Power supply reaches new low

Despite hopes that the power supply jinx would be finally broken, Nigeria is even more in the dark. By Nsineno May Anthony

When PRESIDENT Muhammadu Buhari was elected last year, one of the problems he promised to fix was the country’s epileptic power supply.

Poor power generation and transmission due to badly maintained plants mean that frequent power outages have been the norm for Nigerians for years despite the repeated promises of successive governments to reform the sector.

Within months of taking over the reigns of government, Buhari appeared as good as his word when Nigeria’s power supply hit 5,074 MW for the first time in 15 years, low when compared to other countries but a marked improvement on the prevailing installed capacity of around 3,600 MW.

Sadly, people’s joy was short-lived as the nation was plunged into another energy crisis earlier this year that saw generation steadily nose-dive to the all time low of 1,500 MW. Apart from the chronic problem of poor routine maintenance, vandalisation of the power infrastructure and industrial action by oil and electricity workers were blamed for the sudden turn of events.

Information minister Lai Mohammed was on hand to offer the government’s apologies, explaining that lack of mainte­nance by the Nigeria Gas Company had affected the supply of gas to stations, so reducing the energy supply.

He pointed out that the attack by militants in March on the Forcados export pipeline in the Niger Delta had forced oil companies to shut down operations, seriously hitting oil and gas production.

“Then, workers at the Ikeja Disco [Electricity Distribution Company, Ikeja, Lagos], who were protesting the disengage­ment of some of their colleagues after they failed the company’s competency test, apparently colluded with the National Transmission Station in Osogbo to shut down transmission,” he added.

“Finally, the unfortunate strike by the unions at the NNPC [Nigeria National Power Company] over the restructuring of the corporation, shut down the Itarogun Power Station, the biggest in the country. Due to these factors, only 13 out of the 24 power stations in the country are currently functioning.”

The minister strongly condemned the sit­uation in which Nigerians, under the guise of the various unions in the oil and gas sector or” sheer acts of vandalism”, con­tinuously “sabotage” the country’s power infrastructure.

“We therefore admonish all Nigerians who may be agitating for their rights in whatever form to refrain from any action that will further hurt the same people they claim to be protecting,” he urged.

Despite an amnesty programme that was launched in 2009 to curb militancy in the oil-producing Niger Delta, attacks on instal­lations have resumed in earnest. These include the blowing up of the key Escravos- Lagos pipeline in January, prompting Shell to declare aforce majeure. The result was an immediate loss of 1,000 MW.

Be that as it may, industry experts say the best way to increase the country’s energy supply is to upgrade the technology, raise the standard of those employed to run and manage power plants, and improve security. At present, the country’s power plants routinely operate at below capacity due to ill maintained equipment.

Years ago the problem was blamed on the fact that the state oversaw the power sector. The government-run National Electricity Power Authority, NEPA, was redefined as ‘Never Expect Power Always’. In an attempt at a break with the past, responsi­bility was passed on to the Power Holding Company ofNigeria (PHCN). In 2013 this was ‘unbundled’, or broken up, and the generation, transmission and distribution of electricity was handed over to private companies in the hope that greater invest­ment and efficiency would follow.

Since then, however, little has changed and both domestic and business consumers continue to experience ‘lack of light’. 

Industry gets by resorting to expensive diesel-powered generators, but this consid­erably increases their costs. For now, Nigerians have to put up with load­shedding, in which power is rationed during the day but this is a source of additional annoyance.

According to 2014 figures, the country’s installed power capacity is 6,000 MW for a population of around 170 million. This is extremely low when compared to South Africa which generates 40,000 MW of elec­tricity for a population of 50 million. Even Ghana, which has been experiencing energy problems of its own, does better than Nigeria, where less than 50 per cent of the people have access to electricity. Many feel this is a disgraceful situation for Africa’s biggest economy.

Fed up Nigerians have are now calling for the resignation of the minister in charge of the power, Babatunde Fashola. Despite accusations of incompetence, Fashola, a former governor of Lagos, Nigeria’s biggest commercial city, has been quick to assure a sceptical public that the government is on top of the situation.

“The problem is with us,” he admitted. “The problem is with gas. The problem is with transmission. The problem is with the way the privatisation exercise was conduct­ed, But as I have said before, I am not going to lament what has happened in the past. I am going to move on.

He went on to imply that previous gov­ernments were to blame for the problem, and the Buhari administration had been left to pick up the pieces. This it would: “This is a problem that has been here for 16 years, to put it mildly. I have been here for less than a 100 days, and I think we can solve this problem if you give us the tools that we need to do it.”

The government is investigating the expansion of forms of renewable energy like solar power

He added: “I think that this problem can be solved, and the day that we feel that it cannot be solved, I will gladly come and tell you that I don’t think it will work.”

Paul Achu a former member of staff at the PHCN) told NewsAfrica that weak infra­structure was the main cog in the wheel of progress as it constrained effective distri­bution of power supply. Gas constraints account for the loss of about 1,500 MW, according to recent data from the National Control Centre (NCC) in Osogbo, Osun state in southwest Nigeria. “The thermal power plants, which rely on gas account for 81 per cent, so any disruption of gas pipelines impacts heavily on electricity supply,” he pointed out.

