By Gideon Osaka
One year after President Bola Ahmed Tinubu clinched the February 25, 2023 presidential election, this May 29th, a reflection on the journey so far in the energy sector, particularly oil and gas bears significance, considering the importance of the sector to the Nigerian economy.
Former President Muhammadu Buhari during his time as President and Minister of Petroleum Resources promised far-reaching reforms in the sector which included restoring the non-performing refineries to optimum capacity; ending gas flaring, passing the Petroleum Industry Bill (PIB), making Nigeria the world’s leading exporter of LNG, ending fuel subsidy, and curtailing oil theft and corruption in the sector.
In retrospect, the Buhari Administration achieved the passage and signing into law of the PIA, declared the “Decade of Gas” and began the ongoing construction of the 614km Ajaokuta-Kaduna-Kano Gas Project. About $45million in financing was also secured from the Islamic Development Bank for the Front-End Engineering Design (FEED) Study for the Nigeria– Morocco Gas Pipeline (NMGP) project. The administration successfully completed Nigeria’s first Marginal Field Bid Round in almost 20 years, achieved Financial close and signing of contract for NLNG Train 7, in addition to the commissioning of the new NPDC Integrated Gas Handling Facility in Edo State, the largest onshore LPG plant in the country.
However, some self-inflicted challenges that plagued the administration were even larger, leaving expectations by Nigerians largely unmet. Thus, complex and multipronged challenges confronted the country’s energy sector, ranging from low power generation, waning investments in oil and gas industry, dilapidating infrastructure, dipping oil production, opacity, insecurity of physical assets, community issues, lengthy contract cycle and general administrative challenges. Nigeria remained largely dependent on sales of oil, refining almost none of its crude, but exporting what it produces while paying to import refined products.
On assumption of office, unmet targets in the energy sector confronted the Tinubu administration. Tinubu was expected to follow the footsteps of his predecessors by naming himself the Minister of Petroleum Resources and he did. The designation of separate ministries (headed by former Bayelsa State Senator Heineken Lokpobiri as the Minister of State for Petroleum Resources (Oil) and Ekperikpe Ekpo (Gas) showed Tinubu’s commitment to the development of gas. Mallam Mele Kolo Kyari remained Group Chief Executive Officer of the re-launched NNPC Limited.
Fuel and electricity subsidy removal
When he took office, Tinubu was expected to take one of the most difficult political and economic decisions-to keep or remove subsidy, and he did so immediately.
In his inaugural address as President, Tinubu announced that his administration would not continue to pay subsidy on petroleum products. “The fuel subsidy is gone!” Tinubu exclaimed adding that subsidy could no longer be justified in the wake of drying resources. “We shall instead re-channel the funds into better investment in public infrastructure, education, health care and jobs that will materially improve the lives of millions,” the President promised at the time.
The decision to finally do away with subsidy had been predicated on the enactment of the Petroleum Industry Act (PIA) earlier in August 2021, which provides for total deregulation of the downstream sector, implying the removal of subsidy and enthronement of a free market regime for the sector. Fuel subsidy removal indicated a promise kept, as the policy was clearly Tinubu’s position during and after the electioneering campaigns. Anchoring his promise on fixing the energy sector, Tinubu in his 82-page manifesto tagged “Renewed Hope 2023 – Action Plan for a better Nigeria”, argued that subsidy payments were most beneficial to the rich and, therefore, ought to be stopped.
Fuel subsidy removal proved to be extremely devastating for Nigerians. The exponential increase in the prices of fuel resulted in massive collapse of millions of small businesses. Government’s recent decision to sharply increase the cost of electricity, further aggravated the situation, leaving many Nigerians helpless as all sources of energy became prohibitive.
To mitigate the impact of this tough policy on the populace, the President embarked on some projects and reforms. One of the most significant moves by the administration is the push towards an energy transition, spearheaded by the Presidential Compressed Natural Gas Initiative (PCNGi). Recognizing the need to reduce dependency on fossil fuels, the President has mandated that all future vehicles, generators, or tricycles acquisitions by the government and its agencies must utilize either compressed natural gas (CNG), solar power, or electric energy sources. The PCNGi aims to roll out about 800 CNG buses, 4,000 CNG tricycles, and 100 electric buses in its first phase, with over 2,500 CNG tricycles expected to be ready by middle of the year. This bold move not only aligns with the government’s commitment to environmental sustainability but also promises to unlock new investments in renewable energy, solar panels, and lithium batteries, while reducing costs and inflation.
Policy directives to improve the investment
In keeping with efforts to remove obstacles to investments, harness the nation’s resources and diversify the economy, the administration has initiated the amendment of primary legislation to introduce fiscal incentives for Oil & Gas projects, reduce contracting costs and timelines, and promote cost efficiency in local content requirements. This legislative amendment was preceded by three Executive Orders by the president on fiscal incentives for non-associated gas, midstream and deepwater developments; reduction of contracting costs and timelines, and promotion of cost efficiency in local content requirements.
Giving reasons why President Tinubu signed the Executive Orders (fiscal incentives for non-associated gas, midstream and deepwater developments) Olu Verheijen, President Tinubu’s Special Adviser on Energy, pointed out that the step taken by the President was to make gas readily available to Nigerians at affordable rates and reduce dependence on petrol and diesel. The anticipated impact of these investments extends beyond energy security.
