors and over 50 years of foreign companies involvement in the development of the nation’s hydrocarbon energy resources. The declines in the outputs of domestic power generation, domestic crude oil, gas and refined products are helping to keep the economy in doldrums in spite of the healthy and robust improvements in the international prices of oil in the last eight years or so.

Nevertheless, without prejudice to what Mr President’s plans are, under the much awaited presidential declaration of national emergency on energy and power, Nigeria’s new energy and power policies need to focus on the following fundamental issues: security of supply, demand-side management, competitiveness, efficiency, fair access, sustainability and environmental protection/climate change issues among others. However, whichever programmes and projects are envisaged under the intended national emergency on energy and power proposition, the positive impacts of planned programmes and projects would probably not be immediately be beneficial to Nigerians and the economy until at least another 2-3 years from the time they are rolled out. At best, some of the programmes and projects could deliver some temporary respite and help to reduce the energy and power deficits on short term basis.

But, judging from the mountains of problems at hand, Mr President’s plans would probably require at least minimum of five years to get to full fruition, given the necessary public support, adequate funds mobilisation and private sector participation, among others. But the national energy council needs to be reminded that short-term attitudes have no real place in the energy and power sectors because they are, or should be long-term thinking sectors and industries. Moreover, the government needs to recognise that capability, technical and managerial competencies, much of which are concentrated in the hands of foreign firms, need to be factored in any new public policy development concerning these sectors and industries.

Security of supply: The new energy and power policies, which Nigeria needs from President Yar Adua, should contain sensible and coherent strategies that mainstream both conventional non-renewable and renewable energy resources and sources that are available in the different geographical locations in Nigeria. For example, Nigeria’s experience with the exploration, exploitation, development and supply of conventional hydrocarbon and hydropower energy resources in the last 50 years has been dismal in terms of sufficiency, quality and accessibility. Basic petroleum products, cooking and natural gas for thermal power generation of electricity have more often than not, been in chronic shortages and electricity supply has been epileptic when electric power is available.

In the eight years of president Obasanjo’s administration, for example, over $6bn were expended on power supply programmes and projects by the federal government but with no tangible improvements in the sector to date. The same situation exists in the downstream petroleum sector where huge sums of money have been sunk in the last eight years but the refineries have remained comatose. Paradoxically, Nigeria depends on 100 per cent imported refined petroleum products for several years.

There is therefore the need to transit from the business-as-usual energy and power supply model to a new model, which will ensure supply mix that is based on harnessing the bountiful renewable and non-renewable resources with multiple suppliers in the country. This type of model has been enormously successful in advanced economies of the world that we want to join by the 2020.

The transition from business-as-usual ancient regime in the supply-side to a new supply regime, which brings in new local and foreign energy and power companies, is necessary if Nigeria is to fulfil its dream of belonging to the mystic 20 most developed nations of the world by year 2020. This means that the National Energy Council needs to work out strategies that not only provide incentives for the emergence of local energy and power companies but also, attracting foreign energy and power companies to open shops in Nigeria within a very reasonable time.

The existing pathetically absent or very low local private sector investments in the energy and power sectors need to be reversed; independent indigenous companies need to consolidate and play an increasing important role. This should not be a problem as Nigeria was able to achieve such a feat in the nation’s Telecoms and Banking sectors within a very short period. This month for example, September 2007, Nigeria is celebrating six years of the revolutionary transformation of the nation’s Telecoms sector; rapidly transited from relative obscurity to a very vibrant local and foreign investor’s haven.

The National Energy Council and the national emergency on energy and power should as a matter of national priority and urgency, create enabling environments, which can attract multinational oil and gas companies operating in Nigeria to venture into the downstream investment and operations in oil refining and petrochemicals. Similarly, foreign energy and power companies like the British Gas group (BG), the French state-owned Gaz de France (GdF), the Suez-EdF, the German Eon and RWE, Duke Power of the United States of America (USA), the Swiss-Sweden ABB, amongst others, need to be encouraged to invest in the development of the nation’s bountiful energy and power resources.

The National Energy Council should be guided by the fact that the developed world also has to update ageing power grids, add capacity and connect new renewable sources of power to existing networks. Also, the Council should know that, for emerging markets to continue industrialising requires the building of the whole energy infrastructure. Therefore, the Council needs to understand that there is huge competition for funds for energy and power infrastructures investments worldwide and not only in Nigeria. In the light of this fact, the NEC needs to encourage Nigerians in Diaspora to come along and put their money where their mouth is. For example, Nigeria needs 24 additional Transcorps in order to transforms the nation’s archaic infrastructures by tapping into the talents, financial prowess and managerial-entrepreneurial acumen of its citizens both at home and from abroad.

