EUR 3.72 For Business Accounts Only

Reforms: Getting down to brass tacks

• ​​We continue with our series of excerpts from our core strategy document – The Nigeria Strategy Report, but direct our focus towards progress of reforms in the energy sector over H1 2017 and outline our view on policy trajectory for the rest of the year.​

• In H1 2017, though power generation improved from end of December by 20% to 4150MW, reflecting increase in gas supply to gas-fired power plants (+39% to 547mmscf/d), the sector continues to grapple with myriad of challenges that has resulted in financial distress for sector players. To start with, despite significant spikes in key parameters, inflation and exchange rate, MYTO has remained sticky and has thus driven significant accumulation of cash deficit across the value chain. To emphasize the magnitude of the deficit, our analysis indicates current tariff of N28.8/kWh is about 43% discount to our estimated current cost reflective tariff of N50.5/kWh. Consequently, the FG just recently designed a recovery program for the power sector, which in our view, cause for some optimism given a better understanding of the challenges, in contrast to prior plans, as well as a greater political will to save the sector.​

• The Power Sector Recovery Program was launched in April 2017, in a bid to restore the financial viability and service delivery of the power sector. Central to the recovery plan is aN701billion payment assurance facility provided by the CBN to assist NBET in meeting its payment obligation within generation invoices and ease the liquidity challenges hurting the GenCos. Other notable changes are the decision to eliminate the historical sector revenue deficit through December 2016 and clear the historical MDA debts even as plans aim to automate future MDA payment.​

• The extensive provision of the PIB that cuts across fiscal, governance and regulatory matters has sparked a lot of debate in the country and thus affected its passage. Central to the debate are fiscal issues that relates to increase deep-water and gas tax rates as well as introduction of the 10% host community fund. Pertinently, the current administration adopted a logical approach to allow for passage of the non-controversial section of the bill, thus splitting the PIB into four bills – The Petroleum Industry Governance bill (PIGB), The Fiscal Regime bill, The Petroleum Revenue bill, and the Upstream and Midstream Administration bill. Consequently, the senate, in May 2017, passed the PIGB which addresses the administrative aspect of the proposed PIB and provide for the governance and institutional framework for the petroleum industry and for other related matters.​

• Central to the provision of the bill is the plan to restructure the NNPC to a new regulatory agency, Nigeria Petroleum Regulatory Commission (NPRC). The NPRC will be vested with the roles, rights, assets, liabilities, and obligations of the Petroleum Inspectorate , the Department of Petroleum Resources and the Petroleum Products Pricing and Regulatory Agency. Elsewhere, the portfolio of the NNPC has been reorganized into 3 different entities – the Ministry of Petroleum Incorporated (MOPI), the National Petroleum Company (NPC) and the National Petroleum Asset Management Company (NPAMC).​

• Overall, the PIGB creates optimism regarding the passage of the other bills that will unlock the investment opportunities in the industry. That said, the regulatory reforms in the PIGB bodes well in dealing with administrative issues that are central to the growth of the oil industry.