Nigeria’s Energy Sector is Looking Good – GEPLAW January 2018 Reports
Nigeria’s energy sector has recorded an inspiring start to the new year, building up on the momentum witnessed in infrastructural investment in the sector in 2017.
The Federal Government of Nigeria (FGN) through the Ministry of Power, Works & Housing headed by Mr. Babatunde Fashola SAN has continued to show an admirable dedication to implementing the Power Sector Recovery Programme (PSRP) through sustained investment in the power transmission network while also strengthening the Rural Electrification Agency (REA) to move closer to delivering on its mandate of developing off-grid and mini-grid power solutions in selected communities and educational institutions.
The power ministry has also shown more willingness to work with power generating companies (Gencos), the distribution companies (Discos) and other stakeholders towards achieving a sustainable increase in power supply.
Outside of the noticeable activities of the power ministry, a number of positive developments were also recorded in Nigeria’s energy sector including the arrival of Total Upstream Nigeria Limited (TUPNL)’s Floating Production Storage Offloading (FPSO) unit, passage of the Petroleum Industry Governance Bill (PIGB), announcement of Azura Power’s readiness to integrate 450megawatts into the national grid in the first quarter of 2018 and Ogun State’s execution of a Memorandum of Understanding (MoU) with 8 (eight) Independent Power Producers (IPPs) for the generation and distribution of 276MW.
TUPNL’s FPSO which is currently being integrated with six locally fabricated modules at the Samsung Heavy Industries Yard in Lagos before deployment to the Egina oilfield, has potential of increasing Nigeria’s crude oil production by 200,000 barrels per day. TUPNL will be relying on the FPSO as it moves to drill 13 (thirteen) subsea wells at the Egina oilfield in addition to 5 (five) previously drilled.
The Egina FPSO is designed to hold 2.3 million barrels and is thebiggest FPSO ever deployed to Africa. Beyond its historical significance, it holds a lot of promise for the Nigerian economy and in the absence of unrest in the Niger Delta, the FPSO will play a major role in the realisation of government’s intention under the Economic Recovery and Growth Plan (ERGP) to realise crude oil production increase to 2.2 million barrels per day (mbpd) in the short term and 2.5 mbpd by 2025.
Prior to the arrival of the Egina FPSO, there had been different FPSOs commissioned by different oil companies including the Usan FPSO procured by Total for the operation of the OML 138 before it sold its 20 percent interest to Sinopec in January 2012.
Going forward, investments in FPSOs need to be supported to further attract needed investment into Nigeria’s oil and gas sector. Government must of necessity look into addressing complaints about excessive bureaucracy, high rental fees for port yards and the restrictive towage and pilotage laws.
A major positive development in the oil and gas industry occurred on 18th January, 2018 when the Federal House of Representatives passed the Petroleum Industry Governance Bill (PIGB) which seeks to reform the governance and institutional framework of the Nigerian oil and gas industry. The PIGB also seeks to establish a framework for the creation of commercially-oriented and profit driven petroleum entities, to ensure value addition and internationalisation of the petroleum industry through the creation of efficient and effective governing institutions with clear and separate roles for the petroleum industry.
Other benefits to be derived from the implementation of the PIGB upon becoming law include the facilitation of an enabling business environment for investment in the petroleum industry, the reduction of powers exercisable by the president and the petroleum minister over the award of licences thereby promoting greater transparency, the establishment of profit-driven entities as well as the creation of an effective and efficient regulatory body to be known as the Petroleum Regulatory Commission (NPRC) which will take over the functions of Petroleum Inspectorate (PI), the Department of Petroleum Resources (DPR), and the Petroleum Products Pricing Regulatory Agency (PPPRA).
The Nigerian Senate had earlier on 25th May, 2017 passed its own version of the PIGB and while it is understood that the House of Representatives significantly adopted the version passed by the Senate, both chambers of the National Assembly have initiated harmonisation efforts and hope to get the bill ready for presidential assent in good time.