At the peak of the current crisis, the dis­tribution companies were allocated what was available at the grid. Ikeja Electric was allocated 237.09 MW representing 15 percent of generated power; Ibadan Disco and Abuja Disco received 205.48 MW and 181.77 MW respectively representing 13 per cent and 11.5 per cent capacities; Eko Disco got 173.87 MW representing 11 percent capacity; Benin and Enugu received 9 percent each translating into 142.25 MW each. Kaduna and Kano Discos got 8 percent each or 126.45 MW each. Port Harcourt received 102.74 MW or 6.5 per cent; while Jos and Yola received 86.93 MW and 55.32 MW. Both capacities stood at 5.5 and 3.5 per cent each.

A number of large gas-fired hydropower generating states remain out of action due to equipment failure. For instance, the six - unit capacity Egbin Power in Lagos, the biggest power station, suffered a major setback when one the units was unable to function due to a problem with the generator circuit breaker. Another unit was shut down because of gas constraints. Consequently, normal power generation of 1,320 MW was reduced to 800 MW.

Similarly, according to officials at the Kainji Power Station in Niger state, unit IG7 was out of action due to a faulty electric motor, unit 1G8 was out of action due to loss of supply to the auxiliary, while unit IG9 was out of action due to problems with the station service transformer and generator transformer.

The story at Jebba Hydro Plant on the River Niger was no different as it lost almost the same capacity as Kainji producing only 343 MW because component failed to func­tion due to lack of maintenance. The Shiroro Hydro Plant on the River Kaduna in Niger state, also suffered major setback generating only 300 MW as a unit tripped during emergency shutdown.

Investigations also revealed that Alaoji Power Station, near Aba, Abia state, with a capacity of 1,074 MW, was only producing 69.4 MW from the one unit that was avail­able because another had broken down.

At the time of the crisis Geregu Power Station in Ajaokuta in Kogi state, with 434 MW capacity, produced only 133 MW, due to gas constraints. Unit GT21 and Unit GT 22 tripped due to high differential pressure while GT23 was on ‘spinning reserve’.

Omotosho and Olorunsogo in Ondo and Ogun states in southwest Nigeria respec­tively also produced far below installed capacity. Experts attribute these failures to gas constraints, vibration troubles, generator transformers, and isolator problems as well as generation and high inlet differential pres­sure.

 

Battle for the solar market

 Solar wars heat up following German firm’s arrival into Kenya market. By achary Ochieg, Nairobi

THE STAGE is set for a major battle in the solar sector following the March entry into the Kenyan market of Mobisol, a provider of smart solar home solutions from Germany. By installing a free solar unit at a house in Juja, Kiambu County, about 50km from Kenya’s capital, Nairobi, Mobisol has ignited a price war that is bound to shake the market for sometime to come.

The solar unit - comprising a 120 watt solar lighting system and Mobisol-branded 32-inch flat screen TV - was installed at the one-bedroomed house of John Kimani Wanjiru, who became the company’s first customer in Kenya.

To witness the event were various high- profile guests, including Kiambu County deputy governor Gerald Gakuha Githinji, a member of the parliamentary committee on energy James Rege, Germany’s envoy to Kenya Jutta Frasch, and the director for renewable energy at the ministry of energy and petroleum, Isaac Kiva.

Kenya becomes the third East African country targeted by Mobisol, after the firm unveiled its products in Rwanda and Tanzania. 

Speaking during the pilot installation cer­emony, Mobisol’s CEO Thomas Gottschalk said that the Mobisol solar unit sizes are by “far the only credible substitute to grid elec­trification.

“We believe that ‘big is beautiful’ - our systems are designed to power entire house­holds and even businesses, with a variety of highly efficient DC appliances. Many of our customers in Tanzania and Rwanda not only run 32-inch flat screen TVs with their system, but also power haircutters and hair- straighteners simultaneously, while enter­taining their barbershop customers with music stereos,” continued Gottschalk.

Gottschalk noted that the company had realised a significant gap in the number of Kenyans connected to the national grid, especially in areas outside urban centres.

“More than 70 per cent of Kenya’s popu­lation does not have access to electricity. While solar solutions are increasingly gaining popularity for low-income individ­uals, the local market does not really carry large solar solutions, strong enough to power large TVs, music stereo systems, or even fridges,” he pointed out, adding: “Looking at the fact that our systems are 10 times bigger than those of similar providers on the market, much more powerful, but just as affordable, encourages us to provide our solutions also to Kenyans.”

Mobisol’s entry into the market, together with its branded solar-powered TVs came just a few weeks after local home solar solu­tions provider, M-Kopa Solar, launched its solar-powered TV sets for its existing users and new clients.

This has led consumers to believe that the local and regional home solar solutions market is set to experience previously unseen competition once Mobisol makes its products commercially available.

Mobisol is funded by the German Development Bank and has set its eyes on the region’s low-income households, most of whom are unable to apply for and get con­nected to the national power grid, mainly due to the high fees involved.

Many people are thought to need such home solar energy solutions and are looking forward to them as alternative to grid power, as confirmed by John Kimani Wanjiru, the beneficiary of Mobisol’s pilot installation in Kenya.

