Energy: New deadlines raise temperatures

By Leonard Lawal in Lagos and Hector Gonzalez in Abuja
Posted on Monday, 21 September 2009 15:34

Building electric

power-generation capacity and reforming the oil and gas sectors ?are

vital work in progress for the federal government

Having set new targets for increasing national electric power output, the government of President Umaru Yar’Adua will be under close scrutiny in delivering on its promises in the coming months. Patience has been wearing thin among frustrated consumers, although commercial and industrial operators have long accepted the reality that they will have to provide for their own power needs for the foreseeable future.

Nigeria’s middle classes can hardly be blamed for not believing the late-August promise of power minister Lanre Babalola that he will meet the latest target of 6,000 MW by December (down from the President’s earlier aim of 10,000 MW).?

Lagos wits refer to their polluted environment as ‘Mikano country’ – Mikano being the leading generator vendor in Nigeria – while they try to piece together the latest titbits of news on progress towards building more electricity capacity. Olujimi Oduntan, who runs a barber’s shop in Ikeja, Lagos, complains of the rising cost of diesel to run his Mikano generating set as he explains to customers above the din: “I have increased the price of a haircut, as there is just no regular power supply.

“?Just recently, national electricity output has actually been falling rather than rising. According to the Central Bank of Nigeria’s economic report for the second quarter of 2009, generation averaged 1,503 MW, down 26% from the previous quarter. This was due to a decline in gas supply to thermal power stations, falling water levels at hydroelectric plants and poor maintenance of transmission and distribution networks.

Ongoing vandalism has not helped. For two weeks in August, the Utorogu gas plant, which supplies gas to the huge Egbin power station outside Lagos, was out of action, but power output was restored to 500 MW (less than half its installed capacity of 1,320 MW) at the end of the month. The managing director of the Egbin facility, Jonathan Ogbonna, explained: “Two of the seven units of the plant are being operated on LPFO [low-pour fuel oil] as back up.”?

Partial plans

Companies to Watch

Owned by Wale Tinubu, this oil and gas
distribution companyis

upstream, has invested hugely in
infrastructure and has

strong future
growth prospects??

Part of the Femi Otedola empire, strong in
the diesel import business

for generators,
but will be affected badly if the poor power

is reversed

A subsidiary of the Nigerian National
Petroleum Corporation charged

wholesale gas distribution, currently in
the eye of the storm over

privatisation and
power generation. NGC oversees the West
African and

proposed Trans-Sahara
gas pipelines

According to the public affairs manager of the Power Holding Company of Nigeria, Efuru Igbo, national capacity was back to 2,300 MW by September. Meeting the government’s end-year target vitally depends on completion of key plants under the National Integrated Power Projects scheme, which has a scheduled overall capacity of 5,000 MW. One project, the 250 MW Alaoji power plant, is reportedly nearly ready according to the contractor, Rockwell Engineering, although delivering regular supplies of gas to it may still be a challenge. Others are at various stages of completion.

An initiative for entirely independent power projects has been mounted by the Manufacturers’ Association of Nigeria (MAN), under the name Manufacturers’ Power Development Company. MAN president Bashir Borodo says: “I am confirming to you that before the end of the year, the first of many such projects will be commissioned.”

The end of 2009 is also a deadline for the related, but even more strategic, total reform and restructuring of Nigeria’s troubled oil and gas industry. According to supporters of the proposed Petroleum Industry Bill, recent public hearings in the National Assembly greatly improved the prospects for the adoption of the reforms. Opponents of the bill say they will continue to block the new legislation unless there is agreement on substantial amendments when parliament returns from recess in September.

Shortly after coming to power in 2007, President Yar’Adua set up a committee under Rilwanu Lukman, who is now the petroleum resources minister, to consider how to restructure an industry critical to the national economy but beset by financing difficulties, corruption, environmental decay and the security crisis in the Niger Delta.

The 200-page Petroleum Industry Bill, presented to the assembly at the beginning of 2009, is the culmination of that work. Lukman told the public hearings that the legislation provided for a single, coherent legal framework for the oil industry, replacing dozens of separate and sometimes conflicting laws put in place since the 1950s.

New foundations?

Information minister Dora Akunyili said the bill would put in place “a level playing field for all stakeholders”. Mohammed Barkindo, group managing director of the Nigerian National Petroleum Corporation (NNPC), said it would provide for the transformation of the national oil company into “a fully commercial enterprise.”?

The main foundations of the bill are: the break-up of the NNPC into separate companies; a new national oil company to raise its share of financing of joint venture operations on a commercial basis from capital markets rather than from the annual budget; a tightening of fiscal terms, particularly for lucrative deepwater projects; and measures to facilitate increased exploitation of Nigeria’s prolific gas reserves.

Opponents of the bill claim it is poorly drafted, weak on detail and risks worsening the very problems it seeks to resolve. For the industry, chairman of Shell in Nigeria, Basil Omiyi, said multiple taxes, higher royalties and the loss of incentives would mean a “majority of gas and deep-water projects will not be viable”. Chevron’s Andrew Fawthorp said he favoured the principles of reforms but that the bill needed clarifications.

At the political level, the rhetoric was sharper. The Ijaw National Council described the bill as ‘demonic’ while Niger Delta senators said the bill was prejudiced and called for Lukman’s dismissal. The inter-agency technical group of NNPC, the Department for Petroleum Resources, the Federal Inland Revenue Service and the Nigerian Extractive Industries Transparency Initiative complained the bill made only “flimsy mention of host communities as stakeholders” and did not deal with fiscal issues “to achieve optimal revenue for government”.

Government officials say they had anticipated some of the criticism. They say there will be room for some compromise when separate committees in the National Assembly draft amendments to the bill when they return to work. They are confident of securing the bill’s passage into law before the end of the year. “We are ready to listen,” said Lukman.

In the interim, after five years of escalating attacks on installations and kidnappings of industry workers, the oil industry is hopeful of a greater degree of peace in the Delta. The current amnesty programme for militants to surrender their arms has been making some progress, although there is still a degree of scepticism among local observers. Victor Fingesi, security manager with a leading oil services firm in Port Harcourt told The Africa Report: “The militants recently have shown that the Nigerian army cannot easily defeat them in a war in the creeks and have capitalised on that fact to make demands that the federal government cannot sign up to.” The situation should be much clearer when the amnesty is set to end in early October.

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