For this article, I will mostly be concentrating on the policy measures taken by the government of Nigeria, to develop its Oil and Gas industry and the Power sector since the return of democracy, but first a bit of prehistory.
Nigeria’s economic trajectory took a radical turn with the discovery of oil in Oloibiri, Bayelsa state. Actual production, marketing and exportation started two years after in 1958, two years prior to the nation gaining independence in 1960.
Oil exports would soon become Nigeria’s number one foreign exchange earner, which though enabling a rapid expansion of infrastructure and institutions, also gravely undermined the Nigerian economy, as it led to a severe case of Dutch disease, as there was no real effort to diversify the economy and push through a much needed industrialization programme. For much of the period between the discovery of oil in 1956 and 1970, official policy mainly focused how to collect and harvest revenue from the proceeds arising from the exploration, production and export of crude oil with at least exploration and production being carried out by the multinational oil companies.
In 1971, Nigeria joined the Organization of Petroleum Exporting Countries (OPEC). The Nigerian National Oil Company (NNOC) was also set up in that year. The NNOC was designed to encourage the emergence of an indigenous oil company, capable of catalyzing the production of indigenous capability, skills, innovation, and to mobilize indigenous investment to produce crude oil from Nigerian resources. In this NNOC failed.
NNOC’s failure to achieve the mandate set before it led the Nigerian government to set up the Nigerian National Petroleum Corporation (NNPC) in 1977. NNPC was formed from the merger of the NNOC and the then Ministry of Petroleum Resources under Decree No. 33. A key feature of its setup was a joint venture with the multinational oil companies, which include Royal Dutch Shell, Agip, ExxonMobil, TotalEnergies, and Chevron.
Part of the rationale for setting up the joint venture was to enable technology transfer to take place between the multinational oil companies and NNPC. That largely did not happen. NNPC was largely relegated to simply collecting oil rents for the Nigerian government. Meaningful technology transfer did not begin to take place until 2004.
With reintroduction of democracy in 1999, there was a recognition of the need for urgent reform. Most salient were the were the needs for deregulating the downstream oil sector, the restructuring of NNPC, the promotion of indigenous participation through the enactment of local content laws and the passing of the Petroleum Industry Bill (PIB).
The year 2004 saw the beginning of what is often referred to as “Era of Active Involvement” in Nigeria’s oil industry. This refers to the beginning of meaningful technology transfer between the multinational oil companies and NNPC. This would finally lead to the passage of the Nigerian Oil and Gas Industry Content Development Act in 2010. The Act was meant to formally usher in a new era of indigenous participation in the Oil and Gas industry. Since its passage, the Act has facilitated Joint Venture agreements that has enabled NNPC to exposure to technical processes, project management, and risk mitigation strategies. Joint ventures now often include training programs, technical workshops, and on-the-job learning for Nigerian engineers and technicians. This has helped build local capacity in areas like reservoir modeling, seismic interpretation, and in Floating Production Storage and Offloading (FPSO) operations. Technology transfer however, has been limited to operational support, without full access to proprietary technologies and limited transfer of upstream innovation and R & D capacity.
A preliminary draft of the PIB was produced in 2008. The draft bill sought to unify and modernize oil and gas legislation. There would be a delay of more than 10 years in passing the bill, as the Oil and Gas sector continued to be plagued by inefficiencies, oil theft, and underinvestment. Finally, in 2021, the Petroleum Industry Act (PIA) was signed into law. The Act created two new regulators, Nigerian Upstream Petroleum Regulatory Commission (NUPRC), and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA). The Act also introduced a host of fiscal reforms in including the restructuring of the NNPC from a government parastatal into commercial entity, though still fully owned by government.
The year 2022, saw the launch of the “Decade of Gas initiative”, which aims to position Nigeria as a gas-powered economy by 2030. This has led to a shift in focus to gas commercialization, with policies encouraging domestic gas use and infrastructure development.
