• Blog

    NOG Conference 2024: Strategies for a Thriving Domestic Gas Market in Nigeria

    - by Pope

    The Nigerian Oil and Gas (NOG) Conference 2024 Panel Discussion – Delivering a Thriving Domestic Gas Market   NOG Energy…

  • Blog

    Strengthening The Nigerian Oil and Gas Sector: A Call for Change

    - by Pope

    The Nigerian oil and gas industry has the potential to become a leading exporter of expertise and services to other…

  • Blog

    World Environment Day 2024: Land Restoration, Desertification, and Drought Resilience.

    - by Promise

    Every June 5th, the global community observes World Environment Day. Hosted by the Kingdom of Saudi Arabia, This year’s theme,…

  • Blog

    Nurturing Mental Wellness in the Workplace

    - by Promise

      Mental health encompasses emotional, psychological, and social well-being, and it influences how we think, feel, and act. In a…

  • Blog

    Innovative Engineering Solutions: Creating Tomorrow’s Possibilities

    - by Promise

    Engineering, at its core, is about solving problems and pushing the boundaries of what’s possible. In various sectors, innovative engineering…

  • Media Centre
    Tariff Increment, Though Tough, Needed To Transform Electricity Sector – Dr Chukwueloka Umeh - Nestoil

    Tariff Increment, Though Tough, Needed To Transform Electricity Sector – Dr Chukwueloka Umeh

    - by chukwuma89@gmail.com

    The Chief Executive Officer of Century Power Generation Limited, Dr Chukwueloka Umeh, says that Nigerian Electricity Regulatory Commission’s (NERC’s)failure to increase electricity tariff in smaller steady steps from 2015 as stipulated in the Multi-Year Tariff Order (MYTO) has made the almost 100% increase for some consumers in September 2020 very discomforting, especially at this time of unprecedented economic hardship.

    Dr Umeh said that for there to be electricity available to every Nigerian, a tariff increment is necessary for the power value chain to work effectively. He, however, admits that timing for this increase is could be better considering the economic situation in the country.

    Speaking as a guest on a television program in Lagos on Wednesday, January 6, 2021, he reasserted that the government’s role in the power sector needs to be solely that of an enabler that provides a conducive investment climate for investors, as well as a regulator that oversees the operation of the industry.

    Dr Umeh, also the Chief Operating Officer (COO) of the Nestoil Group, held that an increase in the tariff to a cost-reflective level is necessitated by the need for the DisCos to upgrade and maintain their infrastructure, provide the service that people expect, and also make a profit from the power they sell. They also need to generate enough revenue for the other companies in the value chain, including TCN, the GenCos, and the gas suppliers and transporters to get paid. If these investments and payments are not made, people won’t get the power they’re required to pay for. 

    For electricity to be available, he said, the government needs to create policies that encourage investment, ensure that contracts are respected and are backed by the rule of law. He emphasizes the private sector should be allowed to drive the entire power value chain, competition should be encouraged to grow and drive the right tariff pricing. Finally, the government should desist from trying to regulate a market into existence, but rather, relax regulations enough to allow the sector to grow organically.

    According to him, most of the public and even some pertinent persons in government are not sufficiently informed about the power sector, hence the lack of understanding that without a functioning value chain involving gas producers and transporters, GenCos, TCN, and DisCos, most Nigerians will regrettably continue to pay for darkness.

    Century Power Generation (CPG) is an indigenous company involved in developing and implementing solutions to Nigeria’s local power problems. Dr Umeh continues to lead advocacy for a robust, stable and reliable power sector as the most reliable pathway to catalyzing Nigeria’s economic growth.

  • Media Centre
    Mass Metering The Government Must Empower Local Manufacturers To Meet Target – Dr Chukwueloka Umeh - Nestoil

    Mass Metering: The Government Must Empower Local Manufacturers To Meet Target – Dr Chukwueloka Umeh

    - by chukwuma89@gmail.com

    The Chief Executive Officer of Century Power Generation Limited, Dr Chukwueloka Umeh, says that for Nigeria to meet its National Mass Metering Programme (NMMP) target to meter 30 million consumers over two years, local manufacturers must be empowered to enable them ramp up production in order to meet the demands. 

    Umeh said that instead of the government procuring the meters, they should let private companies drive the process for efficiency and retain capital in the country. He calls for the creation of an enabling environment where Nigerian manufacturers can grow, and if people want to import meters, the market is big enough. 

    He spoke as a guest on a television programme where he proffered ways on how the country can meter the citizenry and solve all its power challenges 

    Umeh, who is also the Chief Operating Officer of the Nestoil Group, on the tariff increment said although power consumers complained about paying more for darkness, they have to be patient as it will, unfortunately, take time for them to see the value of the tariff increment.

