In 2018, the Nigerian energy sector presented itself as one with considerable potential to return high yields on investment. The various reforms in the energy sector within the last 2 decades of steady civilian rule has helped solved some of the challenges facing the energy sector. For example, in 2018, Nigeria's daily crude oil production increased by 9% to about 2.09 million barrels in comparison with the 2017 daily production of 1.86 million barrels.
As at August 2018, Nigeria's revenue from crude oil stood at $470 million. Coalescing abundant oil and gas deposits with a primarily young, vibrant and entrepreneurial population willing and ready to harness its full potential, Nigeria has become a one stop energy investment hub.
Detailed below are some of the notable highlights and changes introduced in 2018 aimed at enhancing and creating an effective and working energy sector in Nigeria:
Petroleum Industry Governance Bill (PIGB)
One of the major highlights for the oil and gas sector in 2018 was the passage of the Petroleum Industry Governance Bill (a fraction of the Petroleum Industry Bill) by the National Assembly. Although waiting presidential assent, the PIGB is expected to create efficient and effective governing institutions with clear and separate roles for the petroleum industry and establish a framework for the creation of commercially oriented and profit driven petroleum entities to ensure value addition and internationalization of the petroleum industry. The essence of this bill is to promote transparency and accountability in the administration of petroleum resources of Nigeria in order to foster a conducive business environment for petroleum industry operations. The Bill creates various bodies which include National Petroleum Company (replacing the Nigerian National Petroleum Corporation "NNPC") and the Nigerian Petroleum Regulatory Commission. In addition, the Petroleum Equalization Fund Act will be repealed as the PIGB will serve as the subsisting regulation.
One major concern common to the stakeholders in oil and gas sector towards the PIGB has been the issue of the President withholding assent to the harmonised bill. This uncertainty has raised concerns amongst potential investors with regards to the president's disposition towards the industry. The instability in laws and the inaction of the President poses a potential problem amongst investors who are looking to invest long term.
The Flare Gas (Prevention of waste and pollution) Regulations, 2018 was another major regulation changing the face of the gas industry by providing opportunities for the commercialization of gas. This legal framework supports the government's policies to reduce greenhouse gases caused by the flaring and venting of gas. The regulation stipulates that government takes all flare gas free of cost and without payment of royalty and they will all be subject to competitive bids. The regulation also tries to ensure the regular report of flare gas data through the installation of gas meters at the gas producers' sites. Furthermore, it prohibits flaring of gas except there is a certificate issued by the Petroleum Minister in certain circumstances. The regulation has an operational principle which is the 'polluter pays' principle, similar to carbon tax.
Increase in Nigeria's crude oil export
Nigeria's crude oil export increased by about 17 per cent in 2018 from 2017, to attain over N7 trillion in the first six months of 2018 while the import of fuel stood at about N1.8 trillion. Despite the increase in export, Dr. Ibe Kachikwu, Minister of State for Petroleum, disclosed that the country requires $500 million, which is about N100 billion to fix all the refineries. It is worthy to note that even if the current set of refineries were 100 percent functional, they would only be able to account for 20 million litres of Premium Motor Spirit (PMS) per day, which is roughly estimated to be about 50 per cent of the country's total consumption, thereby creating a need to further import refined products as our refining capacity will not be sufficient in meeting the growing demand.
Meter Asset Provider Regulation (MAPR) 2018
In pursuit of closing the metering gap in the Nigerian Electricity Supply Industry (NESI) coupled with the objective of encouraging the development of independent and competitive meter service providers in NESI, attracting private investment to the provision of metering services in NESI, closing the metering gap through accelerated meter roll out, and enhancing revenue assurance in NESI, the Meter Asset Provider Regulation (MAP) 2018 was issued by the Nigerian Electricity Regulation Commission (NERC) which took effect from April 3, 2018.
Prior to this regulation, the Credited Advance Payment for Metering Implementation (CAPMI) Scheme was initiated, which permitted end users to acquire and install meters with their individual fund. Unfortunately, this scheme did not achieve its purpose as DisCos were still unable to provide the meters to end users. In order to bridge this metering gap, the MAPR introduced a new set of industry players referred to as the Meter Assets Providers (the MAPs) licensed to provide metering services, such as meter financing, procurement, supply, installation, maintenance and replacement. The MAPs were to unburden the Distribution companies (DisCos) of the metering obligations as the MAPs under the regulations could provide the customer-based services such as the procurement, installation, servicing, replacements of metering equipment's that were the sole responsibility of the DisCos.
