Pacer Guobadia and ’Gbite Adeniji, partners at ENR Advisory, talk to The Energy Year about the role of policy-making in the Nigerian energy industry and issues within the power sector. ENR Advisory provides bespoke transactional, regulatory and legal advisory services to businesses and projects in Nigeria’s energy, resources and infrastructure sectors.
What role will policymaking play in the future of the Nigerian energy industry?
PG: Policy development and design play a very important role in the country. Given the importance of the sector for the economy, the future of the industry will be defined by the work undertaken by regulators such as the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA).
We constantly advocate in our various engagements with the sector regulators that policymaking and regulatory oversight needs to be entirely focussed on creating a conducive environment for private sector investors to drive growth in the sector and strive to lower the entry barriers for new entrants into the sector, so as to ensure increased inflow of investments. What we observe is that with the recent policy initiatives, some progress has been made towards creating a conducive environment for the private sector.
The National Petroleum Policy and the National Gas Policy have culminated in the passage of the reform legislation: the PIA, which provides the policy, regulatory and fiscal bases for progress in the industry, although its gas provisions could be fine-tuned to boost the development of the domestic gas market even further.
The current expectation is that as progress is made by NUPRC and the NMDPRA in implementing the reform structures introduced by the PIA, the private sector will be empowered to be the driving force to push the sector to achieve its potential.
What current issues do you see the power sector facing?
PG: The government controls two key aspects of the power value chain: the bulk purchase of power and its transmission. What we see is that the current structure is not bankable, as risks are not allocated appropriately. Inadequate tariffs and payment indiscipline are holding back the sector.
We would rather see the existing government subsidies going towards the NBET [Nigerian Bulk Electricity Trading] than PMS [premium motor spirit], as it would enhance power production and actually help improve the economy. However, the NERC [Nigerian Electricity Regulatory Commission] has been stepping up more recently and we are observing early signs of the emergence of a market-led and commercially disciplined sector, where service-reflective tariffs apply and the investment environment is stable enough to support the development of utility-scale projects.
Nigeria is a big country. The model we are currently following where one company is given the exclusive right to distribute electricity in a large geographical area is a waste of everyone’s time; it doesn’t work given the enormous financial and technical capacity challenges of the current DisCos [distribution companies]. Smaller distribution areas will work better for universal access to electricity. We also need to decentralise the transmission system and invest in significant upgrades to ensure grid reliability.
What role can ENR Advisory play for companies who have recently acquired marginal fields?
’Gbite ADENIJI: The marginal field bidding round was not handled well in some respects. The government did not highlight the risks properly to the bidders and the entry costs to the bidders were quite high, almost as high as market value acquisitions. Many of the bidding companies are fairly new to the industry, so a lot of effort and time is spent on the agreements.
The partnerships arrangements are crucial, and that is where we can play a role, by advising companies and educating them on the risks and how to provide the necessary documents that correspond to them. That way, the new entrants are able to develop functional relationships with partners who have stronger capabilities.
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