“I applied unsuccessfully for a grid con­nection a long time ago,” he said. “Within just one hour, Mobisol brought not only elec­tricity to our house, but also a new lifestyle. Now, my family and I can watch our favourite shows and news on our big flat screen TV, have multiple lights running during the night and even make money by selling excess electricity.”

Wanjiru said that he expects this additional income will allow him to buy more solar appliances from Mobisol, ranging from branded haircutters, straighteners and music stereo systems, to super efficient flat screen TVs, available in 19-inch up to 32-inch sizes, and DC powered cooking stoves.

Mobisol’s lighting systems are available in three sizes - 80 watt, 120 watt and 200 watt.

Until last month, Kenya’s home solar energy solutions market was synonymous with M-Kopa Solar, which has Safaricom Foundation among its funding partners.

M-Kopa Solar was launched in Nairobi, in October 2012. Since its launch, it has con­nected more than 280,000 homes in Kenya, Tanzania and Uganda to solar power.

M-Kopa Solar (whose name has been coined from ‘m’ for mobile and ‘kopa’, Swahili for ‘borrow’) has a similar aim to Mobisol, which is to provide affordable solar products for modest households, which can then own them flexibly via an installment plan.

M-Kopa users acquire solar units after paying an agreed deposit, then make daily instalments of $0.50 (Kshs50) via Safaricom’s M-Pesa mobile money platform. After 12 months of payments, customers then own the solar systems. The embedded GSM sensors in each solar system allow M- Kopa staff to monitor real-time performance of each unit and regulate usage based on payments.

Mobisol does not rely on one mobile payment platform and has indicated during the pilot ceremony that it would offer clients multiple payment platforms - whether M- Pesa, Airtel Money, Orange Money or Equitel.

For now, M-Kopa Solar has majority of people using its solar energy systems but holding this market share may prove difficult once Mobisol’s products hit the market from July. Consumers will also need to be per­suaded which product offers better value - whether in terns of quality, pricing or cus­tomer support.

 

 

 

The problem of over-dependancy

FIVE AND A half decades since independence not much structural change in the Nigerian economy has taken place. Crop production still dominates economic activity, followed by trading and services. Oil, though, with a much bigger share of total output today than it had at independence in 1960, remains about the fourth largest sector. Meanwhile, manufacturing, construction and solid minerals contribute less to the economy today than before.

Crops, which dominated exports in the first decade after independence, have been replaced by oil as the dominant export earner in the past five decades. Yet crops supply the bulk of domestic production, employment, trading and and spending today, while oil continues to post weak links with domestic production and employment, but generates a huge chunk of government revenue and foreign exchange for financing imports.

In the absence of structural change, the country’s economic performance depends on the strength of the global economy, essentially transmitted through merchandise trade and commodity prices. In Nigeria’s case, it is principally through oil. 

Commodities, mainly crops, and, since the 1970s, mainly oil, accounted for more than 90 per cent of the nation’s productive activity since 1960.

With only commodities to export, it is not surprising that global economic shocks over the decaded have dovetailed into domestic stagnation and macroeconomic instability for the country. A weak global economy also means weak oil and non-oil commodity prices in Nigeria, inhibiting incentives for their production. Crop and oil production have constricted, government revenue and external reserves both dropped to insignificant levels, putting pressures on government debt, and on an unholy trinity comprising inflation, exchange rate, and interest rates.

Dunnlorenmerrifield (DLM) Research maintains in a recent Economic Update made available to NewsAfrica: “We note that the prospect of significantly increasing foreign exchange inflow

in the short term to restore market equilibrium is largely bleak as it is predicated on a major rebound in global oil prices, increased foreign direct investment and/or an increased export base particularly from non-oil items. The current structure of the nation’s export remains largely dominated by crude oil exports with a contribution of 69.1 per cent recorded in 3Q15 and we note that the ramping up of non-oil exports is a medium term objective. In addition, the uncertainty

surrounding the ‘future of the naira’ further dampens investor enthusiasm towards FDIs. Given the decline in global oil prices, we are not oblivious of the fact that accretion to reserves at this time will be a challenge in view of the country’s reliance on oil export for foreign exchange needs.” DLM continued: “While we note that growth in oil sector retreated further into the negative territory, we also observed the decline in contribution to the nation’s GDP. The contribution of the oil sector to GDP declined to 8.06 per cent in 4Q15 from 10.27 per cent in the preceding quarter, though slightly lower from 8.97 per cent in the corresponding period of 2014.

“In terms of real growth, the oil sector recorded a deceleration to -8.28 per cent during the quarter compared to 1.06 per cent in 3Q15. Overall, we observed that the sector growth and contribution recorded during the quarter is the lowest in eight quarters.

“The weak performance of the oil sector was driven by the decline in the nation’s oil production to an average of 2.16 million barrels per day (mbpd), down from 2.17mbpd and 2.18mbpd in 3Q15 and 4Q14 respectively.”

In 2016, the government intends to lay the foundation for sustainable growth. In his presentation of the budget, President Buhari said: “The 2016 budget is designed to ensure that we revive our economy, deliver inclusive growth to Nigerians and create a significant number of jobs. We aim to ensure macroeconomic stability by achieving a real GDP growth rate of 4.37 per cent and managing inflation. To achieve this, we will ensure the aligning of fiscal, monetary, trade and industrial policies.”

