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Nigeria’s oil and gas sector reform set to become law

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Last week, both chambers of Nigeria’s parliament passed the long-awaited Petroleum Industry Bill (PIB), which will enter into law once it receives presidential sign-off, which is expected to follow in the coming weeks. Significant reform of the oil and gas sector has been under consideration for well over a decade, and the new bill contains important provisions to generate much-needed investment and revitalize Nigeria’s energy sector, writes Colin Stevens.

The urgency of the reforms has never been greater, as a result of Nigeria’s reliance on the oil and gas sector for foreign exchange earnings and Government revenue (representing 90% and 60% respectively). As private sector investment globally is increasingly channelled into cleaner energy sources, the pool of available investment is shrinking, compounded by the global pandemic. However, for a country such as Nigeria, which has the second largest oil reserves on the continent, to transition away from fossil fuels, significant investment is needed in order to support the development of infrastructure and human capital.

Current administration’s commitment to reform

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As a result, President Muhammadu Buhari’s administration has made passing this bill a key priority this term, addressing the roadblocks which, according to a KPMG report, have previously prevented its passing in 2008, 2012 and 2018. The current bill seeks to introduce changes to royalty arrangements and fiscal terms to appease foreign oil producers, as well as address the concerns of the communities where oil is extracted. Foreign oil producers such as Chevron, ENI, Total and ExxonMobil, have all stated that billions of dollars’ worth of investment have been held up due to the slow progress of the bill, providing confidence for local stakeholders that the passage of the bill will lead to a wave of investment.

Another key roadblock which the current administration has managed to navigate was the stance of host communities, who had previously been side-lined during the process and sought to block the Bill’s passage. The Petroleum Host Community Development (PHCD) attempts to address their concerns by providing direct social and economic benefits from petroleum operations to host communities, and creating a framework to support sustained development, via the creation of a Trust, through which communities will claim a 3% share of regional oil wealth generated through production.

Governance reforms

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The need for governance reforms has also frequently been cited as an impediment to inward investment in the sector. Under the new Bill, the existing Nigerian National Petroleum Corporation (NNPC) will transition from a state-owned to a limited liability company, allowing for greater transparency and efficiency. Formal segmentation of the industry into the upstream and mid- and down-stream sectors, with separate regulators, will also allow for clearer oversight. The passage of the bill has been welcomed by the country’s Centre for Transparency Advocacy, which called it “a positive step” towards a reformed energy industry.

Preparing for the energy transition

Before the Bill was approved, commentators were calling for more provisions which explicitly address climate change concerns and pave the way for diversification into sustainable energy production. Environmental provisions including the establishment of remediation funds and requirement for environmental management plans are positive steps, however they only meet, and do not exceed, baseline international standards, and are therefore not seen as sufficiently ambitious.

However, there is clear potential for the Petroleum Investment Bill to generate significant government revenue, which can then be invested in the renewables sector. Initiatives such as the government’s solar power plan, which will see 2.3 trillion naira (approximately €4.7 billion) of the COVID economic recovery fund dedicated to installing five million solar systems, demonstrate a willingness to invest in low-carbon energy production.

The result of these reforms, which to a large extent respond to the major criticisms levelled at Nigeria’s oil and gas sector over recent decades, is increased clarity for potential investors. When coupled with the opening up of the global economy, and a wider commitment to infrastructure investment and sustainable energy initiatives, the passing of the PIB bodes well for Nigeria.

Electricity interconnectivity

Commission approves Greek measures to increase access to electricity for PPC's competitors

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The European Commission has made legally binding, under EU antitrust rules, measures proposed by Greece to allow the competitors of Public Power Corporation (PPC), the Greek state-owned electricity incumbent, to purchase more electricity on a longer-term basis. Greece submitted these measures to remove the distortion created by PPC's exclusive access to lignite-fired generation, which the Commission and Union courts had found to create an inequality of opportunity in Greek electricity markets. The proposed remedies will lapse when existing lignite plants stop operating commercially (which is currently expected by 2023) or, at the latest, by 31 December 2024.

In its decision of March 2008, the Commission found that Greece had infringed competition rules by giving PPC privileged access rights to lignite. The Commission called on Greece to propose measures to correct the anti-competitive effects of that infringement. Due to appeals at both the General Court and European Court of Justice, and difficulties with the implementation of a previous remedies submission, such corrective measures have not been implemented so far. On 1 September 2021, Greece submitted an amended version of the remedies.

The Commission has concluded that the proposed measures fully address the infringement identified by the Commission in its 2008 Decision, in light of the Greek plan to decommission all existing lignite-fired generation by 2023 in line with Greece's and the EU's environmental objectives. Executive Vice President Margrethe Vestager, in charge of competition policy, said: “The decision and the measures proposed by Greece will enable PPC's competitors to better hedge against price volatility, which is a vital element for them to compete in the market for retail electricity and offer stable prices to consumers. The measures work hand in hand with the Greek plan to decommission its highly polluting lignite-fired power plants by discouraging the usage of these plants, fully in line with the European Green Deal and the EU's climate objectives.”

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A full press release is available online.