    He said all issues across the whole value chain of the power sector must be resolved simultaneously and on a large scale, not one after the other if Nigerians are to get regular electricity supply in the foreseeable future.

    He urged the government to find a way to grow the income of the populace by creating a conducive investment climate so that small, medium and large businesses can grow, thereby putting more money in Nigerians’ pockets.

    President Muhammadu Buhari had committed that Nigerians would be metered before the end of his administration and that estimated billing would be ended. The free distribution of meters was part of the agreement reached between the Federal government and the organized labour after the government increased the electricity tariff in 2020. Nigerians need to see these promises fulfilled.

    Century Power Generation (CPG) is an indigenous company involved in developing and implementing solutions to Nigeria’s local power problems. Dr Umeh continues to lead advocacy for a robust, stable, and reliable power sector as the most reliable pathway to catalyzing Nigeria’s economic growth.

  • Media Centre
    Maximising Government Revenue Through Effective Taxation - Stanley Ezekobe - Nestoil

    Maximising Government Revenue Through Effective Taxation

    - by chukwuma89@gmail.com

    The Group Head of Tax at Nestoil, Stanley Ezekobe says if the Federal Government needs to significantly shore up its tax revenue, then it needs to prioritize transaction-based taxes like Value Added Tax (VAT). Mr Ezekobe who was speaking at a virtual media roundtable organized by the Nestoil Group said while other tax verticals like Company Income Tax are important, transaction-based taxes hold the key to Government meeting its revenue target for the 2021 budget of Economic Recovery and Resilience.

    Speaking on the topic, ‘Maximising Government Revenue through Effective Taxation’ Ezekobe said there is need for the Tax authorities to seek innovative ways of bringing more people into the tax bracket. He said the informal sector, where most Nigerians play is either heavily under-taxed or not taxed at all.

    According to Ezekobe, one of the ways to bring the informal sector into the tax bracket is to make the presentation of a tax card a pre-requisite for Nigerians to enjoy specific services from Government. He enjoined the government to also identify key local figures in their different communities that will greatly assist it in identifying and collecting taxes on its behalf. This community initiative, he argued, is crucial if the tax net is to be significantly expanded.

    Stanley Ezekobe, however, argued that political leaders must show transparency in how tax revenues are used to meet the needs of the people. ‘’For tax revenue to grow, the government must maximise tax collection, maximize the use of what has been collected and in order to be fully effective, they need to be accountable to those whom they have collected the revenue from in the first place,’’ said Ezekobe.

    About Nestoil
    The Nestoil Group is Nigeria’s largest indigenous Engineering, Procurement, Construction and Commissioning (EPCC) Company in the Oil and Gas sector and has been a significant contributor to the industry since inception in 1991. With over 1,500 direct employees, Nestoil continues to redefine industry standards in Pipeline Construction, Repairs and Maintenance with associated facilities for Dredging, River Crossing and Shoreline Protection.

     

  • Media Centre
    PIB Needed to Make Investments Into Gas for Economic Development

    PIB Needed to Make Investments Into Gas for Economic Development

    - by chukwuma89@gmail.com

    Chichi Emenike, Head of Gas Ventures at Neconde Energy, in this interview with Udeme Akpan, said the investments needed to open up the Gas sector for the development of the economy hinges on the passage of the PIGB. She dissects the pricing issues within the local gas market among others and how to court investors’ confidence.

    It has been said that Nigeria is a gas company with crude meant to be a side business. But the reverse is the case as even the gas is not efficiently supplied to the local market and other issues. What is the nature of the gas sector and what’s hampering investments therein?

    We want to speak about the gas industry in Nigeria and how Neconde has been playing it, l want to speak on some issues because whenever we speak about gas, it seems as if the story is dismal. However, we have had some traction and that will also be highlighted. The focus is really on gas as an enabler. For us, we say gas is revenue, gas is jobs, and gas is food. Gas is what can guarantee us economic security. Now, why did we say this? Look at the volumes we have. Officially we are talking right now of about 203 TCF of gas. Now, let me just say here, we all know Nigeria is actually more of a gas nation than even crude. As I speak to you, for all the gas that we have in this country, we haven’t even touched a tenth of it yet. Most of the gas volumes you are looking at are the gas volumes that have been touched, generated from crude oil drilling activities. We haven’t really gone for gas, gas development for gas. And most of the gas honestly is still trapped in the ground.