(NANTA), Segun Adewale, has called on the government to do all that is possible to address the economic hardships facing the country and review its forex policy, which is affecting the aviation industry.

Latest purchasing managers’ index (PMI) data compiled for Stanbic IBTC Bank by Markit Economics Limited shows that Nigeria’s private sector economy slipped into reverse gear during February. “After having pointed to a notable growth slow­down in January, the latest seasonally adjust­ed PMI signalled an outright deterioration in business conditions,” said Markit Group.

“This was a survey first, driven by unprecedented falls in output and new orders. Official figures updated to the fourth quarter of 2015 released last week were equally worrying. Annual growth of GDP at market prices in the fourth quarter eased to a new low of 1.8 per cent, a far cry from the marked expansion seen in the same period during 2014 (6.4 per cent).

“The recent downturn in the PMI and continually low oil prices suggests that growth could slow further or even turn negative in the first quarter of 2016. Delving deeper into the PMI dataset, multiple head­winds were flagged in February. Companies indicated that client demand was particularly subdued, leading to a solid reduction in new orders.

“Output dropped as a result for the first time since the series began at the start of 2014. Sharply rising input costs were a key obstacle facing companies in Nigeria. This reportedly stemmed from currency weak­ness relative to the US dollar, which was linked in turn to the ongoing oil price slump. With cost pressures picking up, charges rose at the fastest pace since data collection began. The weak oil price also appears to be hurting exports, which fell at a survey-record pace in February.

The scale of the challenges facing Nigeria was underlined by its status as Africa’s worst- performing major economy in February, according to PMI data. Kenya’s private sector has surged ahead in recent months, but the latest downturn in Nigeria was greater even than that seen in South Africa — a country which has been in contraction since last June.”

NewsAfrica gathered that the next release of Nigerian PMI data from Stanbic IBTC Bank, scheduled for April 5, would provide further clarity on the overall performance of the private sector economy in Q1 2016. It will be interesting to know how the country would fare by then.

While the president argues that the economy is growing, the IMF is unhappy that Nigeria’s external challenges are dete­riorating. The Fund is increasingly worried that Nigeria’s reliance on oil revenues doubled the general government deficit to 3.3  per cent of the GDP in 2015, with exports plunging 40 per cent, and the current account deficit climbing to 2.4 per cent of GDP. Worse still, foreign portfolio flows shrank and caused reserves to fall to $28bn at the end of the year.

With eyes focused on flexible exchange rate policy, the IMF managing director Christine Lagarde visited Nigeria in January to discuss the fall in oil prices, the need for fiscal discipline, and to offer advice on improving tax and debt management. Lagarde also recommended the broadening of the country’s revenue based by increasing VAT.

However, experts say raising VAT alone will not be sufficient to resolve the country’s challenges, with the argument that VAT is like a sales tax in that ultimately only the end-consumer is taxed. They are quick to highlight that it backfired in Japan, an advanced economy. Prime Minister Shinzo Abe hoped it would strengthen the economy while supporting the growth, but realised it weakened the debt-ridden country. They further argue that VAT is regressive that leaves the poor paying more than the wealthy as a percentage of their income.

Figures show that agriculture employs more than 70 per cent of the labour force in Nigeria. Officially, unemployment rate is 10 percent, but analysts believe that the underemployment rate exceeds 17 per cent. More than 60 per cent of Nigerians live below the poverty line of $2 per day. Given this scenario, VAT would only increase chal­lenges. Moreover, the tax is difficult and cosdy to administer, so revenues are often lower than expected.

It is not all doom and gloom, though. The good news is that sectors with limited foreign exchange availability, increased gov­ernment expenditure on infrastructure and capital expenditure, local content and labour intensive activities, less dependency on bank debt, are export competitive and reliant on large consumer base and urbanisation, are expected to drive growth in 2016. These include civil works, construction and real estate, pipeline and storage, domestic avia­tion, agriculture and power sectors, according to Bismarck Rewane, head of Financial Derivatives Limited.

From whichever perspective it is viewed, the importance of oil to Nigeria cannot be overemphasised. It is the country’s main source of foreign exchange earnings and government financing. It generates 94 per cent of Nigerian export revenues, 70 per cent of Nigeria’s government income and 11 per cent of its GDP. Prices recently tumbled to as low as $30 per barrel before rallying to $40.

It is not surprising, therefore, that growth expectations for the economy have deteri­orated as a result of the oil slump. For instance, the ministry of finance projected growth last year of 5.5 per cent, down from 6.4  per cent at the start of 2014. Sadly, the country’s GDP fell to a mere 2.5 per cent by year-end, a performance described by analysts as the lowest since 1999 when Nigeria made detour to democracy.

In its report on economic scenarios for 2015 and 2016 — ‘What next for Nigeria’s economy? Navigating the rocky road ahead,’ - accountants PWC stated: “We expect that even under a benign economic scenario, the Nigerian economy will struggle to realise growth much higher than 4.0 per cent. Nigeria’s economy has tended to suffer following an oil price crash, although its resilience has improved in more recent times.