In a nutshell, what Nigeria needs is a deregulated, liberalised and dynamic competitative energy and power markets where there are multiple and dynamic local and foreign players. Nigeria has an advantage here as it has not been known to misbehave like the Russians (Gazprom) with regards to Shakhalin-2 gas development project whereby the Russian government wrested back the majority shares that were previously under the control of Royal Dutch Shell, the Kazakhstan government suspension of work with respect to the giant Kashagan field under a production sharing contract (PSC) with a consortium led by Eni of Italy and the Algerians (Sonatrach) putting on hold the joint business relationship with Repsol, Gas Natural and YPP with regards to the $6.8bn gas development and liquefaction project.

Therefore, as a reliable country in terms of doing business with multinational oil and gas companies, Nigeria should leverage on this goodwill and woo foreign investors into the downstream oil and gas and the power sectors. As mentioned above, Nigeria already did wonderfully in this regard in the Telecoms and Banking sectors respectively within a spate of six years!

What Nigerians are anxiously looking for to emerge from the NEC in terms of energy and power products and services, include a diversified basket from which to choose. For example, the Council need to work out investment portfolios, market development frameworks and incentive measures for solar photovoltaic, wind power and agrofuels/biofuels (bioethanol and biodiesel, for example) introduction in Nigeria’s energy and power mix.

The NEC should also be tasked to commission master plans or blueprints for the introduction and development of solar photovoltaic, wind turbine and agrofuels farms nationwide. The selection and mapping of appropriate locations for sitting of solar and wind farms can easily be done. However, agrofuels development needs more elaborate studies. For example, according to the latest News Brief by the Petroleum Review (August 2007, page 9), BP and DI Oils are forming a joint venture to develop feedstock for biofuels using Jatropha curcas – a drought resistant, inedible oilseed bearing tree that does not compete with food crops for good agricultural land or adversely impact the rainforest – in order to make more sustainable biodiesel feedstock available on a large scale. “It is anticipated that some 1million hectares will be planted over the next four years, with an estimated 300,000 hectares per year thereafter in India, south-east Asia, southern Africa, central and South America – the joint venture is expected to become the world’s largest commercial producer of Jatroha feedstock, producing up to 2 million tonnes per year.”

Therefore since there is insatiable demand of bioethanol and biodiesel from the developed world., Nigeria can do the same with its abundant Neem tree plants found all over the northern landscapes of Nigeria and crude palm oil (CPO), found all over the southern Nigerian lands, given the right enabling environment. For example, according to the Petroleum Review (August 2007, page 8), “there are currently some 1,400 producers of biofuels in the UK, a large proportion of whom produce for their own personal use.” This was possible as result of a change in regulation in the UK by Her Majesty’s Revenue and Customs, which took effect from 30 June 2007, that allow everyone to have the opportunity to produce enough biofuel (up to a threshold of 2,500 litres/year) for their own personal consumption, duty free. Also, Germany has 200 times in solar power capacity and 10 times the wind energy capacity of Britain, in spite of the British having more wind than the Germans (The Guardian of London, Monday, September 3 2007, page 30). These are excellent examples that the NEC needs to understudy.

Demand-side management: Energy (oil and gas) and electric power are critical to economic and social progress of all nations. The world’s most advanced nations, for example, achieved their present status largely as a result of their access to and utilisation (consumption) of larger proportions of the available global energy and power resources. Yet, there are still about 1.6 billion persons today without access to electricity and about 2.4 billion who rely on basic fuels such as wood and dung for heating and cocking.[3] A similar picture or situation exists in Nigeria today; with about 70 per cent of the people without access to modern energy products and services. Nevertheless, demand for modern energy products and services are on the increase against dwelling supplies in the country. This is where the NEC needs to show the difference between this administration and the previous ones.

Therefore, one of the first tasks of the NEC is to address the serious issues of securing adequate supplies of oil, gas and power products and services at an affordable price for the Nigerian citizens. The next very important issues are demand-side management and efficiency to ensure supply security, sufficiency and sustainability. While the problems associated with supply sufficiency have been identified and linked to the structural problems and barriers associated with the dominance of national monopolies, lack of regular maintenance of infrastructural facilities, poor investments and large scale corruption, among others, demand-side management and efficiency issues were not adequately accorded importance in the national energy and power policies in all the previous administrations.

Therefore, the NEC needs to place these very vital components of energy and power management on its critical needs agenda in pursuit of a sustainable energy and power future in the face of increasing demand caused by population growth, rapid urbanisation and increasing prosperity, among others. More has to be done, on the national and household levels, to manage the demand-side of the supply/demand equation. Therefore, the NEC needs to develop measures and initiatives which strongly promote energy efficiency. Also, the NEC needs to look at ways of using technology and package of incentives for reducing consumption and exploring alternatives in order to ensure supply sufficiency, security and sustainability.

