[stop-imf] Facilitating whose power? WB and IMF policy influence in Nigeria's energy sector

[robert weissman]

http://www.brettonwoodsproject.org/art-561198


  Facilitating whose power? WB and IMF policy influence in Nigeria's
  energy sector


April 2, 2008
Lucy Brown

Despite rhetoric to the contrary, the World Bank's energy portfolio
still fails to reap the double dividend of renewable energy technologies
that would tackle both energy poverty and climate change. Nigerian
economic policies shaped by World Bank and IMF recommendations, policy
agreements and conditionality have so far lead to a dysfunctional
electricity privatisation process, a heavy and as yet unfulfilled
reliance on reform of the gas sector, and the failure to make any
widespread practical progress on pro-poor, decentralised renewable energy.

It would be simplistic to lay the disaster and inequity of Nigeria's
energy and power sector at the feet of the IMF, World Bank and other
international donors. However, their influence can not be disconnected
from the corruption carried out by the country's elites that has
exacerbated poverty and failed to provide power to the nation. Nor can
it be separated from the decades of egregious violations committed in
the interests of international oil companies and their subsidiaries.

Nigeria is the region's largest oil producer and holds approximately one
third of the proven gas reserves of Africa. Yet at least 60 per cent of
its population lack access to electricity for their basic needs, with
only a fifth of rural households covered.^1
<http://www.brettonwoodsproject.org/art-561198#fn001>

Nigeria's epileptic energy supply is one of the key factors hampering
its development. In 2005 the Bank estimated that to increase access to
75 per cent would require over $10 billion in investments. Under the
tutelage of the IFIs a major neo-liberal economic reform programme was
undertaken by former president Olusegun Obasanjo during his 1999-2007
administration, which found him heavily in favour with Washington.
Though he promised to reform the energy sector, investments of up to $16
billion made by the federal government during his eight years in office
did not lead to any tangible improvement. In March 2008 this expenditure
was the subject of a corruption investigation by the House of
Representatives. Former finance minister, Ngozi Okonjo-Iweala, now
managing director of the World Bank, and former minister of solid
minerals Oby Ezekwesili, currently African vice president of the World
Bank, appeared before the investigative panel. Both played crucial roles
in power sector reform during Obasanjo's administration. The committee
is expected to submit its findings to the house in April 2008. ^2
<http://www.brettonwoodsproject.org/art-561198#fn002>


    IFI medicine

Core elements of World Bank and IMF policy in relation to the power
sector include:

    * unbundling and privatisation of the state electricity company;
    * a power bill to accelerate transformation of the electricity sector;
    * legislation and technical assistance to promote domestic gas
      sector reform;
    * liberalisation of the downstream petroleum sector;
    * funding to address key infrastructure constraints; and
    * legislation for bills on fiscal responsibility, procurement, and
      the Extractive Industries Transparency Initiative.

Nigeria was the first country to "benefit" from the IMF's policy support
instrument (PSI) (a non-lending instrument which began in mid-2005, see
Update 48), to which reform of the power sector is central. A number of
key ingredients were controversially passed during president Obasanjo's
last few days in office. The World Bank's strategy in Nigeria's
electricity sector is one of consistent and long-term engagement. In
2005 it claimed that it was "the only large international development
institution active in the sector". Since 2001 it has given approximately
$300 million to support the reform and privatisation of Nigeria's energy
sector, through three IDA credits.

    * the Privatisation support project, May 2001, $114.29 million,
      co-financed with DFID and USAID;
    * the Transmission development project, August 2001, $100 million; and
    * the National energy development project (NEDP), May 2005; $172 million

The ongoing National Energy Development Project (NEDP) which began in
2005 is almost entirely Bank-funded. It consists of five components:
transmission; distribution; access expansion and renewable energy;
technical assistance for gas pipeline and gas to power projects; and
technical assistance for reforms and private participation.


    Deregulation fuels kleptocracy

Deregulation of the downstream petroleum market (refining, supply and
distribution) has been a key ingredient of World Bank and IMF policy
advice since 1999. The most contentious of the IMF's structural
benchmarks was the sale of the Kaduna and Port Harcourt oil refineries.
The process turned into a mockery. The sale was first put on hold due to
the difficulty in attracting high quality international investors. Then
having been valued at $800 billion, the refineries were sold off during
Obasanjo's last days in office in May 2007 for a paltry $500 million to
a consortium close to the president called Bluestar Oil Service Limited.
The ensuing protests which contributed to a June national strike saw
Bluestar withdraw from the deal and its money refunded.

