THE DIRECTOR OF THE CENTRE PROF. ADEOLA ADENIKINJU INTERVIEW IN GUARDIAN NEWSPAPER ON 29TH JULY, 2013
Prof. Adeola Adenikinju holds a PhD in Economics with specialisation in Energy Economics from the University of Ibadan. He is currently a Professor of Economics in the Department of Economics in the same University and a Director, Centre for Petroleum, Energy Economics and Law (CPEEL), a MacArthur Centre of Excellence, University of Ibadan. Adenikinju is also the current President of the Nigerian Association for Energy Economics (NAEE) and previously served as Special Assistant to the Presidential Adviser on Energy to President Obasanjo as well as Senior Special Assistant to the President in the Office of the Chief Economic Adviser to the President.
In this interview with ROSELINE OKERE, he spoke on the state of Nigeria’s economy and the way forward. Excerpts.
THE Federal Government has been trying to fix the power sector without much success. What really are the factors dogging the industry?
The problems of the power sector are multifarious. They cut across political, economic and social dimensions. Politically, I am not sure that all the segments of the political elites are on board in respect of the pace, nature and dimension of the power sector reforms. Hence, while some groups in government are in favour of increasing the speed and coverage of the reforms, others are not so convinced and have found ways to slow down or indirectly sabotage the process. The enabling law guiding the reforms, the Electric Power Sector Reform Act of 2005, needs to be revised to reflect the lessons we have learnt in nearly ten years of reforms. The reliance on regulations by the regulatory agency and other bodies to correct for some of the inadequacies in the original Act may not carry the same weight and force like an Act that will provide adequate confidence for all the stakeholders.
There are also some very powerful interest groups in the power sector that in my view have to buy- in into the reform process. These stakeholders have huge investments and interests that seemingly conflict with a successful privatization of the power sector. These groups in my mind have not been sufficiently integrated into the reform process and yet they are strong enough to slow down or cast doubt on the successful implementation of the government agenda in the sector.
The Economic factors are very important. Investors are not “Father Christmas”. They want to be sure that their investments are safe, returns on investment are adequate and predictable, there is guarantee sources for gas and at predictable price, they want assurance that they get paid for the power they generate to enable them meet their obligations to all their various stakeholder groups; and that the dispute resolution mechanism is in place and reliable. In my view, I think we need to sort out the distribution end of the chain such that the current high rate of technical and economic losses in that segment is reduced significantly. It is not fair to load the burden of the costs of power supply on less than half of the consumers that are faithful in the payment of their bills. A colleague of mine in Texas, United States America, told me recently that the cost of power to the consumers averaged three cents per kWh. In Nigeria, the current rate is twice that amount and yet the trajectory of what is considered an adequate tariff in Nigeria by the relevant authority and power companies is in excess of 13 cents per kWh.
Socially, a lot of average Nigerians feel they pay too much for electricity, and in their views not always available and at times of very poor quality. Some of them have no prepaid meters and are under the mercy of PHCN workers that come with what they call crazy bills. Hence, they sometimes resort to either illegally connecting to public power supply or negotiate special rate with the PHCN staff. Moreover, the manner towns and cities evolve, without proper planning also do not easily lend itself to proper capturing of all consumers. Hence, issue of securitisation is very important in moving the process forward. The government, with the support of the World Bank has made some progress in this direction.
What do you think could be done to address the various challenges confronting the energy infrastructure in the country?
Inadequate energy infrastructure in Nigeria is a major constraint to power supply. Our infrastructure capacity is inadequate, old and not well optimised. In fact, our investment plan in the past was not properly coordinated to ensure proper balancing in all aspects of energy networks – production, transmission and distribution. The government is trying to correct this. In the gas sector, which is critical for electricity generation, the master plan has a very detailed programme for the development of gas pipeline infrastructure to ensure that the eastern and western networks are linked as well as to ensure that gas pipelines trunks reach all parts of the country. There is also a lot of investment going to electricity transmission and distribution, presently.
