Recently the National Assembly passed the much talked about Petroleum Industry Bill (PIB). In this piece, JUSTICE NWAFOR looks into how the absence of an energy transition plan in the bulky legislation and inadequate funding of the Energy Commission of Nigeria (ECN) and the National Atomic Energy Commission (NAEC) depict Nigeria’s poor commitment to Energy transition.
RECENTLY, the National Assembly passed the contentious Petroleum Industry Bill (PIB). The passage which had been anticipated for so long — given that the bill had been on lawmakers’ table for some years — was received with fanfare, especially by rights groups and advocates who had expended time and resources calling for its passage.
PIB holds a lot of promises. Amongst others, it is expected to restore sanity in the management of the oil and gas sector and inspire investors’ confidence by providing a legal, governance, regulatory and fiscal framework for the industry.
The bill addressed a number of issues that bedevils the industry, some of which includes commercialisation of the Nigerian National Petroleum Corporation (NNPC) and the scrapping of the Petroleum Equalisation Fund (PEF) and Petroleum Products Pricing Regulatory Agency (PPPRA); provision of host communities fund and a whole lot of others. But then, it failed to provide a clear path for Nigeria’s zero-carbon transition.
Zero-carbon transition
Climate change is evident today: temperatures are rising; flooding is now more common and erratic rainfall is forcing locals to change their long-lived lifestyles.
Limiting temperature rise to 1.5°C means delivering net-zero emissions by 2050, according to the UN. This simply means offsetting carbon sources from human activities with sinks that capture the carbon.
The times are changing. The world is moving away from fossil fuels investments and development and embracing a net-zero future. And it was hoped that the PIB would provide an opportunity for a path that’d enable Nigeria to join the rest of the world, but it ultimately failed to account for climate change, acknowledge the Paris Agreement, and address the need for diversification to adequately prepare Nigeria for the energy transition.
Before the bill was passed, recommendations were made by experts, and reports were submitted. One of such is ‘Nigeria’s Petroleum Industry Bill: A Missed Opportunity to Prepare for the Zero-Carbon Future’ by the Columbia Center on Sustainable Investment (CCSI) which followed up on an earlier report ‘Equipping the Nigerian National Petroleum Corporation (NNPC) for the Low-Carbon Transition: How Are Other National Oil Companies Adapting?’, that explored how to reform NNPC, building on international best practices and lessons learned from other National Oil Companies (NOCs).
But the national assembly passed the bill without considering much of the recommendations made in the latter report, thereby shutting the door to one of the most effective ways of reducing Nigeria’s reliance on income from fossil fuels for its much-needed economic and infrastructural development. Crude sales account for more than half of Nigeria’s revenue and well over two-third of its foreign exchange earnings.
Nigerian Tribune spoke to one of the authors of the report, Martin Brauch. He conducts economic and legal research, training, and advisory work at CCSI with a focus on extractive industry investments in the context of sustainable development and the low-carbon transition.
Brauch told Nigerian Tribune that the intention of their report was “to bring to the attention of the National Assembly the need for Nigeria to prepare for the zero-carbon energy transition and to highlight the golden opportunity to do so during the parliamentary discussion and approval of the PIB”.
With the growing relevance of clean energy and growing investments, Nigeria, indeed, seems to have missed a golden opportunity. And Brauch says it could be considered to be “out of touch with our 2021 reality. It is disheartening to see Nigeria miss this opportunity.”
Bayo Ojulari, Managing Director of the Nigerian unit of Royal Dutch Shell, might not have met Brauch but they, uniquely, share the same sentiment. Ojulari while speaking at the Nigeria International Petroleum Summit (NIPS) in Abuja, a few weeks before the bill was passed got worried because he feared that energy transition would make PIB somewhat obsolete.
“I think it’s important to pass the PIB but all of us need to think about how we implement it to ensure that the energy transition does not make the PIB obsolete the day it’s passed.”
Huge implications for the economy
There are huge implications for Nigeria. With the reliance on oil and gas earnings, whose future is dim now, opportunities for the country’s economic development may be scanty. Here’s why: for well over a decade now there has been increased attention to clean energy policy and investment. Countries are pledging to stop investment in oil and gas and more will do just like Denmark announced an immediate end to new oil and gas exploration in the Danish North Sea in December last year. Just a few months back, the International Energy Agency announced that no new investment in oil and gas should take place in order to achieve the 2050 target.