 

Change that made no difference

Just a year after Buhari was elected into office on a mantra of ‘change’ it appears to be more of the same for Nigerians as the country is buffeted by ill winds from the global markets. Martins Azuwike reports on the shrinking of Africa’s biggest economy

A year into Muhammadu Buhari’s tenure as president and com- mander-in-chief, his approval rating has sagged remarkably. According to a monthly survey recently published by the Governance Advancement Initiative for Nigeria (Gain), which follows governments’ performance at various levels, the president’s rating dropped to 32.8 per cent in February. It was 63.4 per cent in January. No one is surprised; the economy has gone haywire. The poll, which was published at the end of February, showed for the first time since December 2015 that more Nigerians have become disenchanted with the “change” mantra on which Buhari rode to power last year, scoring President Buhari low on job creation, the economy and power supply. Bears still retain their hold on the Nigerian bourse. The equities market completed a hat-trick of negative closes on March 16 as the All Share Index shed 0.3 per cent to close at 25,657.48 points while market cap­italisation also dropped N30.1bn to settle at N8.8tn increasing YTD loss of the index to -10.4 per cent. Analysts maintain that the continuous retreat into the red zone is driven by the unremitting decline in key banking counters.

Market activity also waned as traded volume and value declined 31.9 per cent and 44.4 per cent to settle at 185.3m units and Nl.Sbn. That’s not all. Market sentiments also continued to be negative as the market breadth defined by the ratio of advancers over decliners (advancers’/decliners’ ratio) closed at 0.4x as a result of nine advancing stocks against 23 declining stocks. Afrinvest West Africa Limited, however, said: “The three-day losing streak in the benchmark index despite resilient FY:2015 results declared by some blue-chips is mainly due to profit-taking — as expectations have already been built into pricing - and investor scepticism following more profit-warnings from banks. We also note that investors may already be rolling valuation to price in expectation of weaker forward earnings (especially in the banking and consumer goods sectors) against the weak macroeconomic backdrop. Nevertheless, we continue to see value in the broader market for investors with a medium to long term horizon.”

The economic situation in the country has gone completely out of the control of government as a result of the global economy’s negative spiral effect on it, the minister of information and culture,

Lai Mohammed was quoted to have said recently during a radio broadcast in Abuja. The minister explained that this is because Nigeria cannot determine the price of crude or gas, maintaining that Buhari’s administration deserved credit from stakeholders for still managing to drive the economy amid the adversity. Mohammed has since repudiated a state­ment that has generated so much con­troversy among Nigerians, implying that his remarks had been taken out of context. “I don’t know the reason behind the gross distortion of my comments on the radio today, but, whatever the motive is,

Nigerians should disregard such distortion and continue to support our president and his administration to take the country out of the woods,” he said.

Things are so bad that some disgruntled Nigerians now refer to the “change” slogan as “chain”. Meanwhile, it has been reported that when Nigerian entrepreneurs visit global commercial hubs such as China and Dubai they find it difficult to buy the goods they want to import into the country. One of them, Deb Uchechukwu, told NewsAfrica after a trip to Dubai: “I could not buy any­thing out there. I took four Nigerian credit cards along with me but only one worked when I got there. When I made enquiries from the banks, their officials told me there was nothing they could do for me since the order to block such cards had come from the Central Bank.”

He added: “I hardly had money for my upkeep while I was there. If I had access to the money on those cards to buy goods, I would have sold them here to make some profit.”

Perhaps minister Mohammed’s mindset underscores the curious assertion by the president at a recent book presentation in Abuja that Nigeria “has the fastest growing economy in Africa and one of the fastest in the world. Our dominance is not so much because of our wealth, but because of the tremendous energy and resourcefulness of our people”. As far as most people are con­cerned, the president’s remarks are hardly in sync with the harsh realities on the ground — an interplay of oil price slump, surging inflationary pressures, fuzzy exchange rates, a lame-duck manufacturing sector, a weak agriculture sector, lingering power sector problems, and massive unemployment.

In an article entitled ‘Nigeria as the Fastest Growing Economy’, columnist Levi Obijiofor, asked, “Where are the facts?” Buhari’s assertion that Nigeria is the fastest growing economy could easily be challenged. If the Nigeria economy is as the president claims, why is it that some states have failed to perform their basic financial obligations? he continued. “Some states are unable to service their debts. And yet others are unable to provide funds to service state-owned institutions and departments. Many states are not in position to pay regular salaries and allowances to public servants. Teachers in many states are repeatedly owed monthly salaries or paid in arrears.”

He added: “If Buhari’s postulation were to be credible, we shouldn’t be caught in the currency quagmire. Sadly, our economy has gone into n inoperable phase. An economy in a terminal state cannot be described s being in a paramount position. Everyone is complaining about the high prices of foodstuff. Is that evidence of a nation whose economy is growing faster than the rest of the world?

“At a time of adverse performance by all sectors of the economy, the government should pay attention to how the economy should be stimulated, to assist in the revival of the local currency, and to promote national interest in agriculture and the solid minerals sector. Enhanced socioeconomic development is the key to every country’s advancement.

