Category: Power

Nigeria’s power prices need to rise by about two thirds for many customers to reflect the cost of supplying it and an increase can be expected within months, President Bola Tinubu’s special adviser on energy said.

Higher electricity tariffs, which need to be balanced by subsidies for less-affluent consumers, are required to fund the maintenance needed to improve reliability and to attract private investors into power generation and transmission, said the adviser, Olu Verheijen.

“One of the key challenges we’re looking to resolve over the next few months is transitioning to a cost-efficient but cost-reflective tariff,” Verheijen said in an interview in Dar es Salaam, Tanzania, this week. This is needed “so the sector generates revenue required to attract private capital, while also protecting the poor and vulnerable,” she said.

Tinubu has already taken a number of steps to ease the burden on state finances and encourage private investment since taking office in May 2023, including removing subsidies on motor fuel. Power prices were already tripled for some customers last year.

While Nigeria, a nation of about 237 million people, has an electricity access rate of around 62%, an erratic grid supply limits productivity and disrupts daily life.
The move to raise tariffs comes amid mounting pressure from Nigeria’s debt-burdened electricity distribution companies for tariffs to be cost-reflective so they can improve their finances.

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The country privatized generation and distribution in 2013, yet prices set by the government’s Nigeria Electricity Regulatory Commission don’t cover the suppliers’ costs. Government subsidies cover some of the difference, but profitability is hard to achieve.

Verheijen was in Tanzania attending a World Bank-backed conference where Nigeria presented a $32 billion plan to boost electricity connections by 2030. Private investors are expected to contribute $15.5 billion and the rest will come from public sources, including the World Bank and African Development Bank.

Nigeria’s power industry needs significant investment to achieve its development aims, Verheijen said. Of the country’s 14 gigawatts of installed power, only 8 gigawatts can be transmitted around the country and just four or five gigawatts can be directly delived to homes and businesses, she said.

Ahmed Usman Ododo, Kogi State governor, has said that the establishment of five Mini Liquefied Natural Gas (LNG) plants in Ajaokuta by the Federal Government through the Nigerian National Petroleum Company (NNPC) Limited and its private sector partners would strategically position Kogi as an energy hub in Nigeria.

Ododo expressed the optimism during the groundbreaking ceremony of the LNG plants in Ajaokuta where he emphasised that the project would play a pivotal role in enhancing Nigeria’s energy landscape, fostering economic growth, improving energy access, and reinforcing Kogi State’s significance in the country’s industrial development.

The governor equally described the LNG plants as a transformative investment that would not only position Kogi as an energy hub but also stimulate economic activities in the state.

He said: “We are witnessing a historic moment that will redefine Kogi’s place in Nigeria’s energy sector.

“This project is not just about gas production; it is about economic transformation, job creation, and ensuring that our state plays a central role in Nigeria’s energy future.”

He underscored the economic impact of the initiative, highlighting its potential for job creation, increased investment, and industrial growth, stressing that his administration’s commitment to developing a skilled workforce will find through expression in opportunities being created by new investment in the emerging energy sector , as he commends President Bola Tinubu for his dedication to Nigeria’s energy transition and for mobilizing NNPC Limited and its private sector partners including Prime LNG, NGML/GASNEXUS LNG, LNG Arete, Highland LNG, and BUA LNG to establish the LNG plants in Ajaokuta.

Read also: NNPCL unveils five LNG mini-plants to boost gas supply in Nigeria

He expressed the optimism that the LNG plants would become a crucial part of Kogi’s energy infrastructure, significantly reducing carbon emissions while advancing sustainable energy solutions in Kogi state and Nigeria.

He said: “With an initial combined production capacity of over 80 million cubic feet per day, these plants will serve as a key resource for both national and international energy markets.”

Ododo equally assured that his government remains committed to providing an enabling environment, sustaining peace and security, and attracting more investments to the state.

Earlier, Mele Kyari, Group chief executive officer of NNPC Limited, emphasised that the LNG plants were part of the Federal Government’s strategy to revolutionise the gas sector, positioning it as a key driver of economic prosperity, noting that the initiative was not just a symbolic event but a concrete step towards energy transformation, stressing that all necessary equipment are ready for immediate deployment with assurance that the project would be completed on schedule in partnership with relevant stakeholders.

Kyari equally commended Governor Ododo for mobilising support from host communities, recognising them as the first beneficiaries of the initiative.

The project, spearheaded by the Nigerian National Petroleum Company (NNPC) Limited in collaboration with private sector partners, aims to enhance domestic gas supply, drive industrialisation, and create employment opportunities.

The Minister of State for Petroleum Resources (Gas), Ekperikpo Ekpo credited President Tinubu’s executive order for fast-tracking the development of the LNG plants.

He emphasized that the project was a direct response to the federal government’s push to maximise Nigeria’s gas potential and support industrialisation efforts.

Shuaibu Abubakar Audu, minister for Steel Development, noted that the LNG initiative aligns with Tinubu’s Renewed Hope Agenda, which aims to create a $1 trillion economy by 2030.

