Abstract
This note presents developments in the Nigerien energy sector, its main challenges, and policy recommendations on improving access to energy by leveraging its nonrenewable resources and its abundant renewable energy potential.
This note presents developments in the Nigerien energy sector, its main challenges, and policy recommendations on improving access to energy by leveraging its nonrenewable resources and its abundant renewable energy potential.
A. Introduction
1. Niger has one of the lowest levels of energy production and consumption in the sub-region and the world. This low production level reflects its stage of economic development but also hinders prospective growth. Niger’s per capita energy consumption was 0.13 toe in 2009, about half of the sub-Saharan Africa average and as opposed to an African average of 0.5 toe. GDP per capita, at US$445.9 in 2013, is one of the lowest in the world. The population, estimated at 16 million and growing at around 3.9 percent per year (one of the fastest annual population growth rates in the world), implies huge infrastructure needs in the energy sector.
2. To address development needs in the energy sector, reforms are ongoing and projects under consideration. Niger is attempting to review the cost structure of the sector and charting a public-private partnership framework as a foundation for cooperation between the private and public sectors in upcoming energy projects. However, further institutional reforms are needed to enhance the incentives for private sector participation in the production of energy, in particular through improvement of the relations among the different players. This note first overviews the energy sector. Then, it considers the challenges before proposing possible avenues for reforms and development of the energy sector.
B. Overview of the Energy Sector
3. Access to electricity in Niger is limited so Nigeriens rely heavily on biomass for energy. A large majority of the population (about 84 percent) lives in rural areas where access to basic services like electricity is lacking. Less than 5 percent of the population uses liquefied petroleum gas (LPG) and the overall electricity access level is only 9 percent—urban access to electricity is almost 40 percent whereas access in rural areas is estimated at less than 1 percent.2 The electricity infrastructure, characterized by isolated grids, does not sufficiently satisfy an increasing potential demand and advance steps towards socioeconomic development. The energy mix is highly concentrated and dominated by biomass and wood fuel, and supplemented by petroleum, solar energy and coal.
Niger: Primary Energy Consumption by Source, 2010
(Percent of total)
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A004
Sources: EIA; and IMF staff calculations.Niger: Primary Energy Consumption by Source, 2010
(Percent of total)
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A004
Sources: EIA; and IMF staff calculations.Niger: Primary Energy Consumption by Source, 2010
(Percent of total)
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A004
Sources: EIA; and IMF staff calculations.4. Demand for electricity in Niger is expanding. Total electricity net consumption in Niger, (Figure 1) grew at a faster rate (9.2 percent) in 2011 than the total for all countries within the West African Economic and Monetary Union (WAEMU), Africa and the entire world. Of WAEMU countries, aggregate demand was highest in the Ivory Coast followed by Senegal, representing around 38.2 percent and 22.4 percent of total electricity consumed in the region in 2011, respectively. Over the 5-year period to 2011, average annual growth in net electricity consumption was highest in Burkina Faso (11.8 percent) followed by Niger (8.2 percent).
Niger: WAEMU: Total Electricity Net Consumption, 2007-11
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A004
Sources: EIA; and IMF staff calculations.Niger: WAEMU: Total Electricity Net Consumption, 2007-11
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A004
Sources: EIA; and IMF staff calculations.Niger: WAEMU: Total Electricity Net Consumption, 2007-11
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A004
Sources: EIA; and IMF staff calculations.5. Although total primary energy consumption has trended upwards, Niger has not become more energy intensive. Over the more than 3-decade period, spanning 1980 to 2011, total primary energy consumption, (Figure 2) has doubled whereas energy consumption per unit of GDP has fluctuated, highlighting the extent of Niger’s macroeconomic vulnerability. Even though commercial energies (petroleum products and electricity) account for only about 10 percent of the energy consumed, they play a major role in supporting economic growth and development. Furthermore this role is expected to increase with the development of the hydrocarbon potential for export. Households’ energy consumption, primarily for cooking, accounts for almost 90 percent of Niger’s total energy consumption, followed by transportation (9 percent) and industry, services and agriculture. Although the agriculture sector is the dominant industry in Niger, it absorbs less than 1 percent of primary energy consumed.