“An improvement in the economic con­ditions of the people will draw the benefits of democracy closer to the people. A democracy that deprives citizens of their basic needs, a democracy that makes people bankrupt, a democracy that contributes nothing to the welfare, wellbeing and secu­rity of the people is a poisoned prize. It is of no use to anyone. A democracy works best when it enhances the conditions of living of citizens and gives people hope for the future.”

The Lagos Chamber of Commerce and Industry (LCCI) said in a lengthy statement: “Today, the economy is confronted with persistent difficulties in the business envi­ronment especially in relation to insecurity in parts of the country, infrastructural con­ditions, foreign exchange crisis, funding issues, consistency of policy and the quality of institutions. Uncertainties and risks created by the political transition and the elections last year exacerbate the challenges.

“Data from the National Bureau of Statistics, suggest that the country’s real GDP dropped to 2.84 per cent in the third quarter of 2015, compared to 6.23 per cent in the same period in 2014. Sectors such as manufacturing and the services slid into recession after recording successive declines over the last three quarters in 2015.

“Even with the successful democratic transition that heralded a new political administration and presented a new wave of optimism on the back of the inherent goodwill of the administration at the federal level, business activities remind largely slug­gish for a better part of the year following uncertainties around the general economic policy direction of the present administra­tion. Nigeria currendy has a high depend­ence of imports supported by the huge amount of foreign currency needed to facil­itate these transactions.”

A former president of the National Association of Nigerian Travelling Agents

Irregular power supply continues to be a problem across the country

 

Nigeria fuel crisis continues

Adding fuel to the fire – A combination of ageing oil refineries and powerful middlemen led to a crippling fuel crisis last month. By Martins Azuwike, Lagos   

IN THE RUN up to his inauguration at the end of last month, President Buhari would have been left in no doubt as to the enormity of the task ahead of him as the country was almost brought to a standstill by fuel shortages.  

Long queues formed outside petrol stations, banks closed early, many domestic flights were cancelled and three of the country’s mobile phone companies, MTN, Airtel and Etisalat, warned their services might be affected as they were finding it difficult to supply diesel to  base stations.

Although Buhari’s All Progressives Con­gress accused Goodluck Jonathan’s outgoing People’s Democratic Party of sabotaging the handover, fuel shortages are nothing new. Despite being Africa’s biggest hydrocarbons producer, pumping out more than two million barrels of oil a day, Nigeria’s four ageing oil refineries are unable to meet domestic needs, forcing succes­s­ive governments to import fuel to make up the shortfall.  A fuel subsidy introduced 25 years ago – paying fuel importers the difference between the market rate and the lower price at the pump for consumers – has only served to turn a drama into a crisis. Licences to lift, import and market oil were issued to a few privileged individuals and companies, encouraging the formation of cartels. Today, most, if not all of them, are holders of oil blocs and some also own refineries outside the country, placing them in a unique position to dictate terms.  

The halving in the price of crude since mid-last year has led to a devaluation of the local currency, the naira, and resulted in a squeeze on credit to the fuel importers and marketeers.

Earlier this year, fuel importers claimed they were owed $1bn in arrears and stopped distribution until it was paid. To make matters worse, gas tanker drivers went on strike and oil and gas workers also walked out.

Just a few days before Buhari’s swearing-in on May 29, a deal was struck to end the crippling crisis and the Independent Petroleum Marketers Association told its members to re-open its depots in the commercial capital, Lagos. A committee is to  be set up to look into the $1bn figure and then pay any outstanding money.   

However, the elephant in the room is the subsidy system itself, which is costly and wide open to racketeering. In 2012, the Ho­u­se of Representatives Committee released a report into the subsidy revealing hi­gh level fraud that cost the country $6.8bn. In addition, the government paid $8bn the previous year financing it. The subsidy proved so lu­c­rative that the number of fuel importers so­ared from six in 2006 to 140, the report st­ated.

Farouk Lawan, chair of the committee, said powerful interests had been angered by its investigation. “We were threatened several times in so many ways,” he told the BBC at the time. “We were told that we were not going to live long [enough] to even finish the exercise. They were death threats, very clearly death threats. Fortunately, we are still around.”  

Although President Jonathan was under pressure to get to grips with the scandal and prosecute the wrongdoers, Nigerians feel little has changed.

The underlying problem is that the country’s four refineries operate below par, while importation, distribution, marketing and pricing remain murky. The Nigerian National Petroleum Corporation (NNPC),  the Petroleum Products Pricing and Reg­ulatory Agency and other bodies involved in the downstream sector of the industry continue to reel out questionable figures in relation to the pricing regime gov­­erning locally refined products and the imported mix. The suspicion is fuel importers, marketeers, government officials and financial institutions collude to create an artificial scarcity for their own benefit.  

Nigeria remains the only country among oil-producing nations that cannot refine enough of its crude to meet domestic consumption and whose allocation and distribution continue to distort the economy and impoverish its citizens.

It is pointed out that in theory the 445,000 barrels per day (bpd) installed capacity of the country’s four refineries located in Port Harcourt, Warri and Kaduna is sufficient to address the needs of the domestic market and still leave enough for exports. Port Har­court Refinery 1 (PHRC I), the smallest and oldest of the refineries and with 60,000 bpd refining capacity, was built by a Shell-BP consortium in 1965. Since then, it has ne­ither been overhauled nor upgraded.