    For us, we run extensive studies about gas, what has worked in other parts of the world, Saudi Arabia, other regions of the world where they’ve tapped into their resources, unlocked this potential. For us, gas is cleaner energy. The world has moved on and we need to recognize that in Nigeria. So, as I speak to you, there are reports that have been done showing that there’s a direct correlation between gas development – natural gas investment and gas development and economic growth. This is what we always say. You put in a dollar in gas investment and it gives you, earns you around three dollars. We’re talking about investing in gas to drive industrialisation. There’s even a direct correlation between investment in gas and power generation. I mean, this is like getting gas across the entire mile chain for the last one mile, generating jobs, opening up more GPIs, talking about more fertilizer projects, methanol projects, petrochemicals, commercial steel industries that can replicate, that can give us the kind of jobs we are looking for. I mean, the statistics just came out, I think it was the NBS that released some statistics of about days ago when speaking to unemployment levels of about 21 percent. That is really worrisome. I mean, even for me, sometimes I’m a bit worried about how good we are with data in Nigeria. So honestly, if you ask me, I even think it might be even worse than that. So, we need to open up. We’ve talked about this for too long. We need to get into the doing for as long as we’re taking all day, the world has moved along. And the thing here is that Nigeria is strategically positioned to even become a hub for gas in Africa. Even if we don’t do the entire of Africa, we can start along the corridor, you know, within the Gulf of Guinea, open up.

    The focus has been more on exporting to the outside market. Should that be the focus and what can be done to make gas available for local consumption to aid the development of the economy? What is Neconde’s role in this?

    There’s so much focus on taking this gas outside, that’s okay but what about opening up here domestically and then across the value chain, you know, from here into the West African region. All those are things that we need to begin to look at. Take a look, for instance, a project like Train 7, we’ve put some figures to it and it’s set up about 1.27BCF. It’s going to yield well over 4000 jobs. We’re talking of economic recovery, the Economic Recovery Growth Plan (ERGP) which is directly linked to open up jobs, driving the GDP. Our GDP, you can’t look at the resources we have and then look at the dismal figures, it is just not adding up. 

    What I will say before I venture into what Neconde on OML42 is doing is that for me during this period, I said natural gas is a hedge. The future is now, the rest of the world has gone ahead. For us here, we need to look at what we have on hand. We need to look at what we’re going to do about this.

    Crude oil prices will always drop. You have the geopolitical situation. Someone catches a cold in Russia and then the prices drop somewhere else, someone sneezes in Saudi Arabia and prices go haywire. We would constantly have these cycles. But we need to establish stability and that can come through gas. We have seen what has happened this period over the five to six months, crude oil prices went up, totally south, but funny enough, gas prices were fairly stable, so we need to look at how to open up the internal domestic gas economy. What can we do about this? For us, on OML 42, Neconde and its JV partners, the Nigeria Petroleum Development Company (NPDC), we have huge volumes of gas, huge reserves. I’m speaking to both associated and non-associated gas.  For OML 42, we have started since December 2018, we have been delivering gas into the domestic market. And just to mention to the Nigerian gas company, they are our current off-takers and we have also been working with other initiatives to see how we monetize the volumes we have, how we go about zero flaring on our asset. We have also initiated what we call accelerated gas programs. On the asset, we have some infrastructure. For the delivery, we are doing currently in the domestic market, we have infrastructure on the ground, compressors that are pumping at least 80 million with a capacity of 80 million scufs. Then we have some short to medium term projects we’re trying to do to gather gas across the asset and then creating a hub and exporting to the domestic market. Whilst we are doing that, we are looking at how we can go about this current COVID-19 pandemic. What I mean, these are times where capital expenditure is really being challenged. With the COVID situation, companies have had to sit back, look at their plans, their projections. Where’s capital coming from with gas projects? You are talking of looking for loans, you are looking for borrowings with favourable, very favourable, and if possible, single-digit interest rates.

    The mandate I have at Neconde is to monetize the gas reserves and see if we can in the next year or two, contribute at least 12 percent of domestic gas production in Nigeria. Now, that would take a whole lot of strategy. I have the key mandate and I am the key driver for that. Yes, I’m constantly juggling with partners and in finance discussions. I’m constantly looking for solutions. And it’s been interesting because with the gas market, what you see is you work it backwards, so you have to generate the market first. So even part of the partnerships we’re looking for, some of the partners we are speaking to, we are looking at partners that understand the market, partners with skin in the game, partners who understand what it takes to tie down customers, paying customers, bankable customers, because guess what? If you don’t have a paying customer, and with what you have along the entire value chain which is a lockdown, part of what we see in the power sector today, it might be tough. For us, these are some of the things we have been doing on OML42. It remains a key mandate to make sure we invest, the investments come back and we see the replication of this investment in our contributions to the economy.

    What are the issues preventing investments from coming to the gas sector? Why are investors skeptical of the sector?

