Olawunmi Olatunji, Chief Executive Analyst, Brockville Investments Africa, an energy and natural resource/asset development manager, in this special conversation with EnergyDay Nigeria, revealed that the persistent energy crisis across Nigeria, is a direct repercussion of the country’s refusal to build infrastructure. She however challenged all the players in the energy industry to focus more on developing the right capacity and build infrastructure to encourage investment that would reduce energy poverty in Africa. Excerpts
What are the major challenges facing the energy industry?
The challenges in the energy sector are quite high. The industry in itself is in a state of what I call, ‘flux’ (continuously changing). It is characterised by unstable and changing government regulations. Some of these include a regulatory framework pushing energy producers to switch to cleaner energy at a very low price. So this is part of those challenges deciding the nature of investments available for players to deal with in the sector.
There has been a shift from the use of fossil fuel to renewable including solar energy. How would you evaluate the progression in the transition process?
Of course, there is a global drive towards a cleaner and safer environment. Everybody is interested in a sustainable environment for the upcoming generation. So, when we talk about sustainability, our focus is to leave this planet habitable for the next generations. One of the ways to achieve this is to avoid pollution and the will to do things better. More attention is given to cleaner fuels in a way that is even affordable and that’s what is driving the whole essence of renewable energy. But unfortunately, the renewable energy market does not have the right capacity to replace the quantum of energy that we generate from fossil fuel. Oil is here to stay and will be around for much longer, maybe next decade and thirty (30) years from now. The energy transition would gradually happen, but not overnight. It will take awhile.
What is your view about the Federal Government’s commitment to energy transition?
When you want to situate Nigeria, especially to push for the energy transition with focus on renewable energy, you need to first look at Nigeria in the context of its abundant gas resources. It is okay to establish the fact that we are a gas-rich nation. When advancing the energy transition for a country such as ours, I will suggest that we focus more on the form of renewable that we have in abundance – natural gas.
In the 50’s- 60’s when we discovered crude oil in Oloibiri, our infrastructure was largely oil-based. We had less pipelines and infrastructure for natural gas. Having realised the significance of these resources as our transition fuel, the government has started making a statement focusing on the country’s ‘Year of Gas’, and later a ‘Decade of Gas’, recognising natural gas as the country’s transition fuel. I believe that Nigeria and basically sub-saharan Africa need to focus more on the region’s abundant gas resources and develop infrastructure around it.
Focus should be on being energy-efficient. We need enough gas to power the nation. Nigeria is blessed with abundant sun and water for hydro which is also another renewable energy source.Our scope of renewable energy outlook must be all-encompassing. We need to address the imbalance within the energy-mix. We need to prioritise the form of energy that is accessible and more affordable for every electricity user. I put these two, side by side. And it applies to every region of the country. You can be in Sokoto or somewhere in the North. If solar is in abundance in that region, I suggest people there should take advantage of it to meet their energy needs. As a matter of fact, we need to develop our gas infrastructure if we are committed to building a country that is energy-sufficient.
What is your reaction to persistent fuel scarcity crippling major activities across the country?
We need to avoid trading blames between oil importers and NNPC. The fuel scarcity is a repercussion of our lack of infrastructure. If our refineries were working sufficiently, we should not find ourselves in this situation. At this time, we should be concerned about how to drive the right kind of investment into the hydrocarbon industry. So much has been spent into overhauling four local refineries and efforts are being made to bring these facilities on stream. There are a lot of modular refineries springing up – some have not obtained licences while others are about to run full scale operations. Then there is also the popular Dangote Refinery coming up soon. Instead of apportioning blame, we need to focus on what needs to be done to get the infrastructure working. It is shameful that with the strength of our population, huge natural resource reserves and human capacity, we are still struggling to stabilise our energy sector. With the vast experience that we have garnered over the years of our exploitation and exploration of the oil and gas, since probably 1960, we should be setting the pace for the global market. Our focus within the next ten year and maybe decades should be on how we can be self-sufficient by moving from importation of refined products to exportation. We should focus on how we can have sufficient petroleum products to feed our domestic needs and feed the west African sub-region.
What measures should be put in place to achieve this ?
Well, we are already on-course, heading in the right direction. The right policy (the Petroleum Industry Act) that would drive the right investment in the sector is already in place. This will attract the right kind of investments, especially those with a very strong heart, capable of turning around the fortune of the country . PIA will give opportunity for the investors who can identify the opportunities inherent in the petroleum industry value chain. Of course, it may be quite challenging at the start, because to raise the kind of funds that is needed to invest in a modular refinery, for instance, is not something that will come easy. It will take a while to raise the kind of funds sufficient enough to obtain the right licences or to buy up existing oil mining leases.
Do you think that the Federal Government is committed to the implementation of the PIA?
I agreed that the PIA is in the right direction. It might look too over-ambitious – there are so many facets to it. For the fact that it is long-overdue. We have been expecting for over 16 years, and it was finally passed in 2021, this is a positive sign. However, to be able to achieve everything in that Act, it will take quite a while. So we just have to keep doing what we have started in the hope that things will get better.
Will the government’s decision to extend subsidy payment by another 18 months, not affect the implementation of the PIA? Are the common man on the street not deceived about this subsidy matter?
