• UN, IRENA, SEforALL canvass options, halt in $15.7b petrol subsidies
• Asking Africa to borrow for energy transition, futile exercise, says UNDP
• Nigeria may push 1% of oil fund to clean energy, says Prof. Bala
• Stakeholders divided as cost of borrowing skyrockets
The question of pushing African countries, especially Nigeria, to borrow more money to finance energy transition amidst distressed economic indexes and continued romance with fossil fuels subsidy was raised yesterday, as global leaders weigh challenges in energy transition.
What becomes of the current 37 billion barrels of crude oil reserves and 206 trillion standard cubic feet of gas in Nigeria and those of other African countries and economic planning that still prioritises these resources also created serious concerns for energy and economic experts visa vis rising population and poverty.
At the 13th Assembly of the International Renewable Energy Agency (IRENA), which ended yesterday in Abu Dhabi, United Arab Emirates (UAE), the United Nations and Sustainable Energy for All (SEforALL) were specifically worried about the plight of Africa as they seek a balance between asking Africa to borrow money to transit to cleaner energy with the rest of the world or continue to use their existing resources.
By May this year, Nigeria’s debt is projected at N77 trillion ($171.2 billion). Reportedly, public debt has doubled in Africa since 2010, standing at 65 per cent of Gross Domestic Product in 2022. It was only 32.7 per cent in 2010.
This is coming at a time when the cost of borrowing is rapidly increasing as rising interest rates cause more complications for many African countries that are unable to issue Eurobonds, while refinancing costs have doubled with an average increase of 600 basis points and up to 1800 basis points in others.
The Overseas Development Institute had noted that $140 billion of Eurobonds and an average maturity of 10 years, meant that refinancing costs of 600 basis or six per cent would see interest costs amount to $8.4 billion yearly or $84 billion in total over the life of the bonds. This represents 0.3 per cent of Africa’s yearly GDP and, given that Eurobonds average 30 per cent of total debt, the overall cost of increased debt servicing will be a painful one per cent of GDP each year, the think tank noted.
While the International Monetary Fund (IMF) had said the Nigerian government may spend nearly 100 per cent of its revenue on debt servicing alone by 2026, Nigeria is pitching an Energy Transition Plan of $1.9 trillion and Renewable Energy Road Map of 1.22 trillion. At the same the country is spending about $15.7 billion on subsidies for premium motor spirit.
Indeed, the United Nations Secretary-General, António Guterres said energy transition investment must triple to $4 trillion a year despite the global energy crisis exacerbated by COVID-19 and the war in Ukraine.
Director of SEforAll, Damilola Ogunbiyi at the event insisted that the unique situation of countries, especially in Africa must be put in context, arguing that the countries are still facing energy access challenges and could mean that they could start from clean energy options instead of discussion on transition.
“You can’t ask people to transition to nothing. We have the opportunity to make sure the energy they are getting is clean from the start. We don’t need to talk about transition because we are starting from the base.
Administrator of the United Nations Development Programme, Achim Steiner said if the world would deal with the problem of slow transition, especially in Africa, the question of finance would have to be critically considered.
Worried that Africa is heavily indebted, he said: “Asking Africa to borrow more to finance climate change is a futile exercise.”
He called for a private sector-focused investment policy that will allow domestic and international investors to drive climate change financing.
Admitting that phased reduction in petrol subsidy could be adopted to assuage the impacts of outright removal on the economy and the people, Steiner described Nigeria’s subsidy regime as irrational.
To save the planet, countries across the world, including Nigeria have committed to net-zero goals but prevailing development, especially COVID-19 and the Ukraine war have thrown global projections off balance with serious energy and supply chain disruption.
But IRENA’s Director-General Francesco La Camera and other key leaders insisted that plans must remain on track and in fact, accelerate to ensure 1.5°C by 2050.
Ahead of COP28, La Camera hinted that global leaders may have to rejig existing co-operations and find more workable leeway that would ensure quicker results in achieving climate change targets.
MEANWHILE, Director General of the Energy Commission of Nigeria (ECN), Eli Bala said the Federal Government is being approached to dedicate one per cent of earnings from oil and gas into development of clean energy.
According to him, a bill on the development is already in the pipeline and would become a step towards a clean energy economy for Nigeria if passed into law.
Bala, who expressed worries over subsidies for fossil fuel said, the government would be investing sustainably if such funding is diverted to renewable energy.
Chairman of Ghana National Petroleum Corporation, Prof. Wunmi Iledare said borrowing to transit “is a no go area,” adding, however, that energy transition would happen and continue to gain traction.
Iledare, who commended Nigeria for talking and walking around its options for energy transition was also in support for Nigeria to continue the search for crude oil on the claim that energy transition is not absolute zero emissions but a net zero target.
“There is also a global understanding that 2050 is a moving target because the transition speed differs across the globe. For Nigeria, since transportation fuel is the biggest source of carbon emissions, petroleum subsidies must be removed as part of the plan to reduce consumption. Additionally, borrowing money to transit is not advisable, as a lot of money has been borrowed to subsidise petroleum.
“Debt is unjustifiable unless it is for infrastructure development for sustainable development. The mother of entitlement is expectation without effort. I am glad there is a transition plan but sad there is even a thought process to borrow money to transit! It is a no go area more so when the current level of emissions in Nigeria is miniscule,” he said.
Former President of the Society of Petroleum Engineers and Partner at Zera Advisory and Consulting, Joseph Nwakwue insisted that while borrowing may remain an option for Nigeria, borrowing to finance energy transition would be a misplaced priority.
According to him, the country has a huge infrastructure deficit that is more compelling to finance to help Nigeria’s competitive position as an oil producer or any other economy.
Unless the development projects are transition related, Nwakwue said: “We will not specifically borrow for energy transition at this point. We have a lot more to do than transit from fossil fuel.”
Source: Guardian.ng