Aliko Dangote, group chairman and founder of Dangote Group has disclosed that the newly built Dangote refinery located in Lagos, Nigeria would not have been possible without the African Export-Import Bank (Afreximbank), the International Finance Corporation (IFC), and Access Bank.

He also disclosed that he has paid interest and principal of about $2.4 billion out of the $5.5 billion borrowed to establish the refinery in Nigeria.

Dangote said this on Tuesday during a fireside chat with CNN on ‘Using Industrial Transformation to Build Bridges: The Global Africa Vision and Experience of the Dangote Group’, at the ongoing 2024 Afreximbank annual meetings, incorporating Africaribbean trade and investment forum, in Nassau, The Bahamas.

“We borrowed the money based on our balance sheet, we borrowed a total of $5.5 billion but we have paid a lot of interest as we go along because the project was delayed because of lack of land, also the sand filling. It took a long time, almost six years or so. We didn’t do anything for five years.

“It was actually in 2018 that we started. We borrowed that much, we have actually of course paid interest and some principal, of about $2.4 billion. So, we’ve done very well. We now have only about $2.7 billion left to be paid. So we’ve done very well for a project of that magnitude,” he said.

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“I think the luck that we had by getting the refinery done is because people believed that we were crazy, it will never happen. So I think the people who were sabotaging us were less concerned because they knew that these guys had entered into something that they were going to finish. They thought that we were going to fail. And I must thank a lot of our bankers for not panicking.

“The issue is that I must say, not because Benedict Oramah is here, but I can tell you, this refinery wouldn’t have been possible without Afreximbank. I think he’s one person who has so much belief in the refinery himself and then the other gentleman who is late now, Herbert Wigwe of Access Bank.

“Oramah is actually more convinced than some of my staff. Yes, he’s more convinced because when we took him there, both him and some of his board members, they became so much sort of convinced that this is the right way to go. And I must honestly tell you that, which I told you in the interview, even though I didn’t see that path. I said without the likes of Afreximbank, African Finance Corporation (IFC), it will be very difficult for us to industrialise,” Dangote said.

Narrating his experience in the refinery journey, he said, “I feel great but we really went through tough times, also including covid-19 time. So, during the setting up of the refinery, when we thought about building the refinery, we first of all did not have a clue of how huge this refinery is going to turn out to be. That is the reason we went into building the refinery. If we knew what we were really going to get into, we would not have started at all.”

The Nigerian National Petroleum Company Limited (NNPC) and its partner, TotalEnergies, have agreed to invest $550 million for the development of a gas processing facility in southern Rivers State to boost exports and domestic supplies of gas.

An official at NNPC who is privy to the agreement disclosed this to Reuters yesterday, saying the investment would include a gas processing plant and a pipeline.

TotalEnergies declined to comment while the NNPC source said an announcement would be made this week, according to the international news agency.

The gas processing facility would be built on the Ubeta onshore gas field, jointly owned by TotalEnergies and NNPC and would supply gas to the Nigeria Liquefied Natural Gas (NLNG) plant, the report stated.

The NLNG is a consortium between NNPC, Shell, TotalEnergies and Italy’s Eni (ENI).

When completed, the plant would generate 350 million standard cubic feet per day of gas (mmscf/d) and 10,000 barrels per day of associated liquids, the source stated.

Nigeria, which holds Africa’s largest natural gas reserves of over 209 trillion cubic feet (tcf) flares – or burns off gas from its oil fields because it lacks processing infrastructure and faces capital constraints.

The latest investment could mean President Bola Tinubu’s bid to attract investment into Nigeria’s energy sector is beginning to succeed, analysts said.

“The government will hope this offers confidence not only in the quality of the Nigerian resource base, but also in the government’s pledge to improve ease of doing business,” Reuters quoted the Director, sub-Saharan Africa at Political Risk Consultancy Horizon Engage, Clementine Wallop, to have said.

Energy analysts hold the view that Nigeria has failed to increase its exports to the European Union after the bloc sought alternative supplies to make up for lost Russian imports because of the Ukraine War.

Locally, Nigeria is struggling to feed its gas power plants that generate most of its grid electricity, the report added.

The Federal Government has re-engineered Nigeria’s oil bidding process with emphasis on production bonuses, targeted at enabling investors to channel their scarce resources into immediate development and early production.

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In the past, emphasis was placed on the high signature bonus, a development that discouraged local and foreign investors from investing while also scuttling early development and commencement of oil and gas production as well as the unlocking of many multiplier effects.

But under the new arrangement, the industry regulator, Nigerian Upstream Petroleum Regulatory Commission, NUPRC, has removed entry barriers, including the slashing of the signature bonus – a single, non-recoverable lump sum payment made upfront by oil companies to the government for the rights to develop an oil block commercially after successfully winning in the license bid round – to only $10 million for deepwater assets and $7 million for shallow water and onshore assets.

