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Nigeria’s Power Sector: Experts Reviews Gas Supply Constraints



Energy experts who gathered in Lagos recently to examine Nigeria’s power sector and the role of gas in pushing up generation capacity have a unanimous opinion that not only that the sectors value chain is disjointed but policy issue has significantly affected gas supply to the system, CHIKA IZUORA captures their views.

It was the Natural Gas Business Forum of the Nigerian Gas Association (NGA) with the exciting theme, Embracing New Realities: Resetting Our Gas To Power Industry. Setting the tone of the discussion was the president of NGA, Engr. Dada Thomas who in his opening remarks observed that the nationwide shortage of available natural gas supplies is without question one of the most critical issues facing the Nigerian power sector today.

Thomas stated that the number one priority of the Association and the top priority of the gas producers and investors in the country is to ease the natural gas shortage as much as possible in the short term, and to work towards providing a long term solution but noted that the challenge is how to do this in an economically viable, profitable and sustainable manner that would meet the aspirations of the investors and operators on one hand and the government and consumers on the other hand.

According to him, he shortfall in natural gas supply, further execrated by pipeline vandalisation, is indeed as great a problem to the nation as is the impact of cost-reflective electricity tariffs, unworkable power purchase agreements (PPAs) and over regulation of gas price. By necessity we have no choice now but to take whatever steps that are possible and equitable to deal with the situation and break the unending cycle of inadequate gas and power supply and unrealised economic potential that has been the lot of our nation for so long.

He stressed that unless concurrent action is taken to solve the problem of gas supply, and other obvious challenges that make further investment unattractive for gas producers, processors, pipelines and transportation companies, the inevitable shortages witnesses over the years will seem trivial indeed, compared to the massive economic and social disruptions in future if we fail to act now.

Every citizen of Nigeria, he said whether he or she realizes it or not, and whether he or she uses natural gas directly or indirectly, stands to benefit both in the near term and over the long haul from removal of Government price controls and ensure a willing-seller willing-buyer market scenario comes into play, adding that telecom sector has demonstrated the benefits that accrue to the end consumer in a competitive market driven system.

To him, we have only two choices when it comes to natural Gas. “Either we deregulate thereby encouraging new investment in gas development and allow market forces to determine prices and cost for producers or consumers or we continue to regulate and de-incentivise new investment in gas development and continue to suffer acute gas shortage with its negative impact on producers and consumers.  The good news is that our engagement on your behalf with government is starting to yield positive results and indications are that willing-buyer willing –seller market is not too far off on the horizon.”

Speaking in the same way, former power minister, Prof. Barth Nnaji expressed deep concern about the future of Nigeria’s power sector saying that the environment is not attractive for investment that would help address various challenges facing the industry. Nnaji who was the key note speaker at the forum said that foreign investors are not willing to invest in the Sector because government has not addressed major issues that would guarantee return on investment.

The former minister shocked the audience when he revealed comments made by participants at a major power summit in Copenhagen, which attracted key industry operators and investors from across the world. “I was surprised that the summit featured a special session on Nigeria, and there investors said they are not willing to make investment in Nigeria’s power sector, citing several challenges”, he said.

Among their fears include, lack of cost reflective tariff, gas supply constraints, poor transmission network, non credit worthiness of Discos, over leveraged power assets, value chain disalignment and lack of will to enforce agreements.

Analyzing the issues, the former minister stated that many projects have been stalled due to finance constraints and tariff issues. According to him, tariff must reflect currency movement, “so there must be attachment of tariff to currency movements and adjustments must be done, and tariff review will help Discos to recover costs and pay for Gas”.

He also said that lack of industry deregulation and absence of proper legislation has discouraged investment because it is only deregulation that will allow investors to consider investment in gas production and transportation. Speaking on transmission, Nnaji said government does not have the funds to put the transmission network in proper shape. He advised government to consider concessioning the transmission network which he said should be broken into segments but properly interconnected.

Nnaji noted that the Discos are facing serious challenges because the technical aspect of the system is still bad leading to 50 per cent of inefficiency in the sector. According to him, the investors in the distribution sector borrowed money to buy the assets but did not invest in other supporting infrastructures to make the chain function effectively.

“We can reduce losses by investing in technical areas and also there is lack of commercial knowledge among government functionaries on how to do agreement, and again the country lacks the will to enforce agreements”, Nnaji observed. At the panel discussion, speaker after speaker concurred with each other as they point to the fact that Nigeria’s power sector privatization though a commendable decision but lacks direction and alignment.

David Oluseyi Ige, former group executive director of the Nigerian National Petroleum Corporation, NNPC, regretted that the country has not been able to jumpstart the electricity market owing to a number of factors. Ige observed that liquidity issue in the sector has become a thorny factor that has derailed a number of conceived projects. He said that of proper action to deliver on projects that ordinarily would have aligned the sector created some of the issues in the industry.

Ige who is currently the chief executive officer of Gas Invest Limited, disclosed that government actually identified some baseline projects but almost all have not been realized, just as he blamed some of it to poor approval process.

“There were projects that are 90 per cent completed over years and today they remain the same.

We have trouble to align the investment value chain, gas producers don’t have evacuation facilities while power plants are located outside gas production infrastructure. For instance we have such uncompleted projects like Brass and the Escravos-Lagos pipeline expansion projects which are vehicles conceived to seamlessly deliver gas to buyers.”

In his contribution, George Etomi, principal partner George Etomi and Partners raised the issues around gas pricing. He said gas pricing has been a major political consideration and that Distribution Companies, Discos, buy power from Generation Companies who factors in the cost at which they buy gas from producers but are compelled to bill customers at a government determined rates.

This, Etomi observed has crippled the activities of the Discos even as they battle energy theft and vandalism in the industry. In her view, Mrs. Maryam Shehu, deputy general manager, (Gas Commercial) Total exploration and production said the value chain in the industry is significantly distorted.

Shehu said the sector lacks adequate supporting infrastructure as she notes that the transmission sub sector is grossly challenged, adding that the country should begin to create supplementary solutions. In proffering solutions, she advised on the need to boost gas transportation network as there are many pipelines that are yet to be put in place.

She said that Nigeria sits on 181 trillion cubic feet of gas which presents massive advantage to the power sector as 80 per cent of the country’s installed generation capacity is thermal based. She commended government policy on Captive power options which has the capacity of delivering electricity to end users not captured by the weak grid system, because through that option we bypass all those inefficiencies.

She further noted that idea of creating virtual pipeline to connect to Captive power projects would promote efficiency but stated that Captive power option should be thrown open to willing investors while incentive should be drawn up for those coming into Virtual pipeline sector.

The experts however came to the conclusion that except insolvency in the power value chain, gas pricing properly addressed and adequate funding extended to the sector as well as government lessening interference by putting adequate policies in place the challenges of the power sector will remain with us.

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