The Nexus Between the Nigerian Electricity Industry and Economic Growth: The Role of the National Gas Policy
Chapter One
Objective of the study
The objectives of the study are;
- To ascertain the contribution of electricity industry to Nigeria GDP
- To ascertain the impact of electricity industry on energy consumption
- To find out the role of the National Gas Policy on electricity industry
CHAPTER TWO
REVIEW OF RELATED LITERATURE
The Electricity Power Sector in Nigeria
Electricity generation in Nigeria could be said to have began in 1898 when the first generating plant was installed in Lagos under the jurisdiction of Public Works and Transport. Though, the Nigeria Electricity Supply Company (NESCO) commenced operations as an electricity company in Nigeria in 1929 with the construction of a hydroelectric power station at Kurra near Jos, Plateau State. Since then it has undergone many reforms in trying to connect every part of the country to the national transmission grid. In 1950, the British colonial administration passed the Electricity Corporation of Nigeria ordinance, known as the ECN Ordinance No.15 of 1950. The ordinance sought to integrate electricity supply to make it more efficient. In 1962, the Niger Dam Authority (NDA) was established with the first 132kv supply line. Eventually by 1972, the ECN was being merged with the NDA to form National Electric Power Authority (NEPA). As at the time of this formation, the targeted supply of electricity was 1030mw, while peak demand was 390mw. The law establishing NEPA gave her the power to develop and maintain an efficient, coordinated and economic system of electricity supply throughout the country. In 1988, NEPA was partially commercialized with an upward review in tariffs. In 1990, the Shiroro power station was commissioned. The station contributed 600mw, to the nation’s electricity supply. As part of the restructuring, the Electric Power Sector Reform Act 2005 was enacted. Subsequently, the defunct NEPA is currently known as Power Holding Company of Nigeria (PHCN). The reform act paved way for the unbundling of NEPA into 18 companies: 6 generating companies, 1 Transmission Company and 11 distributing companies. The generating companies are made up of 2 hydro and 4 thermal (gas based) stations. Nigeria’s estimated available capacity from the grid of approximately 3,200 MW meets only approximately one third of the estimated current demand for power from the grid (BMI, 2011). As demand for electricity in Nigeria is expected to more than double in the next 10 years (BMI, 2011), an even greater supply gap would be created in the future without some form of market intervention and fundamental reform of the power sector. Current electricity generation is from either gas-fired or hydro power plants. Most assets are owned by state-owned companies, though some private investors have been able to establish IPPs following recent legislative reforms
The Reform Process in the Electricity Sector
Not quite long after Goodluck Ebele Jonathan was sworn in as President, following the death of Umaru Yar’Adua, the new government left no one in doubt about its thinking on the thoroughly embarrassing inefficiency in Nigeria’s power sector. It was taking too long to fix the electricity problem and things actually got so bad that Nigeria, statistically speaking, became the preferred destination for ships conveying all kinds of generators to this part of the world. Efforts by a succession of previous administrations to tackle the electricity needs of the country yielded very little. The darkness in Nigeria persisted and the problems of the power sector seemed too difficult to tackle. What was to be done? President Goodluck Jonathan had barely settled down in office, when he announced an ambitious plan now known as the Power Reform Roadmap, for the implementation of reform in broad accordance with the 2005 Reform Act. The government’s priority is to attract private investment to all facets of the power sector. To many Nigerians, that was the day that our President declared war against persistent darkness in Nigeria, an ugly phenomenon that has held back and substantially frustrated efforts to develop Nigeria and grow its economy. In 2005, the Government of Nigeria enacted legislation intended to restructure fundamentally the Nigerian electrical power sector. The Electric Power Sector Reform Act, 2005 (the 2005 Reform Act) was designed to move the electricity sector in Nigeria from a government controlled, heavily subsidized system to a privatized, largely marketbased endeavour. Implementing the 2005 Reform Act has been challenging for the Nigerian government and largely seems to have stalled in recent years. However, the process of implementing the 2005 Reform Act was revitalized when President Goodluck Jonathan established the Presidential Task Force on Power and published a roadmap for power sector reform in August 2010, potentially opening the door to significant private investment in the Nigerian power sector. Key features of the reforms being implemented include the following (BPE and CPCS consortium, 2011).
ENERGY CONSUMPTION AND ECONOMIC GROWTH NEXUS
Images of energy-powered industrial revolutions around the globe emphasize the role of energy in economic growth. At the same time, a rapidly growing labour force became an engine of industrial growth, against Malthusian predictions. Yet population and other pressures on scarce resources such as energy remain. Energy remained relegated, in the earlier neoclassical growth sense, to an intermediate input into production, one that is assumed given due to its finite non-renewable nature. The introduction of natural resources into the growth framework depends on whether technical or institutional conditions drive their sustainability. Technical conditions include a mix between renewable and non-renewable resources, the initial stock of natural resources and the elasticity of substitution between capital and various energy inputs. This is also theoretically related to demand elasticity of energy that describes the degree of substitution with other inputs into the production process.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
METHOD OF DATA COLLECTION
This study employed annual secondary data covering 1986 to 2021. The data was collected from Central Bank of Nigeria (CBN) and National Bureau of Statistics (NBS). This research adapts the Aqeel and Butt (2001) model which examines the nexus between the Nigerian electricity industry and economic growth: the role of gas policy. The model which consists of six variables (economic growth (GDP), total energy consumption (TEC), petroleum (PT), gas (GS), electricity (ELECT), coal (CO)) is set as follows:
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
Data Stationary test
The result for the test of stationarity using the conventional Augmented Dickey-Fuller (ADF) and Phillips-Perron tests are presented in Table 1.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain the nexus between the Nigerian electricity industry and economic growth: the role of gas policy. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of the nexus between the Nigerian electricity industry and economic growth: the role of gas policy
Summary
This research established direct and positive relationship between the five variables (total energy consumption, petroleum consumption, gas consumption, electricity consumption, and coal consumption) and the growth of Nigeria’s economy. In effect, increased energy consumption is a strong determinant of economic growth in Nigeria and should therefore be given more relevance by exploiting the opportunities in the sector to increase economic growth. From the findings in the previous section, a 1% increase in the aggregate consumption of energy, gas, electricity would lead to a rise of about 28%, 18% and 42% in the real Gross GDP. However, the relationship between consumption of coal consumption and economic growth is negative. In fact, 1% increase in coal consumption would lead to 19%reduction in real GDP
Conclusion
Although, the overall picture reveals availability of enormous energy resources in the country which far exceed energy requirement of the country. However most of these resources are underutilized particularly natural gas. This suggests that Nigeria’s energy problem is not a lack of it, but its development and utilization. Therefore, policy reforms should focus on encouraging a level-playing field for all energy forms. It should also in the spirit of economic liberalization fully deregulate the power sub-sector of the economy to allow for private sector participation in the generation, transmission and distribution of electricity. Also, improvement in the performance of electricity supply should be vigorously pursued. This is because it would affect energy use pattern and ultimately affect GDP when those who depend on more expensive alternatives (petrol and diesel generators) now depend on public power supply.The consensus is that the impact of energy on social, economic and welfare development in the country is manifest. However, each country is enjoined to formulate appropriate energy policies taking into cognizance of her peculiar condition in order to promote economic growth
Recommendation
Hence, the study recommends the diversification of the power-generation portfolio in the country, as this will improve energy consumption towards better output. The study suggests full deregulation policies in the energy sector as this will encourage industrialization and move energy demand towards increasingly productive uses. Finally, a strong institutional framework is needed to make energy policies achieve their objectives and targets.
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