FROM Nigeria’s energy sector, bad news is coming in torrents. Banks and regulators have intervened on five electric utilities, diesel and jet fuel prices have quadrupled, threatening businesses, and the cost of the gasoline subsidy is climbing even further despite an official increase the price of the pump head. Earlier, the Minister of State for Petroleum Resources, Timipre Sylva, said that around 62% of citizens – more than 120 million people – lack access to electricity. Effective measures are therefore urgently needed to save the economy.
The lackluster imprint of the chairman, Major General Muhammadu Buhari (retired), is all over the energy sector. The only national electricity transmission network has crashed six times this year; from 3,900 megawatts, it recently fell to 3 MW! Battered by shortages and rising prices of diesel, lubricants and electricity tariffs, the organized private sector has warned of further impending plant closures and job losses. Airlines have increased airfares in response to multiple increases in aviation fuel prices and shortages. Many have reduced flight frequencies and similar fears of closures have been expressed.
With the energy market in turmoil, the inflation rate is rising. It jumped to 18.6% in June, from 17.71% in May. This is the fifth consecutive increase in five months and the highest in 65 months. Across the board, the prices of goods and services are soaring, entrenching poverty and devastating businesses.
The oil and gas segment is a tumultuous mess. The prohibitive petrol subsidy bill for this year could reach 6 trillion naira as crude prices rise and the naira continues its free fall. A report says the subsidy gobbled up 1.59 trillion naira from January to June, well above initial estimates. Crude oil theft is on an industrial scale; $1 billion in revenue was lost in the first quarter of 2022, Reuters reported. On average, 108,000 barrels of crude are stolen per day, according to the industry regulator. With the theft, Nigeria is below its OPEC production quota of 1.8 mb/d. Gas supply – for industrial use and cooking gas – has also been hit by shortages and prohibitive prices.
This is disastrous, as the country is unable to take advantage of rising oil prices fueled by the Russian-Ukrainian war to stem its revenue haemorrhage and meet high debt service obligations.
The problems are many. One is the lack of gas needed for gas-fired power plants; dependence on the national electricity grid alone and low investment. The transport network is old and poorly maintained. The privatization of the sector in 2013 which would have revolutionized the electricity sector was botched by corruption and clientelism. Consequently, the unprepared investors who bought majority stakes in the energy assets failed to achieve the expected investment and service delivery, instead the government had to inject N1.9 trillion in the industry ever since.
To leave a positive legacy, Buhari’s regime should solve the gas supply problem. With a total installed generation capacity of around 12,522 MW, most plants are dependent on thermal energy, which makes them vulnerable when gas supply is low. Moreover, only between 3,500 MW and 4,000 MW of electricity can be transmitted daily on the national grid, although the transmission monopoly claims to be able to handle 5,000 MW. respectively. Malaysia produces 34,000 MW.
To help power utilities get back on their feet, the Central Bank of Nigeria launched the N213 billion Nigeria Power Market Stabilization Facility in early 2015 to support operators with credit. The government has also increased the prices paid by electricity consumers under the Multi-Annual Tariff Ordinance, introduced in June 2012 to make tariffs more cost-representative in order to gradually encourage private investment. The last adjustment of the current MYTO (2015 2024) increased prices by 45% on average.
L-shapedagos, the commercial capital of Nigeria, small residential electricity users and large domestic users are charged differently per unit. Although DisCos continually push for higher “cost-reflective” rates, consumers complain that they pay so much for electricity and get so little.
The government should conduct an inventory and audit of power assets to determine priority investment needs along the value chain and seek domestic and foreign investment in the power sector. He must also consider the privatization of TransyCo.
It should diversify energy sources and use non-fossil fuels. Malaysia, according to its government, has several sources of generation, including coal, gas, diesel, solar, hydropower and biomass. Therefore, Nigeria is expected to accelerate the development of 12 planned solar power plants. There must be public and private investment in new grid infrastructure – regional, mini and micro – to facilitate the integration of diverse energy sources; and the integration of mini-grids into existing distribution networks to supply electricity to underserved areas and industrial sites.
Following the recent takeovers of five DisCos – Kano, Benin and Kaduna, Ibadan and Port Harcourt – by Fidelity Bank and the Asset Management Corporation of Nigeria due to default, industry data shows that the 11 DisCos combined owe the Nigerian Bulk Electricity Trader N485 0.7 billion for 16 months for electricity sold to them. Since they lack the capacity, investors, including the federal government which owns 40% of each, should be encouraged to sell the majority of shares to competent global operators in the electricity sector to allow in Nigeria to build a reliable electricity sector to power its economy. , the largest in Africa.
In the oil and gas sector, there is no viable alternative for government to secure production and distribution networks, further liberalize the operating business environment, and privatize all intermediate and downstream public assets. Retaining loss-making refineries, depots, pipelines and outlets by the state crowds out the more efficient private sector, investment and job creation. Buhari is expected to privatize them before leaving office. He only has 10 months to make a difference.