    The number one issue is a lack of adequate legal, fiscal, regulatory, and contractual framework, which has prevented a whole lot of international investors from participating in the Nigerian gas market? What I am speaking to is around the Petroleum Industry Bill (PIB). Everywhere else in the world, at least for most of the countries that their sector is developed, we need to get deliberate. We need to get deliberate with what we’re doing as a country. 

     So PIB is what we have been juggling with since, which unfortunately we are yet to resolve and which must be done quickly. We’ve suffered delays. And honestly, if I should quantify this already if we should describe this, it is obvious that we’ve suffered significant delays in the legislative and executive arms of the government working with us to pass the bill. The PIB when it was initially brought up at some stage, we were able to break it down and that brought the advent of the gas policy. But we still have some four critical parts still hanging. I am speaking to the fiscal part of it, l am speaking to the impacted community, speaking to the governance part and then the industry administration view. Those are still outstanding. And I think it was the last two or three days I saw in the papers that the bill is being taken back again to the National Assembly, it is going to do the rounds once again. We have been at this since 2008, we need to get serious. There’s no serious investor that is going to put money in an environment that is not backed by a legal framework. I mean, you want to put your money and you want to be sure it will come out. Look, when the destination for investment comes to Africa, there are so many factors at play. Capital is not readily available. Not to mention what has happened in the world. The world was not ready for COVID-19 challenges and it is still challenging the capital that is available right now. So, we need to set some certain things in place. The government needs to concentrate on creating and sending signals that are important to investors. You don’t want to throw your money where someone gives a cough tomorrow and you start seeing policy flip flops. You don’t want to put your money where you don’t have a framework, a legal framework backed by law to ensure that that money comes back, that capital comes back. Let me stress a few things, take a look down the road from us to Ghana. Ghana in just a few years back discovered gas and that they don’t have an industry that’s as robust as us. But guess what? They’ve tightened up their act. Ghana has deliberately, and this is the keyword, deliberately put things in place. We need to be deliberate about our actions, even as individuals if we want results, we need to put in place things that will work. Ghana has opened up, most of their cars use the CNG. They’ve put in place their local content. They are things they put in place that resemble their own PIB. Look at Mozambique too. And yet we are the giants of gas in Africa with huge volumes. This is critical. And I know the honorable minister of state, Mr. Timpriye Sylva, he’s ticked some action, some highlights that he wants to focus on. And I think this is one of them. He has said 2020 is the year of gas. He’s been working on some couple of projects and things here and there which have shown some traction, albeit one of the most fundamental things which have to happen is this PIB.  We have just been on this topic for just too long. With the PIB, you can bring some comfort around people getting worried about policy, policy mismatch, policy flip flop. You know, people want something that is a law, that is straightforward in law, that deals with matters a lot, that is clear around your fiscal, clear about your royalties, your taxes, what the host communities would get. You need to be certain and then, you know whether you can do the business or you can’t do it.

    We keep talking about local gas development and the utilization and over time the concerns have been from the off-takers in terms of gas pricing. How do we address this issue? It appears the cost of gas locally seems to be very high compared to what other people pay for it across the board. How do you move from this by ensuring that we reduce prices, make them competitive enough for adoption?

     You have come to a big lacuna in the room, which is the gas pricing issue. I need to paint the big picture. You need to understand the peculiarities of first of all doing business in Nigeria. Doing business in Nigeria is not easy. Two, we want to speak to gas prizing. Note that for the gas we’re talking about, we need more volumes in the system and those more volumes that we’re looking for will come from gas development, investment in infrastructure, investment in upstream drilling wells, the opening of wells using FX. Now, please note that most of these activities are FX based. We don’t do them with Naira. We use FX for this gas. Now, you have to make sure the market opens up and accepts this at prices that also makes sense to the investor. So now we begin to talk about a willing buyer, a willing seller situation. What we have continued to advocate for is to sort of see if we can generate what happened in the telecoms sector. Initially, we have a few players, so we need to encourage more players to come on board. We need more players to come on board and invest and then over time liberalize the market. Initially, when the GSM came, you just had one or two players but overtime when we got more people coming in, the prices, the tariffs began to drop. That is exactly what we need to happen in the gas industry. We need to allow investments to come in at prices that can make sense to those who brought in the money as well as making consideration for affordability.  I’m also on the council of the Nigerian Gas Association and part of the conversations we’ve been driving, even with the government, across stakeholders along the value chain is to look at the possibilities of how these conversations can be held. Most times when people have them, they tend to want to talk about the export parity, maybe, which is where you’re coming from. Now, let’s be specific. Export parity is gas, for example, that NLNG is doing. You can’t compare that to gas that is being drilled and brought up in-country. With NLNG, that gas is packaged with not so much work done and it is exported. With gas that is drilled in-country, there’s a whole lot of work. You have different overheads like security, you have to strip the gas, you have to clean the gas, you have to process the gas and then send it to suppliers. Guess what? It has to be taken care of. Probably it will be channelled into transmission pipelines that have to be paid for, you have to channel it to an LPC that would probably help you with the market end, and eventually, we are trying to create the balance. Just to give you some real hope there, recently the honourable minister of state also put together a panel, the team, rather, that is looking at this gas pricing thing, which has been spoken to for too long. What we are trying to do is to use a methodology around arriving at a price that works for everyone along the value chain. There are going to be considerations at some point for affordability. With the rebasing of gas prices in 2018, where it was segmented into strategic commercial and then gas-based industry, conversations have started. As long as there’s a ceiling for these gas investments, we need to be careful. It’s not going to be very attractive. What we need to do is to attract foreign direct investment (FDI). And you know that there are so many other factors too. This sort of conversation happens in real-time every day, I also run a very serious commercial arm of this business. You sit down every day and also look at how environmental factors, business factors, real-time factors in the Nigerian economy are affecting your numbers, scuttling your economics. All these have to be brought into context. Where the conversation needs to start is, we will start with the methodology. Looking at this pricing thing, but the fact must remain. It must make sense for every investor and overtime, we do believe that the market will open up, I mean, when you have more players, prices should be better.