With the return of democracy, the Obasanjo administration wasted no time in setting up the Power Sector Reform Implementation Committee in 1999. By 2001, the Federal Government approved a National Electric Power Policy (NEPP). The policy set out the principles and steps required to create an enabling regulatory framework to restructure the industry and facilitate more investments into the sector. In summary, NEPP sought to:
- Unbundle the National Electric Power Authority (NEPA)
- Privatize the unbundled entities
- Establish a regulatory agency
- Establish a rural electrification agency fund
- Establish a power consumer assistance fund
NEPP became the key input of the Government to reform the industry and the bill that was passed by the National Assembly for the path-breaking reform in the industry.
The power sector reform bill emerged from NEPP was approved by the Federal Government in 2001. The result was the landmark reform in the electricity industry in Nigeria which was embodied in the Electric Power Sector Reform Act (EPSRA) of 2005. EPSRA, which paved the way for the deregulation and the liberalization of the electricity market in Nigeria, had as its main objectives:
- Deregulation and the liberalization of the electricity market in Nigeria
- Establishment of the Power Holding Company of Nigeria (PHCN), which served as a holding company for the seven generation companies, one transmission company, and eleven distribution companies that emerged from the unbundling of NEPA, with a view to encouraging private sector investment into the unbundled companies.
- Establishment of a regulatory agency, the Nigerian Electricity Regulatory Commission (NERC)
- Establishment of a rural electrification agency
- Establishment of rural electrification fund
One of the more significant acts carried out by NERC was the introduction of the Multi Year Tariff Order (MYTO) in 2008. MYTO is a framework for determining the pricing structure for the Nigerian Electricity Supply Industry (NESI).
It was recognized that human resources development was a key aspect of meeting power sector objectives. Towards this end, the Ministry of Power established the National Power Training Institute of Nigeria (NAPTIN) in 2009. This was quickly followed on the heels with the formation of the Presidential Task Force on Power, and the launch of the Roadmap for Power Sector Reform the following year.
In 2013, a major milestone was achieved with the privatization of the generation companies (GenCos) and distribution companies (DisCos) that were unbundled from NEPA. The Transmission Company of Nigeria, was retained under government control.
In 2015, another important milestone was achieved with the launch of the Transitional Electricity Market (TEM). The TEM was designed to shift the industry from a state-controlled monopoly to a competitive, contract-based market. The TEM has met with implementation challenges chiefly in the form of non-cost reflective tariffs, which lead to revenue shortfalls and losses (both technical and commercial) which tend to dampen investor confidence. A new version of the pricing model MYTO 2.1 was also released that year but it faced a public backlash, and thus had to be amended. Despite the evolution towards a more market-friendly regime, issues like grid instability, gas supply disruptions, and sector-wide debt accumulation, continued to plague the sector in the ensuing years.
In 2023, the Electricity Act 2023 passed, marking a major shift. Key features of the Act include:
- Decentralized electricity regulation, allowing states to create independent power markets
- Enabled cross-border electricity trading within the West African Power Pool (WAPP). WAPP is a specialized agency of the Economic Community of West African States (ECOWAS), created to integrate national power systems into a unified regional electricity market.
- Promotion of renewable energy integration and off-grid solutions
The year 2025 saw the introduction of the National Integrated Electricity Policy (NIEP). NIEP is meant to be a replacement for the outdated NEPP of 2001. It is also meant to transform the electricity sector in line with the Electricity Act of 2023 and serves as a comprehensive roadmap for sustainable, inclusive, and modern energy development. Key features of NIEP include:
Universal Access: – Expand electricity access to underserved and rural communities.
Reliable Supply: – Improve generation, transmission, and distribution infrastructure.
Healthy Capitalization: – Ensure financial sustainability across the electricity value chain.
Renewable Integration: – Promote clean energy adoption and climate resilience.
Regulatory Reform: – Strengthen oversight and transparency in the Nigerian Electricity Supply Industry (NESI).
State Electricity Markets: – Enable sub-national governments to develop and manage their own electricity markets.
Off-Grid Development: – Support mini-grids and distributed energy solutions for remote areas.
Despite the well –meaning and desirable developments, the power sector still faces some persistent challenges. These include:
- Frequent grid collapses
- Gas supply disruptions
- Over ₦2 trillion in sector-wide liabilities
- Weak revenue collection and metering gaps
Resolution of these challenges is a sine qua non for achieving sustainable electricity for all.
Bibliography
- Learning to run before walking
- Towards Sustainable Universal Electricity Access in Nigeria