Competition: As mentioned above, the existence of national monopolies in the energy and power sectors (and the entire national modern economy – public and private) was responsible for the rot, decadence and near total collapse of the entire national energy and power supply infrastructures. However, with the onset of serious attempts to deregulate and liberalise the entire modern and formal national economic sectors over the years, the issue of competition becomes paramount in the nation’s reformist agendas. I referred above, to the success already recorded in this direction in the Telecoms and Banking sectors respectively.

Therefore, the much awaited national energy and power emergency working agenda that the NEC will produce for the nation needs to address not only deregulation and liberalisation in these sectors, but seriously develop new, effective and streamlined regulatory frameworks; structures, instruments and measures that are backed by appropriate legislations. To start with, the NEC needs to take inventory of  all the existing myriad of institutional, management and regulatory structures and closely examine them with a view to streamlining them; weed out duplications, redundancies and correct deficiencies and deficits as the case may be. For example, the downstream sectors of the oil, gas and power sectors are chronically chaotic in terms of institutional, management and regulatory arrangements and order. For instance, the existence of the newly created Petroleum Products Pricing and Regulatory Agency (PPPRA) does not make any sense when the Department of Petroleum Resources (DPR) Act, covers all the functions and responsibilities provided under the PPPRA Act (same can be said of the EFCC and ICPC Acts – outright duplication of efforts and jobs for the boys)!

Establishment of new independent and effective regulatory structures or agencies and or streamlining the existing ones, is in dire need for these vital sectors of the national economy. To be effective and efficient, sectoral and or industry regulatory bodies and instruments must have adequate data and information regarding their sectors and or industries as the case may be. Therefore, to start, the NEC needs to establish modern electronic database and database management systems for its own operations and the operations of the respective energy and power sectors and or industries.

The crucial role and work of the NEC is to plan, educate, enlighten, inform and advice on the basis of supportable scientific data, information, facts and figures and technical expertise and not by: emotions, sentiments and personal aggrandisement, to say the least. Therefore, the NEC needs to consider recommending the establishment of a national energy and power industry Data and Information Administrator - similar to the Energy Information Administration (EIA) of the United States of America (USA). This task can be assigned to and domiciled in the Energy Commission of Nigeria (ECN) and adequately funded by the Petroleum Technology Development Fund (PTDF), as a partner agency.

Sustainability: With the problems of energy and power high up on the public agenda of President Yar Adua, it would be good for the general public to be widely consulted and carried along in all efforts to correct the lingering problems facing these sectors and their future. These will raise the level of public understanding of all the issues involved and get public support for the reform agendas. In the light of this important concern, there is the need to still open up the membership composition of the NEC to include representation from: the Labour unions, State governments, the media and the civil society organisations. Already, the organised private sector is ably represented in the Council but the others mentioned here are not!

Carrying along these stakeholders is paramount for any successful reform to be introduced by the government because keeping in touch with the diverse needs of the stakeholders make them feel less disenfranchised. Moreover, enlarging the NEC to make it more inclusive of major stakeholders reduces the need for longer public consultations and getting involved in prolong national debates etc on the reform agendas.

Moreover, as earlier mentioned above, sustainability is best achieved when there are local expertise and competencies with access to appropriate technologies and managerial skills, which are critical to successful meeting of present and future energy and power supply-and-demand challenges. It is against this backdrop therefore, that expanding the scope and mandate of the PTDF under the current reform agendas, to include the power sector becomes paramount, in addition to oil and gas sectors. Doing this will substantial reduce the existing institutional and human resources capacity deficits, because over time, an increasing diverse range of power sources and renewable technologies will be required to make the country self sufficient.

In conclusion, meeting the present and future energy and power needs of Nigeria require access to diverse range of appropriate energy and power technologies, investment and critical supportive government incentive policies, amongst others. It is against this backdrop that the NEC should give adequate consideration for incorporating and integrating prospects for solar, wind and biofuels (but minus nuclear) energy sources and technologies in the national energy and power mix. Also, the anticipated energy and power master plans or roadmaps for Nigeria that the NEC is expected to produce need to take into consideration the different and diverse needs of each sector of the national economy, geographical areas and social strata of the population. The demand/needs of these various segments of the economy and society are not the same. Hence, the need for wider national consultations and widening the membership scope of the NEC to include State governments representation and other critical stakeholders. I am still of the opinion that the President needs to relieve himself of the Chairmanship of the NEC and allow the Vice President to preside, with him serving as the overall Chief Supervising Servant-Leader, keeping an eagle eye on the big picture, holistically.