Prof. Wumi Iledare is the President of
the Nigerian Association for Energy Economics and the Director, Emerald
Energy Institute, University of Port Harcourt. He speaks with ‘FEMI ASU about the way forward for the nation’s energy sector, among other things
How can the Federal Government increase energy access in the country?
It is an established fact that there is a
direct correlation between economic growth and energy consumption. It
doesn’t matter how you measure it, either Gross Domestic Product per
capital or energy consumption per capital. Energy consumption per
capital is directly proportional to GDP per capital. The higher your
energy consumption per capital, the higher will be your GDP per capital.
When you do not have enough energy, it is like driving a car without
enough petrol; the car will not go far. When you don’t have enough
energy to power an economy, the economy will stall, and that’s what we
have seen in Nigeria, where people have had to generate electricity by
themselves. The cost per unit when you are self-generating is different
from when you have big output generators because the energy industry,
especially the electricity producing industry, is a decreasing cost
industry. And there is a tendency to even have a lower cost per unit,
depending on how big the market is. And Nigeria is a big market. We have
seen it with the telecommunications industry, about 240 million phones
in people’s hands in Nigeria.
I
think it was in the light of this lack of adequate energy that the
power sector was privatised. But almost two years on, we have yet to see
any significant improvement. What should the new government focus on to
move the reform in the sector forward?
It begins with institutional
empowerment. Unfortunately, what I see on the ground in our National
Assembly dampens the optimism that we have, not only about the energy
sector, but the entire sectors of the economy because the rule of law is
so important. We need institutional empowerment that follows the rule
of law.
While I will really plead with the
government not to reverse the reform in the power sector, it could be
revisited. Take for example, in the zonal location of the distributing
sector, there may be need to evaluate whether it is a captive market so
as to know whether those zonal distributors are operating a monopoly or
not, because if it is not well-defined; it is going to be difficult to
regulate them. If the captive market is exclusively for the distribution
companies, then they must be regulated and the pricing mechanism must
be defined in order not to allow them to have what we called abnormal
profit. And right now I think the Discos are more or less monopolists in
the zonal markets that they are in control of. I don’t know whether
that’s government’s intention. So the structure must be well-defined,
and the mission of it depends on the regulator of that sector.
I don’t think the Nigerian Electricity
Regulatory Commission is well-funded to be able to do the work that they
are supposed to do. Let’s look at the Energy Commission of Nigeria. How
empowered are they with respect to energy planning for Nigeria? All of
these things are very important, and these are the things this
government must pay attention to, if it is not just going to be a
wishy-washy that we have had in the past.
The Nigerian oil and gas
industry has been crisis-ridden in recent years, with oil production and
reserves declining, what is the solution?
We cannot afford to have perpetual
decline in oil production without building reserves. You cannot build
reserves unless there is exploration. Under this low oil price regime,
the government needs a surrendering of some of the royalties for new
discoveries. I remember when the majors were moving out of the Gulf of
Mexico, the United States government put in place what they called
Deepwater Royalty Relief Act. That is what the US government has been
reaping from since 1995 and now. The shallow water production has
declined and the deepwater production has increased because of the
Royalty Relief Act of 1995. If you fast forward and look at the shale
gas production and the light oil production, it is all as a result of
the Act and other incentives that were put in place. I know in Nigeria
it is hard to want do that now because there is cash crunch, but it will
continue for a long time if there is no growth in the reserves. There
is nobody that can motivate companies to do that except the government
is willing to pass a law. We don’t have to wait for the Petroleum
Industry Bill to create incentives to gear up investment. If we don’t
create the incentives, our reserves replacement ratio will decline and
our ability to participate in the global debate for the future oil
market will diminish. Even the allocation of production quota from the
Organisation of Petroleum Exporting Countries is tied to capacity, which
is dependent on proven reserves in place. So this is not the time to
just wait, this is the time institutions must be empowered to take
decisions.
What are the implications if Nigeria allows oil production to continue to decline?
Remember, government gets revenue from
three major sources: petroleum profit tax, royalty and equity. Equity is
based on government ownership mostly of the joint ventures. PPT is a
function of profitability and royalty is a function of gross revenue.
When production declines, royalty declines with it; profitability under
this low oil price declines, and that means government share is going to
be lower.
Another source of money is signature
bonus. When you are not giving out leases in a bidding process,
government does not get signature bonus. When was the last time we
actually did any bidding for oil and gas leases? That means the money
the government would have collected from bonuses are denied? So
production cannot be allowed to fall, not only from the perspective of
now, but even decision-making in the future. And in order for production
capacity not to fall, there must be exploration and development. Under a
low price regime, exploration expenditure always fall flat unless there
is something to gear it up, and that is why I am clamouring for
incentives – calculated and measurable incentives tied not to effort,
but output.
It was reported during the
week that the All Progressives Congress had in a report advised
President Muhammadu Buhari to scrap the PIB and replace it by a new
reform bill. Do you think the PIB should be discarded?
There is no PIB now; let’s not deceive
ourselves. PIB 2008 died in 2011. PIB 2012 died on May 29, 2015. Where
we go from now is if there is another PIB that will be submitted by the
executive or the legislature. So it is going to be a new bill. It may
derive quite a lot of its content from both the one of 2008 and that of
2012.
If I were advising the government, I
would go and look at the PIB that was almost passed in 2011 because
there has been a lot that had been put into it, or I will look for the
document that the one-time director of the Department of Petroleum
Resources, Osten Olorunsola, presented to President Goodluck Jonathan
and his executives before it was dumped. I am not saying that it was
perfect. But if you look at that one and what the sixth National
Assembly worked on, we have something close to an acceptable bill.
SOURCE;Punchng
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