    On the recently launched Gas Transport Network Code. What role is it coming to play in the light of these deficiencies in the key legal and fiscal infrastructure? If I hear you clearly, you mentioned the fact that topmost of our priority will be to get the investments in so that these projects can start running. But in the absence of PIB, definitely, there’ll be slow investments in that sector. Let’s look within this shortage that we already have. What is the network code coming to ameliorate on the ground? 

     The gas conversation is never ending, so you are correct. The network code was just recently launched. What the network code is seeking to achieve really is to help to liberalize the market and this is all driven towards an open access regime. If you know a bit about what’s available now, it’s more around a certain monopoly. However, by the end, the network code is seeking to encourage shippers, transporters, just trying to get users to use the infrastructure more, open up, so the arrangements that need to be done can be done. Companies and users can contract volumes upstream and then speak to transmitters and shippers and then sort it all out. What this will bring with the COVID situation is really just encouraging the use of gas.  For us, the network code has come to stay. It is something we have been advocating for a very long time. It is also an enabler for the gas master plan. So if you know about the master plan which came up, I think 2008, what the gas master plan was trying to do was really to see if we can have a crisscross of gas infrastructure all over the country to see how we can get more industries to open up. A part of that, if I may speak on this, as I’m talking about even the AKK, which was launched recently. The AKK is taking up gas all the way from Ajaokuta, Kaduna, Kano, and along that entire corridor is taken into some serious power projects.  What typically happens with this kind of infrastructure project is that you see industries opening up along the way and they are going to be some squall lines. Now, those squall lines are where you need a framework, which is where this network code has come in to do. You need a framework that would guide the relationship for people who are interested in taking gas and then supplying it, taking gas and accessing markets, taking gas and building probably an infrastructure that can compress the gas. So, if you are where you have CNG projects in-country, you have CNG businesses, you have LNG coming up, so the network code is seeking to open up and we need it. What we’re saying is that we need to be serious. We need to create that enabling environment and part of this is the enabling environment. With this COVID situation, there’s going to be a recovery. There is going to be a recovery, there will be different strategies on how companies, off-takers collaborate to see how they survive this. I have spoken of how companies need to collaborate, partner. But you need a framework to help with this. The advent of the gas flare commercialization programme, we are talking on the backdrop of the 2018 gas flare regulation, you are speaking to more people to put in place infrastructure that encourages reduction of gas flaring and you need a framework. This is a small PIB but you need a legal framework that would guide that relationship. The gas industry in Nigeria is not fully developed, there are a whole lot of lessons to be learned and what can help us is the legal framework that is put in place.

     I know you’re one of the top players within the gas development and utilization sector. What are the specific challenges that your company has encountered so that others can take lessons from it or those that have collaborative solutions can come in and engage further with you to see how this can be moved forward?

     For the gas business in Nigeria, it is a bankable market,80 percent of gas volume in Nigeria is used in the power sector and the power sector is completely on lockdown, with the investments that have gone in there and other issues. If you are investing, you want to know where your money is going to come out from. Funding is very contingent on this market, you are talking to a bankable, credible market that can give you guarantee that you can fall back on and secondly accessing finance. Gas does not have the flesh that crude oil has. You need loans that can give you better tenure, loans that can give better interest rates so that the economy, plus or minus can take the knocks and hit from regular business. All the entire economies have gone into red. We have communities’ issues but that is a small thing. These are the areas we are looking into.