The strategy aims at growing oil and gas production, enhancing Nigerian Content Development, attracting Foreign Direct Investment, contributing to long-term global energy sufficiency, expanding opportunities for gas utilization, and creating employment opportunities while adding value to government and investors.

According to experts, the development illustrates the sensitivity of the Commission to developments around the world, especially the sustainable rise in Capital Expenditure, CAPEX, going into funding renewables in the spirit of the global energy transition.

They said it further showed its accurate comprehension of trends in other oil and gas climes; where the governments have drastically reduced signature bonus to attract investors and financiers into their industries.

Available data indicate that in the Middle East and North Africa, signature bonus currently stands at about $10 million while Thailand and Indonesia have about $3 million (minimum) and N1.5 million, respectively, meaning that Nigeria’s oil and gas landscape is now in alignment with the rest of the world.

Besides, the current bidding also opens a window for investors to bid for the 2022 blocks based on the current incentivized terms instead of paying the previous $50 million.

It was gathered that Nigeria will be able to complete many projects, leading to the creation of many multiplier effects, including production capacity, employment, contracts, community development, local content and gas-to-power, thus providing more energy to households and businesses nationwide.

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Also, it was further gathered that Nigeria will be able to generate substantial revenue in the form of production bonus when investors begin their oil and gas production.

Commenting on the development, the Executive Chairman, African Energy Chamber, NJ Ayuk, said: “Nigeria has established a robust framework that is set to attract foreign exploration companies with modernised fiscals that are competitive for deepwater exploration. We the AEC believe the most lucrative balancing point between creating a welcoming environment for international companies and achieving Nigeria’s own national goals is important.

“Key to this bidding round will be the role of independents and indigenous players when it comes to exploration. The bidding round also paves the way for gas monetisation that will bring amazing benefits to Nigeria and also international markets.”

Similarly, the Executive Director, Emmanuel Egbogah Foundation for Petroleum, Prof. Wumi Iledare, said: “A high signature bonus is regressive. It does make a petroleum province with a high signature bonus less attractive.”

On his part, the National President, Oil and Gas Service Providers Association of Nigeria, OGSPAN, Mazi Colman Obasi, said: “Investors need a conducive environment to put their money. Once the right environment exists, foreign capital will begin to flow in.”

However, speaking at the recent pre-bidding conference in Lagos, the Commission Executive, NUPRC, Engr. Gbenga Komolafe, said: “A review of Welligence Energy Analytics reports on Licensing rounds across the globe including Brazil, Guyana, Angola, Middle East, North Africa, SouthEast Asia, etc, revealed that the era of huge front-loaded signature bonuses is over.

“Accordingly, Nigeria under President Bola Ahmed Tinubu, as the Minster of Petroleum Resources has proactively and intuitively vacated barrier to entry for investment in exploration blocks being offered, in both the 2022 deep offshore bid round and the 2024 licensing round, in line with international best practices.”

He said: “President Bola Ahmed Tinubu and Minister of Petroleum Resources, Nigeria have embarked on a transformative agenda that aligns with the most stringent global standards and commitments. The recent Presidential Executive Orders issued in March this year, aimed at improving the efficiency and attractiveness of Nigeria’s oil and gas sector, were generously targeted to incentivize oil and gas development, introduced measures to balance the implementation of Nigerian Oil and Gas Industry Content Development Act, 2010 to ensure that oil and gas development is not hindered by local content bottlenecks. The Executive Orders also include directives on the reduction of contracting costs and timelines to enhance the global competitiveness of our oil and gas industry and achieve a higher rate of return on oil and gas investments.

“Nigeria is endowed with abundance of Crude Oil and Condensate Reserves and of Natural Gas Reserves representing above 30% and 33% respectively of the entire Oil and Gas reserves in Africa aside abundant mix of other renewable energy resources. In a bid to exploit and optimize these abundant Hydrocarbon resources, Section 7(t) of the Petroleum Industry Act (PIA) empowers the NUPRC, the Industry Regulator to conduct bid rounds for the award of PPLs and PMLs under the Act and applicable Regulations.

“It is on this premise that the Federal Government of Nigeria through the NUPRC recently announced the commencement of the 2024 Licensing Round both in-country and outside the shores of the nation. It would be recalled that we commenced the announcement at the maiden edition of the NEITI Dialogue Session, 2024, where the bid processes were thoroughly interrogated by civil society and the media.

“This was subsequently followed by the announcement of the commencement of the bid round at the 2024 OTC in Houston, the roadshow in Miami organized by Zeste Advisory, African Energies Summit in London organized by Frontier Network and Invest in Africa Energy Summit in Paris organized by Energy Capital Power. The Commission aims to project and attract robust local and foreign investors who will be participating in the bid exercise.”

He also said: “The NUPRC on behalf of the Federal Republic of Nigeria is committed to conducting the licensing round in a fair, competitive and transparent manner and ensuring a level playing field for both indigenous and international investors. Our approach is underpinned by the robust legal framework of the Petroleum Industry Act 2021(PIA), which ensures compliance with best practices to boost investors’ confidence.