The Energy Industry In Africa Vis-A-Vis Its Issues And The Way Forward -By Oyetola Muyiwa Atoyebi & Efe Osegohime

INTRODUCTION

Access to clean modern energy services is an enormous challenge facing the African continent because energy is fundamental for socioeconomic development and poverty eradication. Today, 60% to 70% of the Nigerian population do not have access to electricity, while according to “Statista”; the top 20 least electrified Countries in the world are all located in Africa, leaving over 640 million Africans with no access to energy[1]. This implies that there is genuinely a problem.

AFRICA’S ENERGY ISSUES

Undoubtedly, Africa’s energy potential, especially renewable energy, is enormous, yet only a fraction of it is being currently employed, this is because of her heavy reliance on fossil fuelsand biomes instead of diversifying its primary energy supply, given its plethora of resources (renewable and non-renewable).

The current generation capacity in Africa is beset with challenges. Utilities have historically been poorly managed, resulting in an energy system that relies on expensive oil and gas, and thus suffers from the volatile prices associated with these sources—and experiences large losses from the electrical grid. Consequently, tariffs are high and utilities are financially unsound. This crisis has also revealed the consequences of dependence on fossil fuels and the risks of a poorly managed energy transition, thus bringing the issue of energy security and regulations to the forefront.

What is this Energy Security?

Energy Security is the ability to ensure that future essential energy needs can be met, both from adequate domesticresources exploited under economically acceptable conditions or maintained as strategicreserves, and from accessible and stable external sources supplemented, where necessary,by strategic stocks.

It can also be simply defined as a condition in which a nation and all or most of its citizens and businesses have access to sufficient energy resources at reasonable prices for the foreseeable future, without serious risk of major disruption of service.

The prevailing question now is: Has Africa been able to achieve Energy Security even with external help and investments? The answer to this is obvious- No.  The production of fossil fuels is expensive from the point of extraction to the point of sale. Therefore, Africa will continue to rely on external help and investment to deliver.

Furthermore, in most African Countries, the fossil fuel industry and its financiers continue to market ongoing and new fossil fuel extraction as an important driver of development, claiming that it will create public revenues, jobs and energy access for the world’s poorest nations. However, poor contract terms, debt traps, and disproportionate ownership by foreign multinationals show that the industry mainly serves the interests of companies and nations outside of Africa, with African people and governments bearing the risks. New projects risk locking Countries into fossil fuel dependency. How then can Africa sustain its Energy Industry, if it continues to take this route?

In the next ten years, new oil and gas projects to the value of $230 billion are at risk of becoming stranded assets. Combined with growing national debt and government deficits, these could generate a dangerous ripple effect leading to massive unemployment and rising poverty, locking countries into a vicious cycle of poverty for decades to come.[2]

Also, instead of bringing development, fossil fuel projects often have severe impacts on local communities and the environment, leading to displacement, loss of access to land and water, and consequently loss of food security. The jobs promised seldom materialize or are only short-term. Pollution caused by oil spills and gas flaring has severe consequences for health, water and ecosystems. Fossil fuel developments contribute to climate change, which in turn disproportionately affects African communities.

Oil-rich Nigeria, Africa’s biggest fossil fuel exporter, has the largest energy access deficit in the world. Even after over 65 years of oil exploration, only 55% of Nigerians had access to electricity in 2019.[3] As fossil fuel investments are becoming riskier due to price fluctuations and climate policies, many fossil fuel companies are demanding a softening of fiscal terms. This has seen many African countries agree to these terms to ensure investors stay on board. For example, contracts may stipulate that developers can first recuperate their costs, before paying taxes. This means that taxes only start coming in several years after fossil fuel production has commenced. As a result, many African Governments incur costs and debts linked to fossil fuel development, without sufficient tax income flowing back, meaning public interests end up being sacrificed.

Mozambique for example, which already suffers from an enormous debt burden, has welcomed gas developments as these are supposed to help pay off its debts in the decades to come. However, as the world’s major economies are moving towards phasing out fossil fuel towards the uptake of renewable energy, the economic prospects of oil, gas, and coal in Africa will be severely affected, and fossil fuel investments risk becoming stranded assets in the near future.[4]

Similarly, the COVID-19 crisis and the recent drop in oil prices gave a clear picture of what can happen to African countries whose economies are heavily dependent on fossil fuels. Even Nigeria, a major oil-producing country, was hit hard economically by this drop in oil prices. This presents a strong prediction of what can happen to African economies, which are – and are currently being made – dependent on fossil fuels via ongoing public and private sector fossil fuel finance flows.

