Let There Be Light!
Mrs. Diezani Alison-Madueke
By Ijeoma Nwogwugwu
News Analysis
In recognition that the wholesale
reform of the power sector cannot be achieved without the cooperation
and input of the oil and gas sector, the petroleum ministry last week
declared a 12-month gas supply emergency plan aimed at increasing gas
supply to thermal power stations in the country, especially the new
National Integrated Power projects expected to come on stream in the
months ahead.
Minister of Petroleum Resources, Mrs.
Diezani Alison-Madueke, in a statement, said during the period, her
ministry alongside the Nigerian National Petroleum Corporation and gas
producing companies would deploy extraordinary measures to accelerate
opportunities for quick wins in order to ameliorate the potential gap
between gas demand and supply.
A decision, she said, has been taken
to strengthen the capacity, as well as the roles of the Gas Aggregation
Company of Nigeria Limited (GACN), which is a DPR-regulated company of
her ministry with responsibility for gas sourcing and allocation, as
well as operator of the commercial framework of the Gas Master Plan.
Accordingly, in addition to its
traditional gas demand management role which includes processing
requests from gas buyers, managing gas supply/demand allocation, as
well as facilitating Gas Supply Aggregation Agreement (GSAA)
negotiations, the GACN will henceforth be accountable for identifying
gas sources/suppliers and designing incentives for accelerated domestic
gas delivery.
It will also be responsible for
driving the implementation of the findings of the recently constituted
Emergency Gas Committee with emphasis on short and medium term gas
supply; on a sustained basis, ensuring integration as well as alignment
between gas demand and supply to ensure robustness of longer term gas
supply to power; and providing implicit data to enable the DPR to be
more proactive in compelling suppliers to meet domestic gas supply
obligations.
In furtherance of the emergency gas
supply plan, Mr. Kunle Allen was appointed the substantive chief
executive officer for the Gas Aggregation Company of Nigeria. He will,
within the emergency period, report directly to Alison-Madueke and will
be accountable for the delivery of the roles stated above.
The minister’s effort to facilitate
the delivery of adequate gas to meet the nation’s power needs is
noteworthy. But beyond the declaration, an appropriate fiscal framework
would still have to be put in place and implemented to incentivise oil
and gas companies to invest in gas exploration and production projects
to meet the nation’s local gas needs. This is sine qua non in a
country, in which over 75 per cent of electricity output comes from
thermal power sources. The balance is generated by hydro power sources.
To be fair, past administrations have
failed to put policies in place to encourage investment in gas
production. Indeed, Nigeria, the seventh largest producer of gas in the
world, has paid more attention to producing gas for liquefied natural
gas exports and on accidental gas (gas produced in association with
crude oil), than in gas development projects targeted at the domestic
market.
The same can be said of failure by
successive governments to expand and upgrade the transmission
infrastructure in the electricity sector, to the extent that the
current grid lacks the capacity to transmit the incremental increase in
electricity generation from the new power projects coming on stream.
The result is that electricity supply in the country has been at best
erratic, or in several sections of the country, non-existent.
As it stands, Alison-Madueke insists
that there is excess gas stranded, particularly in the south-east, but
that the thermal power stations lack the facilities and capacity to
absorb the extra gas. In order to address the misalignment in the
energy sector, plans are in place to speedily construct hundreds of
kilometres of pipelines and gas metering stations to make gas available
to the existing and new power stations.
Under the emergency plan, special
focus will be paid on completing all outstanding gas pipeline projects
such as the Obiobi (in Oyigbo, Rivers State), the pipeline to
Olorunsogo, and another pipeline to Ajaokuta. In addition, extra gas
will be pumped through the Escravos-Lagos pipeline to increase supply
to the Egbin power plant and others in the south-west zone.
With respect to the fiscal regime, the
World Bank will provide partial risk guarantees to gas producers to
encourage investment in the sub-sector in the immediate term. But in
the medium to long-term, the minister intends to introduce a
cost-reflective tariff structure that will enable producers to sell gas
at $1 per million standard cubic feet (mscf), in the first instance, to
power companies, as opposed to the 4 cents per mscf, which the Power
Holding Company of Nigeria is currently unable to pay.
But to ensure that the power companies
are able to pay cost-reflective tariffs for gas, the Ministries of
Petroleum Resources and Power would have to work in concert to
liberalise and privatise the electricity sector so that power producers
are empowered to pay for the gas at a market determined price.