I agree that by now the subsidy on petrol should have been removed, for obvious reasons. Personally, I think it’s a political move that the removal was extended by another 18 months. If I were the President, I would not contemplate the removal of subsidies in a pre-election year. Subsidy has to be removed, that remains a fact, but after a while we will see that we cannot sustain it. It’s going to bite us at the end of the day, when the subsidy is removed. I once bought fuel for N200/litre, people will buy for more if the scarcity continues to frustrate us. Once we are able to strike that balance, then we can really come to the table and agree on the need to remove it and move on. Government is actually pumping huge amounts of money to offset subsidy payment and this cannot be allowed to continue.
What can you say about the performance of the GenCos and DisCos, after the privatisation of the power sector in 2013?
The performance of players in the Nigeria Electricity Supply Industry since 2013 has not been impressive. The stranded power which has increased from 1000MW to about 3000 Megawatts, that is the power losses that were not transmitted because of system failures. We can also say we increased generation capacity from about 3,000 to 4000 MW and hopefully 8,000 Megawatts in future. But if we consider the pace of growth in the country’s population in 2013, which was probably around 170 million, and put that at par with the population rate in 2022, which is about 214 million, we would realise that our energy per unit user is still significantly low. We have lost so much over the years. The performance of the players in the post-privatisation era should be growing in relation to population growth and by now we should be boasting of about 10,000 megawatts if not more. So the progression from from 3,000MW to 4,000MW instead of 10,000 MW; is not a very commendable effort . We could have done better if we were serious about the process. We could have invested heavily in transmission, to the extent that whatever is being generated, say for instance, 8,000MW, the TCN should not be transmitting only 4,000MW.
There have been complaints by the DisCos about power equipment being damaged by saboteurs. This has been attributed as a major cause of low power supply in the country, especially on the distribution side. How can this be addressed?
Energy losses generally can be technical or non-technical like energy theft. This could be caused by saboteurs and also a consequence of improper metering or installation of sub-standard metres. So DisCos incur revenue shortfall from all these failures. I think the DisCos need to put more hands on deck in terms of increasing their manpower to reduce this kind of losses. Beyond manpower, I believe technology will go a long way to reducing Aggregate Technical and Commercial Collection (ATC&C) Losses. I don’t know if there are smart meters that enable DisCos read consumption through the internet of things(IoTs). I am not sure there are ways by which DisCos can properly ascertain actual consumption and verify numbers of people connected to their network via metres. This is one of the challenges that encourages customers to bypass. Getting an accurate figure of customers’ consumption is quite a long process for DisCos. I quite understand that the distribution companies have done so much to install meters to their customers and ensure that more people are brought into the metering basket. This has been a major issue and probably still a big problem equally for the entire NESI. Efforts are being made to get more people out of estimated billings. Some progress has been made, notwithstanding, so much still needs to be done by the DisCos.
There has been a major contention on the tariff hike especially from those customers using prepaid metres. What can be done to make the tariff rate quite affordable?
One may be tempted to assume that the electricity tariff is quite high compared with what it used to be when it was managed by the government. But if we do the comparison between the grid and off-grid solar, you would realise that the rate is not quite high. We also need to understand that customers are categorised based on the tariff band for their location . I wouldn’t say the tariffs are too high as there are different tariff bands. Our tariff is quite low when compared with the amount other West African countries pay. We would be shocked to realise that some countries pay more than us. Also if you compare with solar where there’s a grid station that supplies electricity to different households on solar, then it is not higher. I believe solar will be N80 or N90 per kilowatt. In fact, everybody would rather run on electricity from EKEDC or IE, rather than on generators.
We have financial institutions that have given funds for renewable energy projects provided they are bankable. So as a Strategy and Business expert, do you think that their terms and conditions can limit the number of beneficiaries?
When talking about renewables generally, we need ‘patient capital’. When I talk about patient capital, I mean a kind of funding that does not necessarily focus on immediate returns but focuses more on impact. That is why most renewable energy firms always choose to start with grants through World Bank and AllOn, to get them started before going into full commercial operations. Because even to get the tariff for solar at the rate that is a bit affordable, it has to be extremely subsidised. Because of this global desire to reduce climate change effects, people are pushing for a very creative kind of financing for renewable energy.
That is the kind of financing any project sponsor, entrepreneur, or business owner in that space, should be looking for. Not necessarily something cheap but something more patient, meaning that investors are not looking for instant returns but consider that the projects have a longer period of gestation. You need to come on stream before you begin to get returns.
Don’t you think the terms and conditions of those financial institutions could slow down the expected pace of growth in that industry?
As a project sponsor, you have to carefully look for the right kind of financing that works. That’s why there’s a lot of support, a lot of development financing that is coming into the space. So everybody is looking for a good renewable energy facility, because it aligns with the United Nations Sustainable Development Goals(UNSDG). A lot of investors are showing so much interest in that sector right now.
Are there ‘patient financing funds’ available presently for investors in the renewable industry in Nigeria?
Definitely there are, like I said, there is development finance that one needs to look at. There’s alternative financing that we need to focus on. So there is development and impact funds available for investors within the renewable energy supply market. Players in the space are aware of where and how to obtain these kinds of funds. The level and size of your project also matters. An SME in solar space may not go to a micro finance bank or fintech start-up to get funds at rates that do not really make good commercial sense. This also depends on the level of investment that the supplier is considering. But when you start looking for government-backed funds or funds from international organisations, that is where you can get a better deal in terms of interest rate and moratorium for commercial solar systems that grow over time to develop your project.
So it’s about making sure you find the right kind of people that can advise you or put you in that direction where you can ascertain whether you need debt or equity depending on the stage that you are at. Or do you need some kind of financing?, maybe an in-funding with hybrid outlook. it’s just to understand what you need – the stage where the business is and accept the right kind of financing.