However, all of these will take time to make significant impact and more importantly they require huge and timely investments. Private investments are needed to complement public investments in the development of the infrastructure. But the truth is that because of the long gestation period to recoup investments in infrastructure, their relatively low rates of returns, security challenges, community issues, and the uncertain political and legal environments, the government must lead the process. This is the situation in most countries with our type of political and geographical environment. Even if we need to borrow from multilateral credit institutions and some friendly bilateral partners to finance the needed infrastructure investments, without waiting indefinitely for the private sector, once there is transparency and proper due diligence, I think the social benefits will outweigh the social costs.
But let me also point out that for the rural areas that have sparse population, that are often not contiguous, and that in many cases far away from the national grid, decentralised generations have to be explored. So, there must be an orderly development of both the grid and non-grid systems in order to meet the power needs of all the citizens in the country.
The government has set a target of 40,000MW of electricity in Nigeria by the year 2020. With the various challenges confronting the country’s energy sector do you think is this achievable?
If you dream about it and lay out proper plans to achieve it, most dreams are realisable. However, our antecedents do not give me much comfort that we can achieve this 40GW of electricity capacity seven years away from now. This will require over 4000MW additional capacity every year. With so many issues outstanding in the power and gas sectors, the huge investments required, the long gestation period for completing some of the investments, I see us achieving at best half of this target by 2020. The telecommunication sector which many people are pointing to as a reflection of the kind of private sector development that can take place in the power sector after liberalisation is significantly different from the electricity network system and the huge complexities that have to be tackled to get the market fully operational and get to some level of maturity that will produce rapid establishment of power plants at the scale and rate needed to achieve the 40,000MW.
The government has shown seriousness in respect to the privatisation of the country’s power sector. Do you think we are on the right track in respect of the bidding and payment processes? What do you think should be done to achieve success of the privatisation exercise?
I think in principle the recent activities relating to the privatisation of the power sector is encouraging. Plans were laid out and apart from some delays and adjustments here and there, the government has largely kept to the broad timetable for the privatisation exercise. This is important to give credibility to the system. However, we need to stick to the timeline, resolve some of the legacy issues still outstanding, review the EPSR Act to make the electricity market more flexible. We must find ways to bring all key stakeholders on board and ensure that the process of privatisation is transparent, open and fair. Successful firms must be technically sound, have solid financial integrity and BPE must hold them strictly to the performance contract governing the privatisation.
The recent exploration of shale gas in the United States and some other countries has shaken the Organisation of Petroleum Exporting Countries to its foundation. What is the implication of this to the Nigerian economy?
The energy market is very dynamic. If you study energy transition in the past two to three hundred years, you will see how dominant energy sources are displaced by others because of several factors – environment, price, technology advancement, and other demand and supply factors. It will therefore amount to living in illusion to think that a type of fuel or energy source will last forever. Although the shale revolution will take some years to fully mature, there are also ongoing attempts to make coal more environmentally friendly through the carbon, capture and storage (CCS) technology that will allow countries with huge coal deposits in Asia, particularly China, USA and other parts of Europe, Latin America and Africa to use coal in power generation. The renewables like solar, wind, biofuels, geothermal among others are also trying to make serious inroads into the energy markets in Europe and some other parts of the world. There is ongoing technology to reduce the use of fossil fuels in transportation, develop the capacity for power storage systems, among others. Although, it will take several years for many of these technologies to fully mature, however, with the high price of oil, its highly political nature, we are approaching the choke price and the transition point. Hence, the challenge before Nigeria and other OPEC countries is to have a long term strategic response plan to the coming green energy economies and the incursion of unconventional fuels into the energy mix. We must develop formal models that will help us to examine the impacts of all of these developments on the future trajectories of our economic development. This calls for collaboration among the government, academia and the energy industry. We are all too far apart.
Nigeria has been recording decline in crude oil reserve in the past three years. What do you think should be done to redress the situation?
