out with the old in with the new

NNPC driving Nigeria’s biofuel agenda: Nowhere near 2020 target

By Ruth Olurounbi

Posted on September 22, 2020 17:21

A worker rides a bicycle past a sugar cane plantation near the Kenana Sugar Company south of Khartoum. To diversify its products, Kenana also plans to more than triple the output of biofuels, a by-product of sugar production, to 200 million litres by 2015. REUTERS/Mohamed Nureldin Abdallah

An oil-dependent Nigeria’s push to move away from  “the uncertainties of absolute dependence on oil” with crude being its primary source of revenue has led to renewed efforts to push for the implementation of the national biofuel policy.

That policy is seeking to “achieve 100% domestic production of biofuels consumed in the country by 2020.”

But, there are a few problems with that.

Aside from the fact that it is 2020 and Nigeria is nowhere near meeting its target, analysts see the biofuel drive as putting pressure on the nation’s inadequate domestic food supply. With the exception of cassava, Nigeria is a net importer of food, including food feedstock based biofuels such as sugar and palm oil.

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“The implementation of biofuel production in Nigeria will largely be dependent on investment of energy crop cultivation such as cassava and palm oil.  Food production in Nigeria has generally not kept pace with the population growth,” Rosemary Enemuo, an energy analyst at SBM Intelligence, tells The Africa Report.

According to her, multiple issues including outdated land legislations, poor irrigation technology, low access to credit, the high cost of farming inputs such as seedlings and fertilizers, and inadequate storage facilities have prevented Nigeria’s food self-sufficiency agenda from coming into fruition.

The backstory

In 2007, Nigeria formulated a national biofuel policy that would help the nation produce about two billion litres by 2020, helping it cut spending on ethanol imports, which at the time was costing the government about a quarter of a billion dollars a year.

Currently, Nigeria spends more than N160bn ($414.7m) a year to import ethanol for industrial use, according to Rajavelu Rajasekar, Director of Allied Atlantic Distilleries Limited (AADL). But local production only accounts for 3% of ethanol consumption in the country.

The biofuel programme would integrate the agriculture sector of the economy with the downstream petroleum sector; limit the use of fossil-based fuels for a more environmentally friendly fuel; generate additional tax revenue for the government; create new jobs and boost food production in the country.

The state oil company, Nigerian National Petroleum Corporation (NNPC) – which has failed to run its refineries profitably – would spearhead the biofuel programme, and “engage in the commercial in-country production of biofuels in partnership with core investors,” as well as “secure 10% of NNPC Mega Station Retail Inventory and become a dominant player in Biofuels business in Nigeria,” among others.

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Curiously, it was only nine years after the formulation of the policy that the NNPC began shopping for investors for its renewable energy division to implement the country’s automotive biofuels industry programme through a series of planned Special Purpose Vehicles (SPVs).

The NNPC told investors that it would indicate its negotiation shareholding of 20-30% in each of the partnerships, while the core investor(s) would be “expected to undertake 100% funding of the projects under a carry agreement in the first phase.”

A few months after, in November 2016, the Benue state governor Samuel Ortom announced that a UK-based consortium was set to contribute $340m to help build a new ethanol plant in the state, signalling a major investors’ interest in the Nigerian biofuel production.

Nowhere near target

While there have been some investments in local ethanol production in Africa’s biggest oil producer, including Africa’s largest ethanol plant in Ota, Ogun state that is producing 120,000 litres a day, the country is nowhere near meeting its target even though some signed MoUs took place with state governments for land use for ethanol plants.

  • An MoU signed with Kebbi state in 2018 was expected to help produce 84 million litres of ethanol a day, with about 32,000 hectares set aside for cassava production and another 15,000 hectares for sugarcane to supply the planned Nigerian National Petroleum Agency.
  • The project, according to the then NNPC group manager Maikanti Baru, was expected to create one million direct and indirect jobs, co-generate about 64 megawatts of bioelectricity to power the plant and light up the surrounding communities, produce refined sugar and industrial starch as well as production of animal feeds.
  • Similar MoUs were signed with other states including Kogi and Ondo.

Issues with NNPC driving the policy

While the NNPC is seen moving away from its 43 year-old tradition of opacity after making public its Audited Financial Statement in June this year, analysts still believe that the state oil corporation is not the right organisation to push the bio-fuel agenda. This is primarily because they find the government’s “insufficient capacity to bureaucratic bottlenecks and weak accountability systems as seen with NNPC and crude oil refineries in Nigeria,” says Enemuo.

To ensure that the biofuel project delivers on its objectives, Enemuo says: “The government needs to drop its statist tendencies to economic management while making policies that will incentivise the private sector to participate in the biofuel space.”

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No doubt, the NNPC has the best of hands that can handle the project successfully, says Olatunde Dondondawa, a Lagos-based independent energy sector analyst. “But bureaucracy and lack of accountability are issues of concerns.”

Another challenge also is a lack of continuity, says Dodondawa. “For instance, what happens if the present GMD is replaced today? Another GMD may not believe in the agenda and he may come with his agenda too that may negate what has already been started. Until the NNPC Act is amended and allows private investors to handle the project, things may not change,” he adds.

A case for private sector-led biofuel drive

Allowing the private sector to take the lead in driving this policy will help ease the investors’ worries on the sustainability of the project, says Dodonwa who believes the government is not sufficiently equipped to drive the project.

“As things stand, investors are reluctant to commit to such investments even as NNPC is shopping for investors in the projects. However, with a robust MOU that will guarantee firstly, repatriation of their Capital plus interest irrespective of who is at the helm of affairs, investors can commit to such projects. Besides, such risk factors will only make the cost of capital of the investment to be very very expensive.

“And you know we are in a very competitive environment, if the investors find a better alternative, I think they would settle for that. For instance, Ghana also has ethanol production potential which I consider to be a strong alternative,” he adds.

For investment in domestic production of biofuels to be private sector driven, there needs to be a “synergy through provision of adequate credit to the private sector and formulation of incentive policies, the biofuel project is expected to see massive growth especially for locals with possibility for exportation,” says Enemuo.

“Privatising this development will allow for competitiveness, growth, and accountability, as there is immense potential for this to create huge revenue,” she adds.

Bottom line

The success of the biofuel project could translate to reduced inflation and the possibility for more revenue and creativity. But to make this happen, the government must create an environment conducive for a thriving fuel ethanol industry, just as it said in its policy document.

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