The Governments in Africa and its Institutions do not exactly help matters, as they even create barriers towards the autonomy of Africa’s Energy sector. A research carried out in South Africa by Todd and McCauley cited a lack of strategic direction, weak institutions, bureaucracy, and corruption as barriers to the Country’s Energy Autonomy and Transition.[5]

IT IS SAFE AT THIS POINT TO STATE THAT THE CONTINENTS INABILITY TO GROW AND SUSTAIN ITS ENERGY INDUSTRY INDEPENDENTLY OVER THE YEARS, IS AS A RESULT OF ITS HEAVY RELIANCE ON NON-RENEWABLE ENERGY

Government policies are crucial factors in terms of their ability to create an enabling environment for renewable energy dissemination and mobilizing resources, as well as encouraging private sector investment.

Most of the early policy initiatives on renewable energy in Africa were driven by the oil crises of the early and late 1970s. In response to the crises, Governments established either an autonomous Ministry of Energy or a department dedicated to the promotion of sound energy policies, including the development of Renewable Energy. For example, Zambia responded by outlining policy proposals in its Third National Development Plan (1979-1983) to develop alternative forms of energy as partial substitutes for conventional energy resources. Unfortunately, once the energy crisis subsided, Government support for energy development and renewable energy activities diminished significantly. Now, most of the remaining support is at a rhetorical level.[6]

Additionally, most oil-producing countries, including Angola and Nigeria, export over 85% of their production to Europe, Asia, and the US. Exporting fossil fuels (like other mining products) is a major source of income for African Countries, however, Governments typically fail to effectively reinvest fiscal revenues in the development of internal energy markets.

The governance of energy infrastructure change involves different stakeholders (energy users, industry, residential, energy investors, policymakers, etc.) who are important actors in influencing the kind of decisions made and the energy infrastructure we subsequently end up getting. Albeit, the dynamics and complexities governing energy infrastructure provisions lead to many stakeholders employing different lobbying mechanisms to make their positions known, prioritized, and then adopted. Satisfying the interests of different stakeholders in the governance of energy infrastructure provisions necessarily leads to some unintended consequences.

There are three major unintended consequences of the policy decision processes and institutions in the governance of energy infrastructure provision in Africa[7], and these are:

1. Over-Centralized Governance.
2. Economic delusion.
3. Energy demands driven more by export needs rather than local consumption.

OVER-CENTRALIZED GOVERNANCE

Using Nigeria as a case study, prior to our independence in 1960, Nigeria existed as regions with regional Governments. Policy decisions were taken at regional, as well as national levels. The decision-making process at that point was decentralized. This meant that the various regional Governments could draw up and implement policies on different aspects of life in society, including resource extraction and production, while they made some contribution to the central government.

Interestingly, the regional system of government created some sort of healthy competition among the regions, which aided the discovery and development of (mineral and energy) resources in the different regions. However, with the advent of crude oil and military rule in the 1970s, the governance structure was upturned by the military.

The control and governance of (mineral, energy, and other) resources, including strategic planning, were centralized and controlled by the central government. This means that all the prospects and challenges of the different regions were now centralized, that the central government decides who should have what, and that many decisions (including social and economic) were heavily politicized. Indeed, this has also affected how energy infrastructure is governed in Nigeria.

ECONOMIC DELUSION

A major unintended consequence of the policy decision system in this sector is Economic Delusion. Economic delusion is simply the falsity or deceit that the economy is thriving and waxing strong whereas the reverse is the case.

It is believed that Nigeria saw an economic boom in the 1970s, particularly as it relates to industrialization and investment in agricultural processing plants. However, this was not the case in reality; Nigeria was de-industrializing during that period, but what was responsible for this?

The economic delusion was caused by the false perception of economic growth. In the 1970s, Nigeria started experiencing growth in oil and gas production and export, while there was a simultaneous decline in manufacturing activities. The focus on developing the oil industry due to its huge prospects for increased income led to less attention being given to the manufacturing and industrial sectors. This occurred through the non-judicious implementation of established energy policies targeted to aid industrialization. Thus, the growth of established industries was restricted by limited available (electrical) energy supplies.

In the 1970s, the actual electricity infrastructure provision was much less than the previously estimated projections. This led to a situation where the growth of many industries was limited by the amount of available electrical energy. Also, expansion and growth became impossible for many of the manufacturing industries while they were left with the option of growing at the pace with which electrical energy infrastructure was provided.