The privatisation process of the downstream oil and gas industry has
seen strong opposition from labour groups over the absence of due
diligence^3 <http://www.brettonwoodsproject.org/art-561198#fn003> . The
government is heavily criticised for its willingness to sell state
assets without ensuring the development of national refining capacity,
which would eventually remove the need to import much of the refined
petroleum products that Nigeria consumes. The federal government spent a
total of $18.6 billion from 2000-2006 to import refined petroleum
products. Oil workers have said that the amount spent on the importation
of refined products could build at least six new refineries across the
country. The failure to develop refining capacity favours the few elites
who benefit from the monopoly that they hold a monopoly over refined oil
imports. The Nigerian Labour Congress (NLC) requested that the Bureau of
Public Enterprises (set up to oversee the privatisation process) make
public the studies carried out by the consultants Credit Swiss First
Boston and BNP Paribas in order to establish the estimated reserve
prices for the refineries upon which their sale was eventually based.
The NLC questioned the methods of calculation employed by the
consultants which it estimated seriously undervalued the refineries.

The sale of the Eleme Petrochemicals plant, in Port Harcourt, was a
structural reform of the PSI in October 2005. The plant is the largest
of its kind on the continent. National newspapers report that it was
sold for approximately $225 million to the Nigerian subsidiary of the
Indonesian firm, Indorama Group. The National Union of Petroleum and
Natural Gas Workers described this amount as "not worth the spare parts
available at the plant".^4
<http://www.brettonwoodsproject.org/art-561198#fn004> The IFC provided a
loan of $75 million and mobilised another $80 million from commercial
lenders. The Eleme takeover took place following a presidential
directive to commission it. Informal reports state that following the
Nigerian National Petroleum Company's (NNPC) refusal to hand over the
plant on orders from the Presidency, troops took it by force. Following
the assessment of a government committee on staffing needs, staff
strength was then reduced from 1000 to 296. A memorandum of
understanding between the government and Bureau and Public Enterprises
(set up to oversee the privatisation process) apparently agreed that
state assets should be sold at the ratio of 51/49 per cent. However,
Indorama was given a 75 per cent equity stake in the case of Eleme. In
Febuary 2007, Rashad Kaldany, IFC's director of Oil, Gas, Mining and
Chemicals stated "We hope that the successful privatisation and
turnaround of Eleme will attract further private investments in
Nigeria's petrochemicals industry and pave the way for a major
transformation of this sector".

The controversial sale of the Egbin power station to Korea Power
Corporation and Energy Resources Limited for an under-priced N 280
million (approximately $2 million) was protested by the National Union
of Electricity Employees for the lack consultation with stakeholders and
workers. Egbin is the largest generating station operated by the Power
Holding Company of Nigeria and is being privatised through an
international competitive tender as one of the unbundled units of the
Bank-supported privatisation process.


    Failed gas sector reforms

The Bank has been a driving force in terms of technical assistance for
reform of Nigeria's gas sector. International oil companies have played
a major but entirely secret role in formulating the Bank-supported
strategy on reform of the sector. The World Bank provided assistance to
the Nigerian government to come up with a national gas strategy^5
<http://www.brettonwoodsproject.org/art-561198#fn005> by financing and
supervising two major studies in 2004, the Nigeria strategic gas plan
and Nigerian LP gas sector improvement study. The former was carried out
by IHS Energy group based in Washington, Houston and London and the
latter by C.I Services Limited of Ireland.

However, the Bank-supported gas master plan for Nigeria has so far
failed to achieve many of its main objectives, including the elimination
of harmful gas flaring by 2008. Despite reductions, Nigeria is still
rated as the world's biggest gas flarer . Most of the gas in the Delta
is produced during the process of oil extraction, otherwise known as
associated gas. It is one of the most difficult and expensive gas
sources to harness and therefore there is no incentive for oil companies
not to flare it. The practice has been carried out for over 40 years,
exposing Niger Delta communities to catastrophic livelihood damage.
Despite various rulings by the Nigerian authorities since 1984 all the
major multinational oil companies who operate in Nigeria flare gas^6
<http://www.brettonwoodsproject.org/art-561198#fn006> . The latest
deadline for phase-out by end 2008 will not be met.

The World Bank is providing a total of $125 million in risk guarantees
to the West Africa Gas Pipeline (WAGP) project, which involves a 680
kilometer transport system designed to carry natural gas from Nigeria to
markets in Benin, Togo and Ghana (see Update 57). A claim to the Bank's
Inspection Panel by affected communities from the area argues that
project violates Bank policies, including those on environmental impact
assessment and public consultation. Communities say the Bank has failed
to demonstrate how the project will reduce gas flaring or bring benefits
to them. The Bank counters that 60 per cent of the gas to supply the
WAGP would be associated gas that would be otherwise flared. Nigerian
NGO Environmental Rights Action points out that there is no evidence of
the construction of an associated gas gathering facility that would make
it feasible for WAGP to utilise associated gas that is currently flared.