Niger: Energy Intensity versus Primary Energy Consumption, 1980-2011
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A004
Sources: EIA; and IMF staff calculations.Niger: Energy Intensity versus Primary Energy Consumption, 1980-2011
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A004
Sources: EIA; and IMF staff calculations.Niger: Energy Intensity versus Primary Energy Consumption, 1980-2011
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A004
Sources: EIA; and IMF staff calculations.6. The government is in the process of updating its energy policy. The current Energy Policy and Strategy was adopted by the government in 2004. Review of this document to ensure that its objectives are specific, measurable, achievable, realistic and time-bound (SMART) is ongoing. The government also plans to develop a long-term energy policy to steer the evolution of the sector, taking into account energy efficiency and the protection of the environment. Official responses to a questionnaire on energy efficiency—country diagnostic analysis—state that the government plans to increase the share of renewable energy in the national energy balance to 10 percent by 2020 (from less than 1 percent) in 2007; concomitantly, the share of biomass in the energy mix is expected to fall to 62 percent in 2020 (from 87 percent in 2007).3 With respect to grid access to electricity, the Accelerated Development and Poverty Reduction Strategy for 2008-2012 had aimed to raise the household access rate to 65 percent in the urban areas and 3 percent in the rural areas by the end of the program.
7. Niger’s recent discovery of oil has led to the creation of domestic refining capacity, helping to meet growing demand for fuel products. Commercial development of Niger’s crude oil resources began in 2011 with the commissioning of the SORAZ refinery in Zinder. The SORAZ refinery has a maximum capacity of 20,000 barrels per day of fuel, including gasoline, diesel and LPG, and is presently operating at 18,000 barrels per day. Domestic consumption is surging and supply is not always able to keep up with local demand, which has spiked with salary increases and automobile sales.
C. Challenges of the Energy Sector
Energy Subsidy Reform Experience
8. Energy price developments impact macroeconomic activity through various channels. Rising international oil prices can lead to inflation, fiscal deficits and external sector imbalances in oil-importing countries, with potential impact on GDP growth. The impact of oil prices on inflation is apparent when one considers the path of prices’ development and that of global oil prices. Higher fuel prices not only affect consumers directly through higher costs of transportation and electricity services but also indirectly through increasing manufacturing operating costs. With respect to the fiscal accounts, fuel tax receipts have been volatile, reflecting fluctuations in the price of oil on the international market and a rigid retail fuel pricing system, and indirect fiscal effects of spiraling international oil prices can be manifested through reduced tax buoyancy on account of a weaker domestic economy. The impact on the external accounts is mostly intuitive via higher outlays for oil imports and potentially increasing external debt based on the payment arrangements.
9. The impetus for reform in Niger was sustained fiscal revenue losses, but the process of reform has been lumpy. Given that Niger was a net petroleum importer up until recently, the government lost significant revenues on account of its policy to administer fuel prices and electricity rates. The net fiscal contribution of fuel taxes fell to 0.3 percent of GDP in 2010 from 1 percent of GDP in 2005. In addition there were business climate concerns such as energy efficiency and infrastructure investment to improve access, and environmental considerations like conservation incentives. While the government had made some progress with respect to establishing a transparent price build-up formula, retail fuel prices are still set administratively and electricity tariffs are decided in an ad hoc manner.
10. Niger initially adopted a nominal price band mechanism. IMF technical assistance from the Fiscal Affairs Department to Niger in 2001 facilitated the development of a fuel-pricing formula that allowed for the automatic pass-through of global prices to the domestic market. According to the established formula, the retail price would be adjusted monthly whenever the change in international prices exceeded CFAF 5. Otherwise, the price at the pump would not change and taxes would offset the intended increase or decrease in prices. The petroleum price structure broadly consists of ex-refinery or import costs (CIF prices at the border), net fuel taxes (ad valorem customs and value-added taxes and specific excise duties), and costs and margins of importing and distributing fuel to domestic consumers (storage and distribution margins).
11. An explicit subsidy was introduced in the formula in 2005 when international prices began to rise. The subsidy was meant to cushion the domestic economy from the destabilizing effects of price fluctuations, particularly the sharp increases, on the global market. Even during the period of rapidly increasing international oil prices that began in 2007 and peaked in July 2008, the subsidy component kept domestic prices fixed for an extended period.4 However, by 2010, adverse international price shocks and euro depreciation led to dwindling fuel tax receipts and external sector imbalances. Furthermore, an increase in smuggling into neighboring countries resulted from the artificially low prices in Niger. The government reviewed its general policy and adopted a more flexible retail fuel pricing system whereby international oil price variations were passed through to domestic prices from June 2011 and existing subsidies were gradually unwound.