    What are the key concerns for companies intending to do business in the Nigerian gas market and what are the key financial challenges indigenous companies face?

     Most of the investments needed to liberalize the sector are FDIs. It’s huge, we are talking about FX that would come out of the country and those CAPEX have to make sense and can be repatriated to where they came from.  Some of the discussion has centered on the PIB, creating this environment, a willing buyer, willing seller situation to kick-off, allowing the market to liberalize. If we try to unbundle it, layer by layer probably at a faster rate, we may see the influx of more investments. We also need to take note that this investment has to be guaranteed. We also have issues where the domestic market pays for this with the naira. There are FX issues, liquidity mismatch. These are what investors look at and decide whether their capital is coming to Nigeria or not.

     What is the quantum of gas being delivered domestically on a daily basis by Neconde and how has this helped the efficiency of the power sector? 

    Currently, we have the infrastructure for 80million scuf, but our short to medium term plans under what we call accelerated programs will deliver 100m scuf to be pumped into the local market. That is what it looks like for our associated gas, gas coming out with our crude drilling activities, gas we are trying to capture, all towards zero gas flaring activities.

    How workable is the Nigeria Gas Master plan given the realities on the ground?

     The Nigeria Gas master plan is a beautiful idea. It was contrived to create a framework for things to work and we believe in it. We are here to grow with Nigeria and contribute our quota to the development of the energy sector with gas as a mainstay, so we believe that it is workable if the other legal issues are tackled.

    With the current level of investment and the attendant issues in Nigeria, will it be possible for the country to meet the 2030 gas flare deadline?

    I will speak to the flare situation in Nigeria. The 2018 gas flare regulation speaks more to the IOCs and the other oil companies to flare gas; however, gas flare regulation has come into play.  Even at the advent of the gas flare commercialization programme, you have seen the programme that has served as a platform for investors to come in with finance, technology to capture the gas flaring efforts. It depends, there are so many flare sites that we have but there are slow efforts towards gravitating the flare out. The DPR is actively working on this, they are talking to the asset’s owners, trying at some places to look out for partners to make it work. We need to put all this together but the larger picture is that we need to have an enabling business environment with the investments that are being brought in to shut down these flare sites and still make sense as a business. For us, you can put investment down but the power sector has to be dealt with. The situation in the sector needs to be resolved, we need to get more creative on how to resolve the issues, so the traditional way may not work, we may have to start looking at smaller power projects, to get some stranded gas molecules, set up a processing facility or a compression facility, whatever the technology may be. We generate the volume for power and sell to paying customers. It is in clear times what we have as issues in the power sector, whether it’s from gas flare, gas generation, and upstream, it is the liquidity issue and those are some of the things we need to deal with in talking to gas volumes and the power sector. 

  • Media Centre
    It is difficult investing in an unpredictable power sector environment - Dr Chukwueloka Umeh, Nestoil

    ‘It Is Difficult Investing in an Unpredictable Power Sector Environment’

    - by chukwuma89@gmail.com

    Years after unbundling the power sector, teething problems still exist, making it impede economic growth. The government recently said it would allow for a cost-reflective tariff, but agitation against the move culminated in the National Assembly putting it on hold. In this interview with FEMI ADEKOYA (The Guardian Nigeria), the Chief Operating Officer of Nestoil Group and Managing Director/Chief Executive Officer of Century Power Generation, Dr Chukwueloka Umeh, believes the intervention of the legislators is not right, especially as underlying issues are yet to be addressed. Excerpts:

    Nigeria’s power sector, with all the investments sunk in, remains at the same stage pre-privatisation. There have been issues, especially around the recently postponed tariff increment with some users saying there should be improved power supply before the increment. Where is the sector today, and as a rocket scientist, is the problem a rocket science that cannot be solved?

    The problem in Nigeria’s power sector is not rocket science, and if it’s rocket science, you have rocket scientists that are able to deal with it. There’s no reason why we shouldn’t get it right. Well, there are several factors that I think a lot of folks don’t understand about our sector. You know, there’s a lot of conversation in the sector where we will say, yes, we’re willing to pay more money for electricity as long as we are sure we’ll get power 24/7 coming into our homes, our offices, our factories and whatever you have. However, it’s a little bit of a chicken and egg situation; if you don’t pay enough, the power sector doesn’t get fixed. If the power sector gets fixed and you don’t pay enough, it can’t be sustained. So there’s a little bit of dance to do around there. We have a value chain that we speak of and the value chain, if we focus right now only on gas-fired power plants, we’re talking about gas production, gas transportation through pipelines or whatever means you have and the power generation companies (GENCOS), and then you transmit the power through transmission lines and finally get to distribution networks. The distributors now take power and distribute it to their customers’ homes, factories, and offices. This is the entire value chain. So, gas flows from one site, all the way to the GENCOs to generate the power, and then it flows all the way to the customers. Then the money flows from the customers all the way back to pay everyone along the value chain. If any of these pieces is broken, the power sector doesn’t work. And it sounds very simple.