    Energy poor

The Nigerian Electricity Regulatory Commission (NERC) has the legal
power to put in place life line tariffs and to discriminate in favour of
essential services such as hospitals. Yet questions remain over its
political strength. In August 2007 the commission called on the
government to provide subsidies, without which electricity would be
unaffordable for millions of Nigerians. However the Bank stated that in
order to achieve full cost recovery with an adequate profit margin, the
"reasonable average tariff" should be about 30 per cent higher than the
one currently in operation ^7
<http://www.brettonwoodsproject.org/art-561198#fn007> . This contradicts
the Bank's own Joint Staff Advisory Note on the progress report for
NEEDS, of June 2007 which states "it will be important to establish
electricity tariffs which allow cost recovery, while introducing
adequate measures to protect vulnerable groups"^8
<http://www.brettonwoodsproject.org/art-561198#fn008> .

The minority of Nigerians connected to the electric grid suffer from
frequent and unpredictable black outs. Many parts of the country go for
days without access. Power is often rationed, meaning that communities
receive electricity only on alternate days, and rarely for the full day
when they do. Bills are generally issued on the basis of arbitrary
estimates, often charging consumers for much more than they have
consumed. Mass disconnections of entire communities are common, on the
grounds that some households in the area have been facilitating illegal
tapping or refusing to pay their bill. This obliges all those affected
to either pay a hefty bribe and/or reconnection fee. Often out of
desperation to access a supply of energy that many simply can not
afford, illegal tapping, vandalisation of power lines and non-payment of
bills is common. Power outages across the country have had a dire impact
on essential services such as hospitals and schools as well as small
businesses. Those who can afford to rely on generators, which are
cumbersome and extremely expensive to run.

Rural electricity access in Nigeria is less than 20 per cent^9
<http://www.brettonwoodsproject.org/art-561198#fn009> . Most rural
populations are off-grid and almost wholly reliant on wood fuel for
domestic needs. Wood is usually collected by women who walk up to eight
hours per day to find it. Nearly two-thirds of Nigeria's energy
consumption is from traditional burning of fuel wood and agricultural
wastes. Any rural electrification that does exist tends to be thanks to
diesel generators^10
<http://www.brettonwoodsproject.org/art-561198#fn0010> . However diesel
fuel must often be carried over long distances, through unpaved roads,
which is difficult during the rainy season.

According to the Bank, in a country with over 130 million people,
Nigeria's electricity utility company has only 4.6 million customers ^11
<http://www.brettonwoodsproject.org/art-561198#fn0011> . One connection
is shared by numerous customers. In 2005 technical losses in the
transmission and distribution system were as high as 40 per cent. A
large part of the transmission system suffers from extensive vandalism
and inadequate maintenance. Power generation facilities are in poor
shape whilst distribution networks are poorly maintained and
inefficiently operated, hence the difficulty in moving power from
generation to consumption points. Statistics on electricity access, and
grid capacity and output vary ^12
<http://www.brettonwoodsproject.org/art-561198#fn0012> but the second
NEEDS report cites installed generation capacity at 6,000 MW, but with
available energy output at only 3,000 MW, less than 30 per cent of the
demand, currently estimated to be at 10,000 MW.^13
<http://www.brettonwoodsproject.org/art-561198#fn0013>


    Fuel price hikes

The IMF has consistently advised the Nigerian government to remove
domestic subsidies on petroleum products (and other essential goods and
services), to bring costs in line with 'international levels'. The
proposed 10 Naira increase per litre of petroleum products was a key
factor in the three day national strike that took place in June 2007. A
study by the Nigerian Labour Congress shows that petroleum products'
prices are by far the highest in Nigeria, in some cases by as much as
fifteen times when compared to its fellow OPEC member countries. By the
time Obasanjo left office, the pump price of fuel had increased fivefold
since 1999.

The rise in the cost of domestic fuel has an almost immediate knock on
effect on the cost of food, transport and other essential services.
Coupled with massive devaluations of the Naira against the dollar and
rising oil prices, increases in the cost of petroleum products
(kerosene, diesel and PMS) has raised the cost of living beyond the
reach of many average families. In direct correlation, the majority of
poor people, particularly in rural areas who were dependent on kerosene
for their livelihoods have increasingly turned to wood fuel, or coal.
This is having serious implications both for deforestation, and poverty.
In urban areas wood fuel or coal is often impracticable, and the poor
are forced to spend the majority of their earnings on kerosene.