Although, a timely regulation, the MAPR is faced with some challenges, to wit:;
- it restricts a MAP to a specific DisCo and this will require the MAP to acquire several permits if it intends to provide metering services to other DisCos. A solution to this will be to create a system where the MAP can rather than acquire several permits for different DisCos, obtain a one time "No objection" or consider "upstamping" the existing permit for usage with other DisCos.
- possible inconsistent revenue collection (financial challenges). A good solution to this will be to create a structure where the MAPs will not be responsible for the distribution and installation of the meters but will only finance the procurement of the meters by the DisCos. The DisCos will be responsible for the provision and installation of these meters and the end users (consumers) would make payments for the meters. The money recovered from the end users will then be used to settle debts owed to the MAPs.;
- inter disco transactions and payment settlement among others; the regulation is quiet o issues to relocation of customers who have purchased meters from one DisCo franchised area to another. There needs to be further guidance on how parties can settle issues like transfer of unused energy credit form one DisCo to another, trading and valuation of meters where customers relocate; where the customer who had been financing a meter asset at relocation's payment thus far would be reflected in the new meter he receives from the MAP procured by the DisCo in the franchised area he has moved to?
Eligible Customers Declaration
The Honourable Minister for Power, Works and Housing, invoked the declaration of Eligible Customer Act. This Act identifies the 4 classes of eligible customers, which are, end users consuming no less than 2MWhr/h connected to a metered 11kV or 33kV delivery point, end users whose consumption is in excess of 2MWhr/h and connected directly to a metered 33kV delivery point, end users whose minimum consumption is above 2MWhr/h and is directly connected to the metering facility and end users connected to a metered 132kV and 330kV delivery point on the transmission network. Prior to this declaration, customers were only permitted to purchase electric power from licensed DisCos. In the consultation paper on eligible customers published by NERC, the identified objectives of the declaration were to allow successor GenCos with excess capacity over and above their contractual capacity with Nigeria Bulk Electricity Trading to access underserved customers thus improving the financial liquidity of the industry. The direct purchase of electric power from generation licensees by consumers is underpinned by opening third party access to transmission and distribution infrastructure and this is expected to be a precursor towards introducing full retail competition into the Nigerian electricity market. According to the Consultation paper issued by NERC, the concerns which may arise are loss of customers and revenue, tariff rebalancing, systems operations amongst others.
The Lagos State Electric Power Reform Law 2018
In 2017, the Lagos State Government initiated the Light Up Lagos project which was an embedded power programme to generate and distribute approximately 3,000MW off-grid power for public utility in the State within a period of 6years. To provide for a legal framework to further the objectives of this project, the Governor of Lagos State on 8 February 2018 assented to the Lagos State Electric Power Sector Reform Law. The objective of this law in summary is to ensure adequate generation, transmission and distribution of electricity as well as a sustainable power supply in the State. This legislation saw the establishment of Lagos State Embedded Power Council (Council), the Lagos State Electricity Board, the Power Task Force, and the Rural electrification, penalises power theft and other such offences, and makes available State Government intervention in key areas of power.
The Energy sector in 2019 appears to be positioned for a steady rise. With these current innovations in various regulations and policies in the past year, the expected impact in 2019 are quite extensive.
The MAP regulation in the power sector would create massive employment opportunities for Nigerians in 2019 as the distribution of meters across the country is labour intensive and will require recruitment of persons to carry out these functions. Also, the Regulation will further ensure the transfer of technology to Nigeria as well as promote foreign direct investment in Nigeria among others.
In relation to the Eligible Customers Regulation, the Regulation may result in a loss of majority of DisCos' highest-paying customers, leaving them with lower-demand customers, who have minimal willingness to pay for electricity. The eligible customers declaration will reduce bottlenecks with DisCos and GenCos in revenue collection.
In the gas sector, the new gas flaring policy will provide a structure and platform that will enhance the viability of such projects; reduce gas flaring which benefits the eco-system and present a market-driven solution to the benefit of the Nigerian economy.
One of the major government expenditures for 2019 in the oil and gas industry is the provision of N305 billion ($1 billion) for under-recovery by NNPC on PMS (Premium Motor Spirit or Petrol) in 2019 Budget. This will help reduce the problem of fuel scarcity as the NNPC will be the sole importer of crude oil subsidized by the government.
Finally, taking into consideration, the fact that the national elections hold this year, the implementation of some of these regulations may be slightly delayed and investment may also reduce, as investors would be looking for stability in government and its administration. The possibility of a change in government which may also signal assent to the PIGB and possibly resurrection the 3 other Petroleum Industry Bills by the National Assembly.
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