The Port Harcourt Refinery 2 (PHRC II), the youngest and biggest, was conceived as an export refinery with a capacity of 150,000 bpd. Com­pleted in 1989 by General Babangida’s military administration, it remains the nation’s most functional refinery to date. But it has been beset by poor management and maintenance, resulting in chronic underproduction.

Designed to produce 125,000 bpd, the Warri Refinery (WRPC) is another sore point. Built in 1978 during Buhari’s time as petroleum minister in Obasanjo’s military government, an additional petrochemical processing capability was added in 1986 for downstream petroleum products such as polypropylene. The WRPC is also designed  to generate 125 MW of electricity, enough to run the refinery and supply surplus energy, estimated at 70 per cent, to the national grid. But it, too, has suffered recurrent shut-downs due to lack of maintenance and pipeline sabotage. At best, the facility is only capable of  reaching 30 per cent of its installed capacity.  

Buhari also had a hand in the 110,000 bpd Kaduna Refinery (KRPC) while he was head of the NNPC in 1976, again under Obasanjo. Likewise, it has never performed at full throttle and has been accused of being one of the most ill-conceived projects ever built by the federal government. Located more than 600km away from its feedstock supply in Escravos, Delta State, and designed to process both Nigerian

Bonny Light and imported Arab Light, it was also meant to feed base oil manufacturing plants.  
Apart from the  first 10 years of its history when it got off to a relatively good start, it has been  burdened  by frequent sabotage of its supply pipelines, oil theft and, in 1997 and 2002, two major fires. Since 2003,  when the pipeline from Escravos was blown up following political unrest, it has barely operated at 10 per cent capacity, and then only if crude feedstock is supplied.

Chronic fuel shortages have led to frequent power rationing, forcing businesses and services to rely on private diesel generators. This in turn pushes up costs.

In May, the entire economy faced imminent shut down, said Remi Bello, president of the Lagos Chamber of Commerce and Industry. Although the situation needed to be fixed urgently, there was “no evidence of active engagement with stakeholders in the petroleum industry to bring an end to the crisis”.

In a statement to NewsAfrica, the chamber added: “The country and the economy sh­ould not be allowed to continue to drift as if there is no one in charge. The current situation is taking a huge toll on the citizens and the economy  

“Unbearable discomfort is suffered by citizens as a consequence of the twin challenges of lack of electricity and fuel supply in households, there is an avoidable social ten­sion in the country, many businesses have either shut down or drastically cut down on operating hours, the cost of transportation has skyrocketed, investors in the petroleum downstream sector are in a quandary as to the policy direction of government.”

It urged the Buhari administration to immediately deregulate downstream sector and to end the subsidy regime. It added: “This will pave the way for the restoration of normalcy in the sector and attract private capital, boost investments and create jobs.”  

Buhari has not yet indicated whether he’ll keep paying the subsidy to those he accuses of holding the country to ransom, but his much-vaunted campaign promise to tackle  corruption and his hands-on experience of the oil industry offer some hope to beleaguered Nigerians. Only time will tell whether this hope is misplaced or not.    Additional reporting Rita Hernandes

 

The African Development Bank – going for growth

The African Development Bank (AfDB) is consciously contributing to Africa’s development and it is achieving results. By Kofi Ansah

ACCORDING to the Bank’s Annual Dev­elopment Effectiveness Review (ADER) 2015, 70 per cent of the Bank’s in­dicators are on track. The publication, part of a series produced by the Bank’s Quality Assurance and Result’s De­partment, provides an overview of Af­rica’s development achievements and tre­nds, reviews the AfDB’s contribution to development results on the continent, and looks at how well the Bank manages its operations and own organisation.

The fifth edition of the publication was issued at the 50th Anniversary Annual Meetings of the Bank in Abidjan, Côte d’Ivoire last month. As Africa’s premier development finance institution, the AfDB has a portfolio of operations valued at more than $31.7bn. Through lending, technical expertise and policy advocacy, the AfDB supports Africa’s development in five priority areas: infrastructure, regional integration, private sector development, skills and technology, and governance and accountability.

The Bank’s support helps to create the con­d­i­tions in which Africans can identify and implement innovative solutions to their development challenges. Infrastructure remains the Bank’s highest priority, absorbing the lion’s share of its resources. “We invest heavily in transport infrastructure, helping to put in place the backbone highway network to link African countries to each other and the feeder roads that link business and households to markets and services,” says the review.

“Over the past two years, we have built or rehabilitated over 6000km of road and provided 32 million people with improved access to transport. Projects like the 175km road between Wacha and Maji in Ethiopia have dramatically reduced transportation costs for farmers, raising rural incomes,” it adds. AfDB is also investing in railways, airports and port facilities.

In the energy sector, the Bank has funded over 1.3 GW of new power generation capacity, while providing 10 million people with electricity connections. “We are mak­ing substantial investments in renewable energy, such as Africa’s largest wind power project in Lake Turkana in Kenya, and we are helping African countries to access international climate funds and leverage private-sector finance for clean energy projects,” the review says.

