November 24, 2015

Nigeria's New Cabinet and the Energy Sector

Nigeria’s new cabinet make-up provides some interesting pointers for future energy policy. This means that it will look to balance new foreign investment with the imperative to retain local value, improve power supplies and strengthen the framework to manage energy resources more efficiently and transparently.

Nigeria’s President Muhammadu Buhari is Minister for Petroleum under his new government while current Head of state-owned Nigerian National Petroleum Corporation (NNPC), Ibe Kachikwu, becomes the Junior Minister for Petroleum. There are differences in opinion as to whether this is an optimum structure, but there’s a clear emphasis on transparency and accountability, given Buhari’s strong oversight. Until the institutional weaknesses within the oil ministry, the sector licensing regime and the functions and operations of NNPC are plugged; reporting lines will now firmly be within executive control. However, there is every likelihood that this tight structure will be loosened later in Buhari’s term, when he can choose to fully relinquish that portfolio.

For now, hydrocarbon reform will probably focus on attracting new upstream investment, consolidation of a fairer crude oil allocation and lifting system, operational improvements to Nigeria’s refineries (short of privatisation), improving the local supply and distribution of oil products and strengthening Nigeria’s midstream oil and gas infrastructure. Downstream deregulation remains off the table for now. Kachikwu’s previous experience as an ExxonMobil Executive will also provide much-needed private sector lenses for both NNPC and the petroleum ministry. This could foster a more balanced and commercial approach to sector management. Nevertheless, a strong possibility is the appointment of a new head of NNPC. Given the strong regulatory functions of the oil ministry and the increasing commercial ambitions of a revamped NNPC, combining both functions in one figurehead can prove conflictual.

Although expectations for a consolidated energy ministry – combining hydrocarbons and power – were high, the separation of the Power function into a broader infrastructure ‘super’ portfolio that includes Works and Housing and now overseen by former Lagos state Governor, Babatunde Fashola, should provide for an integrated approach to building and reviving Nigeria’s troubled infrastructure. Fashola’s track-record in attracting foreign investors to Lagos during his tenure there could prove critical for funding Nigeria’s infrastructure plans. He would need to closely co-operate with both Buhari and Kachikwu, given the centrality of Nigeria’s gas resources to power supply; hydrocarbons still account for the largest share of generation capacity, although the latter is still poor at less than 4,000MW.

Nigeria’s Ministry of Finance, now excludes the Budget Office which has now been merged with a new Ministry of Budget and National Planning. This has implications for energy policy, since a large pool of funds the government received from the oil sector had historically capitalised a national economic pot managed by the Finance Ministry, from which federal allocations were made. The consequent dilution of the Finance Ministry’s mandate, speaks to a broader government attempt to diversify away from oil and integrate the energy sector revenue management into broader economic planning.

Meanwhile, Nigeria’s Ministry of the Environment has long pursued a strong renewable energy policy focused on sustainability. Between Amina J. Mohammed, the new Environment Minister (who was also Special Adviser to Ban Ki-Moon of post-2015 development planning) and her counterparts, Fashola and Kachikwu, a sustainable energy roadmap is very likely, given Amina’s strong development background and the rural electrification gap created by Nigeria’s chronic power shortages. All the other appointments in Buhari’s cabinet combine strong private sector expertise, technocratic experience and a good dose of political savvy. In themselves, these appointees and their overlapping areas of competency, perhaps serve as indicators to energy sector investors of a broader and welcome attempt by the government to promote a ‘joined-up’ approach to policy making.

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