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Biofuels

Commission approves one-year prolongation of tax exemption for biofuels in Sweden

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The European Commission has approved, under EU state aid rules, the prolongation of the tax exemption measure for biofuels in Sweden. Sweden has exempted liquid biofuels from energy and CO₂ taxation since 2002. The measure has already been prolonged several times, the last time in October 2020 (SA.55695). By today's decision, the Commission approves an additional one-year prolongation of the tax exemption (from 1 January to 31 December 2022). The objective of the tax exemption measure is to increase the use of biofuels and to reduce the use of fossil fuels in transport. The Commission assessed the measure under EU State aid rules, in particular the Guidelines on State Aid for environmental protection and energy.

The Commission found that the tax exemptions are necessary and appropriate for stimulating the production and consumption of domestic and imported biofuels, without unduly distorting competition in the Single Market. In addition, the scheme will contribute to the efforts of both Sweden and the EU as a whole to deliver on the Paris agreement and move towards the 2030 renewables and CO₂ targets. The support to food-based biofuels should remain limited, in line with the thresholds imposed by the revised Renewable Energy Directive. Furthermore, the exemption can only be granted when operators demonstrate compliance with sustainability criteria, which will be transposed by Sweden as required by the revised Renewable Energy Directive. On this basis, the Commission concluded that the measure is in line with EU state aid rules. More information will be available on the Commission's competition website, in the State Aid Register under the case number SA.63198.

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Energy

Biden administration aims to cut costs for solar, wind projects on public land

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Solar panels are seen at the Desert Stateline project near Nipton, California, U.S. August 16, 2021. REUTERS/Bridget Bennett
Solar panels are seen at the Desert Stateline project near Nipton, California, U.S. August 16, 2021. Picture taken August 16, 2021.  REUTERS/Bridget Bennett

The Biden administration plans to make federal lands cheaper to access for solar and wind power developers after the clean power industry argued in a lobbying push this year that lease rates and fees are too high to draw investment and could torpedo the president's climate change agenda, write Nichola Groom and Valerie Volcovici.

Washington’s decision to review the federal land policy for renewable power projects is part of a broader effort by the government of President Joe Biden to fight global warming by boosting clean energy development and discouraging drilling and coal mining.

“We recognize the world has changed since the last time we looked at this and updates need to be made,” Janea Scott, senior counselor to the U.S. Interior Department’s assistant secretary for land and minerals, told Reuters.

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She said the administration is studying several reforms to make federal lands easier for solar and wind companies to develop, but did not give specifics.

The push for easier access to vast federal lands also underscores the renewable energy industry’s voracious need for new acreage: Biden has a goal to decarbonize the power sector by 2035, a target that would require an area bigger than the Netherlands for the solar industry alone, according to research firm Rystad Energy.

At issue is a rental rate and fee scheme for federal solar and wind leases designed to keep rates in line with nearby agricultural land values.

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Under that policy, implemented by the administration of President Barack Obama in 2016, somemajor solar projects pay $971 per acre per year in rent, along with over $2,000 annually per megawatt of power capacity.

For a utility-scale project covering 3,000 acres and producing 250 megawatts of power, that is a roughly $3.5 million tab each year.

Wind project rents are generally lower, but the capacity fee is higher at $3,800, according to a federal fee schedule.

The renewable energy industry argues the charges imposed by the Interior Department are out of sync with private land rents, which can be below $100 per acre, and do not come with fees for power produced.

They are also higher than federal rents for oil and gas drilling leases, which run at $1.50 or $2 per year per acre before being replaced by a 12.5% production royalty once petroleum starts to flow.

"Until these overly burdensome costs are resolved, our nation will likely miss out on living up to its potential to deploy homegrown clean energy projects on our public lands — and the jobs and economic development that come with it," said Gene Grace, general counsel for clean energy trade group American Clean Power Association.

The renewable energy industry has historically relied on private acreage to site large projects. But big tracts of unbroken private land are becoming scarce, making federal lands among the best options for future expansion.

To date, the Interior Department has permitted less than 10 GW of solar and wind power on its more than 245 million acres of federal lands, a third of what the two industries were forecast to install nationwide just this year, according to the Energy Information Administration.

The solar industry began lobbying on the issue in April, when the Large Scale Solar Association, a coalition of some of the nation’s top solar developers - including NextEra Energy, Southern Company and EDF Renewables - filed a petition with Interior’s Bureau of Land Management asking for lower rents on utility-scale projects in the nation’s blistering deserts.

A spokesperson for the group said the industry initially focused on California because it is home to some of the most promising solar acreage and because land around major urban areas like Los Angeles had inflated assessments for entire counties, even on desert acreage not suitable for agriculture.

Officials at NextEra (NEE.N), Southern (SO.N), and EDF did not comment when contacted by Reuters.

In June, the Bureau lowered rents in three California counties. But solar representatives called the measure insufficient, arguing the discounts were too small and that the megawatt capacity fee remained in place.

Attorneys for both the solar companies and BLM have discussed the issue in phone calls since, and further talks are scheduled for September, according to Peter Weiner, the attorney representing the solar group.

"We know that the new folks at BLM have had a lot on their plates," Weiner said. "We truly appreciate their consideration."

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