The Executive Order on streamlining of contracting process to six months, will expedite the delivery of oil and gas products to the market and enhance overall value for the country. The Order on Local Content Practice Reform, will provide flexibility with the application of the Local Content Act, as local operators will be encouraged to increase their capacity, thereby creating additional business opportunities, upskilling of the workforce, and ultimately creating more jobs and boosting economic growth.
Following from these directives and many other actions that are being taken on the NNPC side around security, a number of big projects are expected to be announced soon.
Energy projects, deals
In the last one year under Tinubu’s leadership, fulfillment of the “Decade of Gas” plan remained a central plank of government policy and this has manifested in Nigeria LNG’s Train 7 project which reportedly hit 52 per cent completion in November and promises to increase LNG production capacity by 35 per cent once complete.
The Dangote refinery which was officially commissioned in May 2023 after years of construction delays, has received maximum support from the government in anticipation of the start of fuel supplies from the refinery. The $20 billion refinery, one of the largest in the world and in which NNPC Limited holds a 20 per cent stake, has been hailed as key to ending Nigeria’s fuel imports.
One of the new projects which came on stream within this period was Nigeria’s first floating liquefied natural gas project, which is being developed by Nigerian company UTM Offshore. The project is projected to come onstream by Q1 2026 and is reportedly backed by a $5 billion loan signed with Afreximbank, which has become a dominant source of capital to Nigerian energy companies, including NNPC limited.
Many big projects are anticipated to hit major milestones under the Tinubu government. NNPC Limited expects to complete the $2.8 billion Ajaokuta–Kaduna–Kano (AKK) gas pipeline project in July 2024. The AKK project is the first phase of the 1,300km Trans-Nigerian Gas Pipeline and a key element of Nigeria’s plan to develop its gas resources. The Assa North-Ohaji South Gas project may also be completed this year. The project aims to improve availability of natural gas for power generation whilst accelerating Nigeria’s transition towards cleaner fuels. Construction of the mega Nigeria-Morocco Gas Pipeline is scheduled to start this year. President Tinubu has also approved plans for a new bid round for 12 offshore blocks in 2024.
The groundbreaking ceremony of the new 350MW Gwagwalada Independent Thermal Power Plant (Phase 1) in the Federal Capital Territory, FCT Abuja was completed under the current administration, offering solutions to the multifarious challenges facing the electric power sector value chain.
Recognizing the importance of a stable power supply for economic growth, President Tinubu signed the 2023 Electricity Bill into law, aiming to reform the electricity sector and promote competition. Some of the key provisions of the Act include: States have the authority to license electricity operations, the establishment of an Independent Systems Operator (ISO) for market functions and promoting the use of renewable energy, among others. The Act not only facilitates private sector investment in Nigeria’s electricity sector but also establishes a stable regulatory framework, reinforcing investor rights.
On 1 December 2023, President Tinubu and the German Chancellor, Olaf Scholz, signed the Presidential Power Initiative agreement designed to inject 12,000MW of electricity into the national grid. This happened on the sidelines of the United Nations Climate Change Summit, COP28, in Dubai, the United Arab Emirates.
President Tinubu, since assuming office, has consistently advocated the accelerated realization and expansion of the PPI. To achieve this, the project has been a major focal point in three rounds of bilateral discussions at several meetings between the President and the German Chancellor, in New Delhi, Abuja, and Berlin.
The agreement signed will see to the end-to-end modernization and expansion of Nigeria’s electric power transmission grid with the full supply, delivery and installation of Siemens-manufactured equipment under the timeline of 18 to 24 months.
Giving a scorecard of his stewardship since assuming office, the Minister of State, Petroleum Resources (Oil), Senator Heineken Lokpobiri, recently disclosed that the sector has had about a cumulative $16.6 billion in commitments from investors.
Speaking at a ministerial sector update in Abuja, the Minister said that under the leadership of Tinubu, Nigeria’s oil and condensate production have risen from 1.1 million barrels per day to 1.7 million bpd, a growth of about 600,000 bpd.
According to him, the primary policy thrust of the government remains, to increase production because increased production is the lowest hanging fruit for Nigeria’s economic recovery.
Challenges still persist
Despite the perceived achievements in the last one year, the energy sector under President Tinubu’s administration is faced with a myriad of issues which demand immediate attention and decisive action. Most of challenges that plagued the sector under the past administration are larger now, leaving expectations by Nigerians largely unmet.
Although one year is not enough to deal with many of these challenges, it is worthy of note that nothing significant has been witnessed in the course of tackling these issues.
Escalating scales of oil theft and the consequential low oil production in the upstream sector and reoccurring incidence of petrol scarcity continue to impact the administration negatively. There is widespread contention among officials of the government over whether subsidy still exist or not.
Nigeria’s persistent power crisis remains a significant impediment to economic growth and development. Despite efforts to improve the power sector, inadequate generation, transmission, and distribution infrastructure continue to hinder productivity and investment. For instance, power generation which hovered around 4,600megawatts when Tinubu assumed office, now stands at an average of 3000MW. Stakeholders have observed that, the Tinubu-led government must prioritize the revitalization of the power sector, implementing reforms to enhance efficiency, promote renewable energy sources, and attract private sector investment.