D. The Discovery of Oil and New Challenges in Energy Sector Management
12. Niger became a net fuel exporter since 2012 and could soon export crude oil. Previously Niger was importing up to 85 percent of its electricity from Nigeria whereas petroleum product imports came officially from Benin, Togo and Ghana. However, since 2012, successful oil discovery allowed for exports to Burkina Faso and Mali to begin. Export markets have also opened in Chad for fuel (especially premium) and Nigeria for gasoil. Proven reserves at the Agadem block, amounting to 80,000 barrels per day, are beyond the refining capacity of SORAZ. Therefore, the government is currently exploring the possibility of exporting around 60,000 barrels per day of crude oil. A study has already identified the most cost-efficient route of export: Niger-Chad-Cameroon.
13. SORAZ refinery production is mainly destined to SONIDEP, the domestic marketing agency. In addition to its previously-granted exclusive right to import and store refined petroleum products, SONIDEP was given the monopoly to export the refined petroleum products from the SORAZ refinery; SONIDEP’s expanded monopoly power has created some tension between the two entities. SORAZ produces gasoline, diesel, LPG, and most recently kerosene (lamp oil), which is sold to SONIDEP for export and domestic sales. SONIDEP also imports and resells heavy fuel, fuel-oil, and jet oil. Total export sales for the period January to September 2014 fell relative to the corresponding period in 2013 in both volume (6.1 percent) and value (11.0 percent). On the other hand, domestic sales volume rose by 8.6 percent to 436.3 million tons, which was equivalent to an 8.8 percent increase to CFAF 199.8 billion in value. Export sales were strong in the first quarter but fell back during the rest of the reference period when domestic demand firmed.
14. Prices for crude oil and refined products are administered by the government, creating the possibility for implicit subsidies. The government controls the price at which SORAZ gets crude oil from the Agadem block as well as the price at which the SORAZ refinery sells its output to SONIDEP. Crude oil is sold to SORAZ at US$70 per barrel, well below the international oil price (using West Texas Intermediate, WTI, as a proxy) that averaged above US$94 per barrel each year since 2011. Ex-SORAZ prices are also fixed as shown in the petroleum price structure below (Table 1). Since the January 2012 introduction of SORAZ consumer products (gasoline, diesel, LPG) on the domestic market, there is no retail subsidy on these three products. Nonetheless, the retail price of gasoline, at US$1.08 per liter, is much lower than the price for the same products in other WAEMU countries except for Benin.5 The only remaining explicit subsidy is on kerosene (lamp oil), which is imported. This subsidy stands at 96.02 CFAF/liter (approximately 19 US cents/liter). Given the startup of lamp oil production by SORAZ in April 2014, it is expected that this subsidy will be reduced or even eliminated over time.
Niger: Petroleum Price Structure, as of August 1, 2013
(USD per unit)
Niger: Petroleum Price Structure, as of August 1, 2013
(USD per unit)
| Gasoline | Diesel Oil | Fuel Oil | Kerosene | LPG | |||
|---|---|---|---|---|---|---|---|
| Quantity | Liter | Liter | Liter | Liter | 12.5 kilo | ||
| Source | SORAZ | SORAZ | Imported | Imported | SORAZ | ||
| Price Ex-SORAZ/Border | 0.63 | 0.64 | 0.64 | 0.93 | 3.00 | ||
| Taxes | 0.19 | 0.20 | 0.12 | 0.07 | … | ||
| Storage, losses etc (SONIDEP) | 0.06 | 0.07 | 0.07 | 0.06 | 0.20 | ||
| Transport to SONIDEP storage facilities | 0.09 | 0.08 | 0.08 | 0.05 | … | ||
| Price Ex-SONIDEP | 0.97 | 0.98 | 0.90 | 1.11 | 3.20 | ||
| Expenses and distribution margin | 0.11 | 0.09 | 0.00 | 0.08 | 4.30 | ||
| Subsidy | 0.00 | 0.00 | 0.00 | -0.19 | … | ||
| Retail Price | 1.08 | 1.08 | 0.90 | 0.99 | 7.50 | ||
| of which: 6kg LPG cylinder | 3.60 | ||||||
| 3kg LPG cylinder | 1.80 | ||||||
Niger: Petroleum Price Structure, as of August 1, 2013
(USD per unit)
| Gasoline | Diesel Oil | Fuel Oil | Kerosene | LPG | |||
|---|---|---|---|---|---|---|---|
| Quantity | Liter | Liter | Liter | Liter | 12.5 kilo | ||
| Source | SORAZ | SORAZ | Imported | Imported | SORAZ | ||
| Price Ex-SORAZ/Border | 0.63 | 0.64 | 0.64 | 0.93 | 3.00 | ||
| Taxes | 0.19 | 0.20 | 0.12 | 0.07 | … | ||
| Storage, losses etc (SONIDEP) | 0.06 | 0.07 | 0.07 | 0.06 | 0.20 | ||
| Transport to SONIDEP storage facilities | 0.09 | 0.08 | 0.08 | 0.05 | … | ||
| Price Ex-SONIDEP | 0.97 | 0.98 | 0.90 | 1.11 | 3.20 | ||
| Expenses and distribution margin | 0.11 | 0.09 | 0.00 | 0.08 | 4.30 | ||
| Subsidy | 0.00 | 0.00 | 0.00 | -0.19 | … | ||
| Retail Price | 1.08 | 1.08 | 0.90 | 0.99 | 7.50 | ||
| of which: 6kg LPG cylinder | 3.60 | ||||||
| 3kg LPG cylinder | 1.80 | ||||||
15. The price structure may be a source of revenue loss for the government and poses risks to the financial soundness of the refinery. Had the prices been fully liberalized, SORAZ would have received more sales revenue and the government would have benefitted from increased tax receipts, even after accounting for reasonable price elasticity. Given that the refinery is almost operating at full capacity, additional investment may be needed to increase the refinery’s operating capacity. However, it may not be possible to recoup the investment costs from savings elsewhere rather than by allowing the ex-refinery prices to increase.