Thus, the inadequate provision and supply of electrical energy infrastructure limited the growth of the manufacturing sector, which then worsened through de-industrialization, as all future growth in industrialization activities was halted by the non-provision of electrical supply infrastructure. It is a popular belief that the 1970s was the real industrial economic boom period for Nigeria, meanwhile, it was a period of industrial decline.

ENERGY DEMAND DRIVEN MORE BY EXPORT NEEDS AND NOT LOCAL CONSUMPTION

The initial provision of energy supply infrastructure led to the uncontrolled growth in demand for energy. The following has been observed;

1. There is a large demand for petroleum (crude oil) and natural gas. However, a large part of the extracted crude oil and natural gas are exported. This signifies that the energy supply infrastructure provided in Nigeria was not meant to satisfy only the local demand, but also to meet the demands of the international market.

1. The residential sector is the largest consumer of energy resources in Nigeria with a large part of these resources coming from traditional biomass used more for energy services within the home. Although a large part of this energy is being wasted through emissions and inefficient equipment and appliances.

• Hydropower, natural gas, and crude oil (petroleum) are the three dominant resources used for electricity generation, with a potential for natural gas growing geometrically due to the policy direction of the African Governments to use more natural gas for electricity generation.

• The industrial and commercial sectors combined, use far less energy resources in comparison with the residential sector.

THE WAY FORWARD

Africa is beautiful and a great hub for commerce and clean energy, capable of serving the West without harming itself.  The Continent must take a stance on what route to take, and how to take that route.

Governments must be more intentional, keeping the future of energy in Africa in mind as well as the Economy of Africa. Governments must create a new order for the Institutions that control the Energy Industry in their Countries. Policymaking must be well-defined, with Africa at the centre of these policies.

There is no better time for Africa to embrace Renewable Energy than now, and it must do so with financial de-risking measures at every point in order to save the Continent.

SNIPPET

Africa’s energy industry has been unstable over the years. This piece seeks to examine the issues and challenges within the industry and the most probable remedy.

KEYWORDS

Energy, Africa, Government, Fossil fuel, Renewable energy, non-renewable energy, Africa’s Institutions, Biomes.

AUTHOR: Oyetola Muyiwa Atoyebi, SAN

Mr Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm).

Mr. Atoyebi has expertise in and vast knowledge of  Law Practice and this has seen him advise and represent his vast clientele in a myriad of high-level transactions.  He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of Senior Advocate of Nigeria.

He can be reached at atoyebi@omaplex.com.ng

CONTRIBUTOR: Efe Osegohime

Efeis a member of the Corporate Team at OMAPLEX Law Firm. She also holds commendable legal expertise in Energy Law Practice

She can be reached at efe.isegohime@omaplex.com.ng

[1] AFDB, ‘ Light Up and Power Africa – A New Deal on Energy for Africa’ <https://www.afdb.org/en/the-high-5/light-up-and-power-africa-–-a-new-deal-on-energy-for-africa> accessed 16 March 2023                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

[2]‘Locked out of a Just Transition Fossil fuel financing in Africa’ <https://www.banktrack.org/download/locked_out_of_a_just_transition_fossil_fuel_financing_in_africa/07_md_banktrack_fossil_fuels_africa_rpt_hr_1.pdf> accessed 21 March 2023

[3]‘Locked Out of a Just Transition: Fossil Fuel Financing Africa’ <https://www.banktrack.org/download/locked_out_of_a_just_transition_fossil_fuel_financing_in_africa/07_md_banktrack_fossil_fuels_africa_rpt_hr_1.pdf> accessed 17 March 2023

[4]Stephen Karekezi, WaeniKithyoma, ‘Renewable Energy in Africa: Prospects and Limits’ (2003) <https://sdgs.un.org/sites/default/files/documents/nepadkarekezi.pdf> accessed 20 March 2023

[5]Iain Todd, Darren McCauley, ‘Assessing policy barriers to the energy transition in South Africa’ (2021) <https://www.sciencedirect.com/sdfe/pdf/download>

[6] Stephen Karekezi, WaeniKithyoma, ‘Renewable Energy in Africa: Prospects and Limits’ (2003) <https://sdgs.un.org/sites/default/files/documents/nepadkarekezi.pdf>

[7]Norbert Edomah, Chris Foulds, Aled Jones, ‘The Role of Policy Makers and Institutions in the Energy Sector: The Case of Energy Infrastructure Governance in Nigeria’ <file:///C:/Users/EFE/Downloads/sustainability-08-00829.pdf> accessed 20 March 2023