To boost crude oil reserves, there must be a lot of investment committed to exploration for oil. However, this is both an economic and geological decisions. Risks are important factors in investment decisions in the petroleum sector. Risks can be political, technical, economic or commercial. The project life cycle in the oil sector is also characterised by long time horizons, various alternatives and different forms of complexities. The uncertainties surrounding the passage of the PIB, the rising state of insecurity in the Niger Delta, the increasing discoveries of oil reserves in large quantities in many parts of the world, the increasing penetration of unconventional oil and gas, will factor into the decision process of oil companies to commit billions of dollars into exploration activities to boost our oil reserves. Don’t forget that the target was that by 2010, our proven oil reserves would be above 40 billion barrels. We have clearly missed that deadline. Hence, lovers of Nigeria should not be comfortable with the present state of affairs in the oil sector.
The Finance Minister said recently that the Nigeria’s economy was growing and that inflation was down to nine per cent. Do you think that this growth is real in respect of economic development and the cost of living in the country?
Based on official statistics, the Finance Minister was right. The economy is growing at a robust rate and inflation is in the single digit. However, most Nigerians see a clear disconnect between the official statistics and the daily conditions of living in Nigeria. Clearly, the growth we have had is a non-inclusive growth. It is characterised by high unemployment, high rate of poverty and high rate of inequality. This is not development. It is an economic growth that requires more work on the part of the government to ensure that it spreads to more people on a sustainable basis, reduces the high rate of joblessness and absolute poverty in the land. The gains of the economic growth have to be more evenly distributed. The Small and Medium Scale Enterprises must be revived, the industrial sector has to be revived, there must be a strong linkage between the agricultural sector and the industrial sector on the one hand and between the oil and gas sector and the rest of the economy on the other hand, beyond the current fiscal linkage.
How really can the country strategise to diversify its economy to open up more job opportunities?
The future of the country in the long term will depend on a robust manufacturing sector, a highly integrated domestic economy, an innovative economy that recognises the role of human capital development that rightly positions itself to take advantage of globalisation as well as its huge domestic market. The government is already talking about gas based industrialisation agenda that will see the largest industrial park established in Ogidigben in Delta State. The park, when completed, will be a hub for gas processing plants, fertiliser and methanol plants, power stations and other auxiliary industries. The government estimates that several millions of jobs would be created.
I want to persuade myself to believe in this robust and forward looking plan. But the more important thing is that we have to process domestically our natural resources, oil and gas in particular and integrate them to the economy, rather than the current practice of exporting them in their crude form. These, with proper investment in the steel, energy, transportation sectors and information technology are capable of revolutionising the Nigerian economy. They are capable of providing the backbone for industrial development, the framework for the development of the rural sector and move massive number of people out of poverty into good paying jobs and economic activities. We need to get many of these ideas out of the drawing boards into the real world. The political will, strong and effective governance institutions, security, right incentives, among others are critical to realising this vision.
The Nigeria Association for Energy Economics (NAEE) has being a strong force in policy advocacy. But what really are the operational focus of energy economists
NAEE is the Nigerian affiliate of the International Association for Energy Economics (IAEE) with a presence in over 100 countries all over the world. The NAEE is however the first and currently the only affiliate of the International Association for Energy Economics in Africa. The NAEE was formally inaugurated in Nigeria in December 2006 at the Nigerian National Petroleum Corporation (NNPC) Towers, Abuja. It recently had its Sixth Annual International Conference at the Sheraton Hotel, Lagos.
The association is a nationwide nonprofit organisation of business, government, academic and other professionals that advances the understanding and application of economics across all facets of energy development and use, including theory, business, public policy, and environmental consideration. The objectives of the Association are to, first, provide a forum for the exchange of ideas, advancement and professional experiences in energy economics, second, promote the development and education of energy professionals, third, foster an improved understanding of energy economics and energy related issues by all interested parties; and finally, provide a forum for contribution to national discourse on energy policy issues in Nigeria.
What are the plans of the association for energy economics in Nigeria this year?
Thank you very much. The Nigerian Association for Energy Economics (NAEE) is partnering with Informa Energy to organise a major conference on the theme, “Power Nigeria” 2-4 October, 2013. We are also planning for our seventh yearly International Conference with the theme: Energy Access for Sustainable Development in Africa in February 2014 at Abuja.