While acknowledging that Africa is making gradual progress, the report notes that the continent’s energy deficit remains large. The overall electrification rate increased from 38 per cent in 2005 to 42 per cent in 2013, even as populations grew at a faster rate. Average electricity consumption also edged up, from 666 to 690 kWh/year. However, Africa is still far behind other developing regions, it states. “The Bank’s approach to supporting the energy sector has evolved over the years. The 1994 Energy Sector Policy concentrated primarily on institutional reforms and capacity development in the energy sector, with the goal of helping to unlock private investment. We helped to improve pricing policies, management practices and maintenance regimes,” the review says.

The review states that after a few years, however, it became clear that private investment was not forthcoming, and therefore the Bank decided to support its regional member countries by scaling up its investments in major infrastructure development. “For the past two decades, some 12 per cent of AfDB investments have gone into the energy sector. Most went towards building national generation capacity and distribution networks, with an emphasis on rural electrification to promote inclusive growth,” it notes.

Since 2009, the Bank has contributed to financing over 1,900 MW of new generation capacity and over 15,000 km of trans­miss­ion lines, according to the review. “Through these efforts, we have provided 567,000 people with new electricity connections and over 14 million people with improved access to electricity,” the review states. On private sector development, AfDB aims to build an environment in which African business can innovate and flourish. The Bank’s Private Sector Strategy 2013–2017 focuses on improving Africa’s bu­siness climate and promoting enterprise dev­elopment.

“Through our budget support operations and technical assistance, we are helping African countries to modernise their business regulations and make their tax systems more effective. We are also helping to create a sustainable market in micro-finance for household enterprises and small business,” it says. Over the past two years, it has provided 17,900 microcredits and created 1.2 million jobs, of which 340,000 were for women. The Bank’s private sector window is providing finance for more established businesses, with a focus on public-private partnerships, particularly in the infrastructure sector. AfDB’s work in the agriculture sector focuses on lifting productivity and in­creasing food security, while conserving the natural resource base.

Over the past two years, the Bank has delivered improved water management across 53,000 hectares of land and planted or reforested over 440,000 hectares. “Through our support, over 2.3 million people now use improved agricultural technologies. A key objective of our strategy is to link farmers to agri-businesses, to create more sophisticated value chains and increase rural incomes. We are paying close attention to promoting resilience in the face of climate change. For example, we are helping seven West African countries manage their natural resources better through irrigation schemes, pastoral facilities, storage and market infrastructure, and new production facilities for fisheries and aquaculture,” the Bank says.

The Bank is also investing in the technical and vocational skills of young Africans, to equip them for gainful employment and successful entrepreneurship. AfDB’s sup­port has a strong focus on science and technology, to promote more innovative, knowledge-based economies. “Over the past two years, we have provided vocational training to 5,430 young people and constructed over 1,480 classrooms and educational support facilities,” the review says.

The Bank is rapidly expanding its investments in this area, with projects to transform systems of vocational training in Congo, Mauritania, Mor­occo, Rwanda, Tanzania and Zim­bab­we, while supporting a network of centres of excellence in biomedical science, to help address the skills gap. The review is bullish about Africa’s growth prospects, saying they remain positive for the coming years, driven by a rapidly growing and urbanising population, sh­ifting patterns of trade and investment and improvements in economic management. It however urges African governments to change the structure of their economies. We have yet to see a change to the structure of African economies. We need to accelerate the pace of innovation, turning agriculture into an occupation of opportunity, rather than necessity, and creating new jobs and business opportunities in manufacturing,” it states.

The review states that the Bank Strategy 2013–2022 “gives us a clear direction for our support of economic change over the coming years. Infrastructure remains our highest priority. We will help to finance transport, power, water and communications infrastructure, to put in place the conditions for inclusive and green growth. We will continue to search for innovative solutions to Africa’s infrastructure deficits, including through new, clean energy technologies. We will work with African countries to help boost their competitiveness and accelerate investment flows.

“We will help to develop innovative models for increasing access to mic­ro­finance and for public-private part­nerships. We will help to link up African businesses across national boundaries, so that they can create new value chains and achieve economies of scale. We will continue to pilot innovative solutions to border management and trade promotion, and we will continue to invest in regional power pools to lower the cost of energy.”

Building skills and promoting technology is central to AfDB’s vision for Africa’s development. It believes that Africa has shown its capacity to take new ideas and apply them in creative ways to its unique development challenges. New technologies need to be accompanied by innovative business models.

With the lack of technical skills across Africa remaining a critical constraint on economic change, the Bank aims to intensify its efforts to equip young Africans with the skills they need to succeed in a knowledge-based economy. AfDB also recognises the major impact Africa’s changing climate will have in the coming years on agricultural productivity, food and water security.

To mitigate this effect, will take measures to “help African countries put in place the policies and institutional capacity to adapt to these ch­allenges, with a strong focus on sustainable management of natural resources.”

Looking ahead, 2015 promises to be a landmark year for the international development community. The Bank hopes to see the adoption of new Sustainable Dev­elopment Goals at the UN Summit in Sep­tember, alongside new international commitments on financing for development in Addis Ababa in July and on climate change in Paris in December. “As usual, the AfDB will be at the centre of these events, helping to ensure that the African voice is heard.” 

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