    However, the amount of investment needed to make this value chain work is humongous. If you want to produce enough gas to fire a 495-megawatt power plant, you need to invest at least $250 million for a brand-new processing plant. Now, I’m not even talking about the investment that the gas producer makes to drill in his fields to bring out the gas. This is just the processing facility, and then you need to run pipelines, depending on where the plant is situated. If it is situated right next to the gas processing plant, it could cost anywhere from a couple of million dollars to get the gas to the GENCOs or hundreds of millions of dollars to build a long pipeline to get it where it’s going. Currently, the AKK pipeline is about to be built. The AKK pipeline is over 600 kilometres long, and it costs several billion to build a pipeline. Someone is making that investment.

    Beyond that, someone is also going to make the investments to upgrade our transmission lines in the country. That’s a whole lot of money. We’re talking about hundreds of millions of dollars to build. And then finally, we get to the DISCOs. The DISCOs, when they were sold; what we were told was that the Discos have ATCL losses of around 45 per cent. That is the Aggregated Technical Commercial Collection (ATCL) losses. Now, what we’re finding is that those DISCOs, some of them have ATCL losses above 60 per cent. What that means is, for example, if you give them 10 megawatts of power, and they sell, they are able to collect only 40 per cent money for the power that they’ve given. Everything else is gone and lost. How can the DISCO survive? You can’t run a business this way.

    That means it is an issue with the tariff system. Is the MYTO still working as at today, is it still relevant?

    Within the tariff structure that we have today, what we’re working with is the Multi-Year Tariff Order (MYTO). The MYTO was set up by the Nigerian Electricity Regulatory Commission (NERC) to encourage investment, and to make sure that customers are not getting price gouges. It’s a nice system in theory, but in practice, it is not working.

    It was inside the MYTO that about 38 per cent of the whole tariff goes to GENCOs, about eight per cent goes to the transmission line, and about 48 per cent goes to the DISCOs. And then there’s another six to seven per cent that goes to the VAT, to the government and then services. When you break that down, the question is; how much is actually available for the entire value chain to work? It is quite small.

    Today, residents are charged, I think maybe N26 now to N29/kwh. Businesses are charged anywhere from N30 to N46 depending on the Discos. On paper, it sounds good; however, in reality, that’s not enough money for these businesses to run the value chain and make it work. So, we need to go back to the drawing board, and my argument has always been, let’s look at a sector that has worked in Nigeria, which of the privatized sector has actually worked, and the only example I have right now is the telecoms industry.

    What did we do differently? The government completely divested from telecoms. What happened after that? MTN came to Nigeria, and they put down infrastructure. I can argue that the tariff that MTN was charging that year was more expensive than the tariff that they were charging anywhere else in Africa. But what happened thereafter? Other businesses started coming to invest in telecoms. So today, you have GLO, you have Airtel, and you have 9mobile, and so on. And because they are competing, the tariff has gone way down, because of competition, there are different telcos. You can constantly see that they are driving to give better services; they are driving to give better tariffs to the end-user. So, the competition has made the price stay competitive so people can actually get a good service at a price that makes sense to them. It’s not the government telling them what to charge.

    Are the businesses within the value chain charging what they need to charge to be able to provide good service? Are they charging the tariffs that made sense to be able to make the investment needed to have the infrastructure value? But they also have competitors. And it is the competition that drives pricing. If the same were to happen in the power industry, companies would come to make required investments across the entire value chain to make it work. But this is not the case that is being put forward by the different regulators that the government has set up. The visible outcome today is that they are stifling growth in the country. They are stifling growth across the energy industry.

    Can you throw more light on that area? How are the regulators stifling the sector?

    It is important we keep talking about it. Some years ago, NERC put out some regulations that were supposed to help renewable energy sources come up. The estimation was that by 2020, this year, we will have about 2000 megawatts running mostly from solar. How many megawatts have we put in solar? If we pull one over and over and we are not seeing the result, isn’t it time for us to start thinking completely differently? You can’t keep doing the same thing and expect a different result. It does not work. It has never worked, and it will never work. It is time for us to take a very different approach. Stop looking at what they did in India or what they did in London or what they did in Argentina. We know what they did. The experts have come to tell us, we have written regulations by experts. A lot has been spent yet no solution in sight.

    What can be done to really revamp the sector and make it work?