    Renewables and rural electrification

At a policy level significant developments have been made in renewable
energy and rural electrification. However in practise progress appears
to have been virtually non-existent. The current contribution of
renewable energy is about 0.6 per cent of total electricity generation
capacity.^14 <http://www.brettonwoodsproject.org/art-561198#fn0014>

Positive developments are largely based on the recent Renewable energy
master plan (2006). The 2005 Electric Power Sector Reform act which was
central to the NEDP also emphasised the role of renewable electricity,
especially for remote and rural areas. The third component of the NEDP
provides support for the expansion of renewable energy, though
financially it constitutes a small part of the total budget when
compared to the transmission component. A 2005 Global Environment
Facility project grant is co-financing technical assistance for this
renewable energy component.^15
<http://www.brettonwoodsproject.org/art-561198#fn0015>

To date renewable electricity has not been part of the national power
planning process, and any plans that did exist were based exclusively on
grid extension^16 <http://www.brettonwoodsproject.org/art-561198#fn0016>
. By 2005 there were 1,500 incomplete rural electrification projects,
which would need an estimated $300 million to complete them all.

The NEDP states that the project "will begin to address barriers to the
expanded use of renewable energy technologies, by creating an enabling
environment for grid-connected and off-grid renewable energy sources".
However, the renewable electricity guidelines identify a number of
barriers for renewable energy in Nigeria, including: perceived risk by
bankers who still prefer high-reward large-scale conventional
electricity investments; absence of Nigerian manufacturing capacity for
components of renewable energy technologies such as turbines; and supply
chain constraints such as high import tariffs.

The IFIs have been criticised for their willingness to ignore the
embezzlement of public funds by Nigerian authorities; their disregard
for due process in the projects and policies that they support; their
failure to meaningfully engage with civil society; and for their
facilitating role in perpetuating the conditions that enable companies
operating in the Niger Delta to maintain a monopoly over the country's
natural resources. The Nigerian case adds weight to critical analyses of
World Bank and IMF energy sector reform programmes. The IFIs have pushed
centralised, grid-based models, and a framework based on utility
privatisation and private public partnerships, which so far have failed
to effectively provide pro-poor energy.

1. <http://www.brettonwoodsproject.org/art-561198#fn001ref> See National
energy develoment project, World Bank (2005:7).

2. <http://www.brettonwoodsproject.org/art-561198#fn002ref>
Okonjo-Iweala, Ezekwesili Face Reps Today
<http://allafrica.com/stories/200803270500.html>Leadership, (27 March 2008).

3. <http://www.brettonwoodsproject.org/art-561198#fn003ref> See
Independent report on the review of petroleum products supply and
distribution in Nigeria, Nigeria Labour Congress, (2000).

4. <http://www.brettonwoodsproject.org/art-561198#fn004ref> Controversy
trails handover of eleme complex
<http://allafrica.com/stories/200608080352.html>, Vanguard, Lagos (7
August 2006).

5. <http://www.brettonwoodsproject.org/art-561198#fn005ref> Nigeria
strategic gas plan, Joint UNDP/World Bank Energy Sector Management
Assistance Programme, (2004:3).

6. <http://www.brettonwoodsproject.org/art-561198#fn006ref> See
http://www.climatelaw.org/cases.

7. <http://www.brettonwoodsproject.org/art-561198#fn007ref> Public
financing of a power sector in transformation, World Bank, (2007:151),
from Nigeria, a fiscal agenda for change. Public Expenditure Management
and Financial Accountability Review (PEMFAR), Poverty Reduction and
Economic Management 3 Country Department 12, Africa Region, 2007.

8. <http://www.brettonwoodsproject.org/art-561198#fn008ref> Joint staff
advisory note on the progress report for NEEDS, (2007:7).

9. <http://www.brettonwoodsproject.org/art-561198#fn009ref> Renewable
electricity policy guidelines, Federal Ministry of Power and Steel,
written by International Centre for Energy, Environment and Development,
(2006).

10. <http://www.brettonwoodsproject.org/art-561198#fn0010ref> Renewable
energy for rural industrialisation and development in Nigeria, UNIDO /
Energy Commission of Nigeria, (2003).

11. <http://www.brettonwoodsproject.org/art-561198#fn0011ref> Nigeria, a
fiscal agenda for change, (PEMFAR), World Bank, (2007).

12.
<http://www.brettonwoodsproject.org/art-561198#fn0012ref>"Electricity
supply: long, nauseating wait for improvement", the Nigerian Guardian, 6
August 2007.

13. <http://www.brettonwoodsproject.org/art-561198#fn0013ref>NEEDS-2
Chapter 17 Physical Infrastructure: Energy (2007:210).

14. <http://www.brettonwoodsproject.org/art-561198#fn0014ref>Renewable
electricity policy guidelines, Federal Ministry of Power and Steel,
written by ICEED (2006:6).

15. <http://www.brettonwoodsproject.org/art-561198#fn0015ref>NEDP World
Bank (2005:50).

16. <http://www.brettonwoodsproject.org/art-561198#fn0016ref> Renewable
Electricity Policy Guidelines, Federal Ministry of Power and Steel,
written by ICEED, (2006:3).