While the fate of the three other bills derived from the original Petroleum Industry Bill (PIB) remain in the balance, the passage of the PIGB represents the first major progress after over a decade of attempting to legislate wholesome reforms of Nigeria’s opaque oil industry. It is hoped that as 2018 progresses, political and industry stakeholders may be able to facilitate the passage of the other bills, as the failure to reform some aspects of the petroleum industry while sanitising some other aspects may only create new challenges.
As January 2018 wound up, Nigeria’s flagship Independent Power Project (IPP), the Azura-Edo IPP continued to move ahead of schedule with the integration of its second turbine with 153MW into the national grid.
The first turbine of 153MW was synchronised to the grid in December 2017 and a third turbine also of 153MW is expected to come on stream by March 2018. The progress recorded at the power plant is expected to significantly reflect in power supply across the nation by March when the plant begins to function at its full capacity of 459MW for the first phase of implementation of
the project.
Aside Edo State, a number of other states have intensified efforts to boost power supply in their domains to attract investors. The Ogun State government on 30th January, 2018 launched its ‘Light Up Ogun’ initiative and signed Memoranda of Understanding with eight independent
power producers for power plants in different locations in the state with a combined capacity of 276MW worth $497.6 million.
The government intends to provide the land on which the projects will be sited as its equity contribution while the IPPs will raise the financing for the projects. It is expected that the modalities for investment recovery by the IPPs will be adequately reflected in the Power Purchase Agreements due to be finalised in the coming weeks.
Like Ogun State, the Akwa Ibom state government has concluded plans to build the Qua Iboe Power Plant with 570MW generating capacity to be cited at the Qua Iboe Onshore Terminal in Ibeno Local Government Area of the state. The project is conceived as a Public Private Partnership (PPP) arrangement with the Nigerian National Petroleum Corporation (NNPC) joint venture with Dangote Group, BlackRhino, African Development Bank, the International Finance Consortium (IFC) with the Islamic Development Bank as financiers of the project.
In December 2017, the Ondo State government signed a similar MoU with Kingline Development Company for the design and construction of a 550MW power plant worth $550 million.
On the side of the Federal Government, January 2018 ended with the execution of a mutually beneficial agreement between Nigeria and Niger for the design and construction of a new refinery to be located at a border town between Katsina State in Nigeria and the Republic of Niger as well as the construction of a pipeline to convey crude oil from Niger to the new refinery.
The agreement was signed following talks between Nigeria’s Minister of State for Petroleum Resources, Dr Ibe Kachikwu and President of Niger, Mr Mahamadou Issoufou, and Niger’s energy minister, Foumakoye Gado. The bilateral and technical agreements are expected to follow in a short while.
The development is believed to beconsequential to a November 2016 memorandum of understanding (MoU) signed betweeen the Nigerian National Petroleum Corporation (NNPC) and Savannah Petroleum Company (SPC), a United Kingdom-based independent oil producer, for the supply of crude oil from SPC’s Agadem oil field in Niger Republic to the Kaduna refinery.
While we await more details on these projects, it is hoped that the proper implementation of such projects will complement government’s efforts to ensure adequate supply of refined petroleum products in Nigeria and put an end to recurring fuel queues across the country.
Conclusion
The year has begun on an inspiring note for Nigeria’s energy sector and is anticipated to witness many more significant projects across board.
As government continues to implement policies such as the National Petroleum Policy, the National Gas Policy and the Power Sector Recovery Programme, we reasonably expect more private sector participants to indicate interest in investment in the commercialisation of gas reserves for power generation, the construction of modular refineries, metering for power distribution and embedded power generation.
Governments at various levels will however need to continue to create the enabling environment for investment by addressing bureaucratic impediments to fulfilling regulatory obligations without compromising on quality control. More thought needs to be spared to the opportunities for investment recovery on the part of investors.
We are available to provide clarifications and answers to any queries that may arise from this update.
George Etomi is the Principal Partner, GEPLAW