    We spent millions and millions of dollars in this country. That’s why it’s still not the right way to get it done. We have created a power sector recovery programme, PSRP. It’s not working. I argue that it’s time for us to do it differently and deregulate the sector. I’m not telling the government to close down all the regulators, you can keep them there. They have created some nice regulations that we can actually use. Don’t scrap all of them because we can use them. However, we need to understand that it’s a brand-new market that we’re trying to grow. So put the horse before the cart. Allow the sector to grow, and then you can regulate it. In allowing the sector to grow, allow the private companies that are willing to make the investment to make their investments, charge what they need to charge, and then let competition drive the prices down.

    Let’s talk about regulations and regulators. How are they preventing the sector from growing, and can you kindly give us an example of how they impede the sector?

    I am in generation, and we have the plan that we designed from scratch between 2012 and 2015. We initiated a power purchase agreement with the Nigerian Bulk Electricity Trading Plc. (NBET), the bulk trader at a certain tariff. Well, guess what? From 2015 till now, nothing has happened. Several of the regulations that we worked under have been changed, several of the agreements that we had initially have been changed. How do we invest money in an uncertain environment? You can’t. The investor will not give you one dollar to invest but the money is there ready to be invested, but nobody is going to give it to you in the uncertain environment that we are in.

    You sign an agreement today, in two years it is obsolete, and you can’t even enforce it. So, the rule of law to enforce the agreements is not there. How can you invest? You borrow money on a certain day when a dollar was N360 but today, a dollar is N475. The investment you made has completely gone. The expected returns completely eroded. How can you plan? The MYTO, however, is still at the same level. We were told that on July 1st, we were supposed to see a new tariff. Just before that day, what happened? The National Assembly supposedly got together with the DISCOs and said, oh, we’re not ready for that, let’s move into next year.

    The increase that we were supposed to see in tariff has gone away. But Nigerians still expect power to come; it is not going to come. I said this year in, year out, as long as we keep doing this, the way we are doing it now, we would never see any additions, any meaningful action to the power industry. That’s what we see today. So, every year, I can say the same thing, and every year, you’re going to see the same result. A new minister comes in and says by the end of the year we will see 10,000 megawatts added to the grid, it hasn’t happened; and it’s never going to happen unless we change the way we do things.

    What policy and market issues are needed to be resolved to facilitate investment for the stability of the power industry?

    The policies guiding tariffs and the regulations thereof, and the ability of GenCos to directly sell power to DisCos or end-users need to be relaxed in a way that is investment friendly. They need to be relaxed to allow a free market to exist. For investments to come into the sector and be spent, potential local and foreign investors alike need to see that policies are stable, agreements entered into between companies, and government-related entities are respected once executed, and that our legal framework fully protects such agreements.

    Why can’t the GENCOs and DISCOs invest in the power themselves with sufficient metered power for everyone before talking about cost-reflective tariff? I believe this should be available first.

    It is a good one; however, I ask you this, have you ever gone to a bank to try to borrow money? If you go to try and borrow money from the bank, the bank wants to see what you are going to use that money for, and how are you going to pay back. Where are you going to pay the money back from? Is it from the money that you make from that business that you’re trying to build?
    So, you need to show your business model first of all and be sure that the business can actually pay that money back. Without that, no bank will give you N1. It is the same way for a GENCO to build the plant. For example, a 500-megawatt plant, they need to spend about $700 million, not Naira. They need to see that the money that they are going to make, they can pay it back. If a Disco is going to invest in providing infrastructure, transformers, lines and so on. Guess what, that Disco also needs to show that it can collect enough money to pay back for the investment that they’re going to make. They need to show a viable business. Without showing it, they cannot raise the money they need to invest. This money is not coming from our pockets, it is coming from loans. They need to show that they can make money before they get the power to make investments. In the same way, you don’t ask someone in an airline company to bring planes first before they know that they can charge a high price or whatever price they need to be able to pay for the plane and pay the salaries of all workers. It doesn’t happen that way. This is business.

    What role is the current gas pricing regime playing in the current bottlenecks being encountered by the GENCOs?

    Gas pricing is one of the most important determinants of generation tariff, that is, electricity tariff is most sensitive to gas price. In order to produce and transport sufficient gas to GenCos, gas producers need to build, operate and maintain their gas production and processing infrastructure, which requires massive investment. Gas transportation via gas pipelines or virtual pipelines (trucks or barges) also requires sizeable investments to set up. These investments would, therefore, need to be amortized over time in the form of cost-reflective gas supply and gas transport charges, which are ultimately passed through to electricity tariff. Without proper gas pricing, there will be no investment in gas production and transport infrastructure. If this situation does not change the power sector cannot grow, no matter the lip service. Note that presently, only about 21% of the gas produced annually in Nigeria is used locally for power generation, petrochemicals, and others.

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