Interestingly, the investment in clean energy has witnessed impressive growth. For instance, Global new investments in clean energy grew from about $20 billion in the first quarter of 2006 to well over $80 billion in the last quarter of 2019. What this means is that the new annual investment in clean energy more than tripled within this period, taking funds that would have been channelled to fossil fuels development away.
Further data from BNEF shows that in 2020 alone, the world spent a record $501.3 billion on renewable power, electric vehicles, and other technologies to cut the global energy system’s dependence on fossil fuels, nine per cent more than the 2019 figures. Interestingly, BNEF predicts that 2021 figures will still hover above half a trillion dollars.
And the trajectory will continue as long as countries and companies continue to ramp up action to tackle the global climate emergency, and pledge emissions reductions, (131 countries have pledged already) adopting specific targets, removing fossil fuel subsidies, implementing carbon pricing mechanisms — such as carbon taxes and cap-and-trade systems — among other reforms, Brauch says.
“In this context, oil and gas demand will tend to continue to drop in the long term — even if there will likely be a short-term post-COVID rebound.”
Oil majors, who are really important to Nigeria’s economy, are embracing clean energy investment, changing their names from oil companies to energy companies. For instance, Dutch oil giant, Royal Dutch Shell which operates in Nigeria through its subsidiary, Shell Petroleum Development Company of Nigeria Limited (SPDC), in 2016, announced the creation of a ‘New Energies’ (now Renewables and Energy Solutions) division which would drive its long-term energy transition themes as part of its diversification strategy. And ever since, the company’s investment in clean energy has been on the increase.
In 2016, it announced a new energy investment budget of $ 200 million per year. This amount went up to $1 billion per year at the Cambridge Energy Research Associates (CERA) week in March 2017 and further hiked to $ 1–2 billion per year in December 2017. Now, the company says the amount is $2-3 billion.
This is not limited to the Dutch giant. Other majors which have subsidiaries operating in the country are committing to renewables and paying record less attention to fossil fuels. This will affect Nigeria adversely because the largest consumers of fossil fuels are shifting their economies to renewables, hence, IOCs will continue to leave Nigeria because they are business entities, Joachim McEbong, a senior analyst at SBM Intelligence says.
“The IOCs are gradually moving away from the country because of the gradual shift away from fossil fuels in the West. It is not that fossil fuels will stop being used, rather, some of the largest consumers of these fuels are slowly shifting their economies”, McEbong says.
If history serves us right, then the future may soon witness another deep economic crisis. All the country’s economic recessions in the recent past have been linked to low crude prices, which in turn triggered inflation and a high cost of living. This is particularly disturbing because the country has not been able to fully fund its budget in more than two years, pushing it to keep borrowing amidst a growing debt stock.
Beyond PIB: Underfunded institutions
To be fair, outside the PIB, the Nigerian government has made efforts to buy into energy transition. Research institutions, agencies, and commissions charged with the responsibilities of researching alternative energy sources have been set up. But sadly, they have not come up with clear output on alternative energy sources, according to an Oxford published report on the issue.
One of the reasons for the inefficiency is the poor funding. Duplication of agencies is another reason. For example, the Energy Commission of Nigeria (ECN) was established with the mandate of coming up with alternative sources of energy. It has a nuclear energy department, among others, but the federal government went ahead to establish Nigeria Atomic Energy Commission (NAEC) to perform the same function — develop and promote nuclear technology — which the nuclear energy department at ECN should have been properly empowered to do.
This has limited their efficiency and budgetary allocation to them amidst poor releases of the budgeted sum. For instance budget data the Nigeria Tribune obtained from the Office of Accountant General of the Federation and analyzed show that from 2012 to 2018, the federal government budgeted N30.49 billion for the ECN but just a little above half, N16.27 billion, was released to the commission.
On the other hand, N12.52 billion was budgeted to NAEC but just N6.54 billion was released to the commission.
- This story was produced with support from the Natural Resources Programme (NAREP) of the Premium Times Centre for Investigative Journalism
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