16. Ensuring the financial equilibrium of the electricity sub-sector has also been cited as a key challenge. The World Bank’s Energy Sector Assessment (June 2012) highlights the fact that Niger’s transition to an oil producer can pose certain risks to the electricity sub-sector and NIGELEC, given that electricity imports from Nigeria on good financial terms may be substituted with more expensive domestic generation. NIGELEC holds the public monopoly to generate, transmit and distribute electricity; it is exempt from VAT and TIPP payments to the government, which presents another source of revenue leakage.
E. Conclusion and Policy Recommendations
17. Improving access to energy should be a key economic objective. Limited access is a constraint on growth yet price controls, provided as a means to shore up demand by keeping the final cost to the consumer low, act as implicit subsidies and create disincentives for further development in the sector. The trade-off between price stability and fiscal sustainability highlights the main challenge for price-setting in poor countries, particularly when crude oil resources are available. Increasing penetration and investment in the grid to allow for more widespread electricity distribution is necessary to spread the investment costs in power plants. Current initiatives to develop Niger’s renewable energy potential as a means to improve access at reasonable cost to the end-user are encouraging. Such initiatives include a 20MW solar photovoltaic power plant at Guesselbody (20km from Niamey); a 200MW (expandable to 400MW) coal plant at Salkadamna (Tahoua); and a 130MW hydroelectric plant at Kandadji.
18. Niger should seek to harness and develop its abundant renewable energy potential.6 While traditional energy is not overexploited in Niger, the country can benefit from investment in renewable energy sources that can increase energy access and may be more suitable for the off-grid, rural population centers. Alternative energy forms like solar, wind, coal, geothermal and hydroelectric energy are worth further consideration given Niger’s natural environment and geographical context. Solar energy development is one of the most feasible options given the country’s climatic conditions. Average wind speeds in the northern and southern regions indicate moderate potential for wind power utilization beyond its current small-scale installations for water-pumping. Geothermal energy potential, though unconfirmed, is likely given revelations of the presence of geothermal basins during oil exploration activities. Coal and hydroelectric plants are currently being developed. Despite the potential, tapping renewable energy sources is subject to constraints as the project development often requires large initial capital investments. Moreover the reliability of renewable energy is also not guaranteed and there is usually the need for a back-up fossil fuel facility.
19. An energy conservation promotional campaign should be included in the public information program that accompanies the new energy policy. Experience has shown that energy conservation programs have worked best when the public understands the need to reduce wastage. Recommendations for energy conservation at homes and in transportation—such as an incandescent bulb replacement program with solar lamps and energy saving bulbs, and issuing guidelines for the proper use and maintenance of vehicles and household appliances. Shared arrangements, such as car-pooling, may also be promoted as an effective way of reducing traffic congestion and saving on the transportation costs for students and workers.
References
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Clements, B., D. Coady, S. Fabrizio, S. Gupta, T. Alleyne, and C. Sdralevich, eds. (2013), Energy Subsidy Reform: Lessons and Implications (Washington: International Monetary Fund).
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This note was prepared by Jehann Jack.
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Oil prices reached a record of US$147.50 per barrel on July 11, 2008.
The domestic gasoline prices for WAEMU countries averaged US$1.34 per liter in 2010, ranging from US$1.04 per liter in Benin to US$1.68 per liter in the Ivory Coast.
Renewable Energy Potential in Niger (www.afribiz.info).
