Highlight

Nigeria and Russia has signed agreements to set up four nuclear power plants and a Centre for Nuclear Science and Technology in Nigeria. This piece examines the prospects of nuclear power plants to be built in Nigeria by mid-2020, with the view of objectively assessing its cost implications and feasibility.

Given Africa’s low levels of energy access, supply deficiencies and little contribution to climate change, it can be agreed that energy sources (clean or dirty) is not a question of substitutes but complements. Abundant energy that can be deployed affordably are essential for addressing energy challenges in the region. Two clean energy sources –nuclear and solar– have emerged as a revolutionary source for scaling up energy supply globally. Solar power, on one hand, has become the cheapest and fastest-growing source of electricity since 2011, on account of the surge in Chinese-manufactured silicon solar PV which cut costs by one-third. Nuclear power, on the other hand, supplies at least five times more electricity than solar power.

However, occasional symbolic fallouts around nuclear power raises concern about its suitability, especially for third world countries. The meltdown of the three reactors at Japan’s Fukushima Daiichi nuclear plant in 2011 after an earthquake and resulting tsunami is one of the two notable symbolic fallouts with nuclear. Opponent’s activism, accidents, and rising production costs have negatively affected the receptiveness and growth of nuclear power. As a result, many developed countries such as Germany, Belgium and the U.S are scaling down or exiting plans for new nuclear reactors.

Despite fallouts, confidence in nuclear power has been gradually improving due to constant development of safety technologies, including newer designs like Generation IV reactors with design features that take into account the “Fukushima Daiichi lesson”. Presently, 56 nuclear power plants are currently being constructed in the world today against 449 in operation. In Africa, the only operating nuclear plant is in South Africa, and it produces 1,860MW of power, contributing to 4% of South Africa’s power capacity. Plans to expand South Africa’s nuclear capacity is however opposed by the country’s Minister of Energy and the Treasury, on the ground of its implications for national debt. However, more African countries like Egypt, Ghana, Ethiopia, Uganda, and Zambia are establishing agreements with Russia State Atomic Energy Corporation (Rosatom) to build nuclear technologies for peaceful purposes.

The Nigeria Atomic Energy Commission (NAEC) has also signed agreements with Rosatom, in 2017 and 2016, to set up four nuclear power plants and a Centre for Nuclear Science and Technology respectively, after a decade of developing the framework. The nuclear project, which is expected to cost about US$ 20 billion and produce 4,800 megawatts of electricity by 2035, will be initially operated by Rosatom before handover (Figure 1).

Figure 1: Details of the Nigeria-Russia Nuclear Power Agreement

1. What are the cost-implications of nuclear power for addressing energy deficit in Nigeria?

While nuclear power is relatively more expensive to construct, its maintenance cost is said to be low; as it can operate for about 60-80 years with very little maintenance.  As such, it is argued as being more profitable and cost-effective in delivering power in the long run, relative to other sources including gas and solar. However, the prospects of repaying loans used in the construction of the nuclear plants may be daunting for African countries.

Although information on the Nigeria-Rosatom nuclear project is scarce, analogy can be drawn from the Egypt-Rosatom agreement in which Rosatom provided a construction loan of US$ 25 billion for the 4.5 gigawatts nuclear project. The loan is projected to have an annual interest of around 3% beginning from the 10^th to 13^th year after the loan is made for a period of 22-28 years. At repayment, the 3% annual interest could have increased the debt by as much as 40%.

The implication is that the country receiving the nuclear plant may pay very little at onset, but the country’s fiscal space and electricity consumers could be faced with a massive burden when the repayments kick in. It is argued that most African economies may never be able to meet such debt obligations, given that the possibility of recouping funds from electricity sales is low. Furthermore, the nuclear industry is seen to have a history of cost overruns due to delays in construction, suggesting that the country receiving nuclear plant will likely face a higher-than-expected debt servicing cost. This raises concerns that future debt may position Russia to exert disproportionate influence over the affairs of the debtor country in the long-run.

The cost implications of nuclear project should be an issue of concern for Nigeria, given cost-recovery challenges presently faced by power generation companies (Gencos) mostly due to low electricity tariffs that has proven politically and structurally difficult to raise. In addition, the country’s fiscal balances remains very susceptible to oil price and production shocks so affordability might be a major concern.

2. How feasible and safe is nuclear power in an economy characterized by inefficiencies?

Nigeria has existing nuclear facilities for other purposes except electricity generation. A case in point is the multi-billion naira Gamma Irradiation Facility within the national Nuclear Technology Centre (NTC). However, existing nuclear facilities are barely functional due to several challenges including: government’s financial constraints, non-prioritization in energy programme, corruption, and cynicism about the risks of nuclear waste and radiation on health and environment.

Despite the challenges, the prospective nuclear power project for electricity generation in Nigeria has been deemed feasible and safe by several stakeholders. Positive evaluation reports by the Inter-Ministerial Committee on the feasibility of deploying nuclear energy for electricity generation in the country, lead to the activation of the NAEC in 2006. Furthermore, reports by the International Atomic Energy Agency (IAEA), following Integrated Nuclear Infrastructure Review (INIR) missions to Nigeria, has been quite optimistic. Several missions carried out between 2015 and 2018 concluded that Nigeria’s emergency preparedness and response framework was consistent with IAEA safety standards. The review team often observe notable progress in strengthening the infrastructure for the new research reactors. In addition, a great deal of work has been done to establish appropriate legal framework and educate specialists in the NTC.

While standards seem high at onset, maintenance may be an issue especially after the project handover, given historical and current inefficiencies. For instance, Nigeria’s current thermal plants are operating below capacity due to poor maintenance and frequent disruptions to fuel (gas) flow. In addition, the country’s current installed thermal capacity is 12,500 megawatts, but in practice, it is only 3,200 megawatts.  Such inefficiencies reinforces the potential cost implications of the nuclear project.

Going forward: If nuclear plants are to be effectively operated in Nigeria, the following considerations should be incorporated in the projects’ regulatory and operational framework. These include:

• An informed evidence-based arrangement for cost-recovery and loan repayment needs to be made.
• Practical measures for enforcement, with penalties, need to be erected to ensure that a prospective nuclear electricity tariff/pricing schedule is followed through. This is important for safeguarding loan repayment.
• A well-thought out plan for securing financial and human resources, needed to maintain the nuclear facilities and safeguard uranium to power the nuclear plants over the long-run, should be crafted.
• Legal clauses that would guarantee commitment to the plan by successive government regimes should be entrenched in to the framework.
• Continuous public awareness on the implications of nuclear power on health and environment as well as the need to maintain highest echelon of safety measures must accompany any nuclear power project in Nigeria, even decades after construction.
• Sustainable measures to ensure that safety of the workers and residents in nuclear site locations must be guaranteed and never jeopardized.

Various forms of consumer energy subsidies^[1] are implemented in Nigeria. Three energy products are particularly subsidized: gasoline (Premium Motor Spirit –PMS), household kerosene (HHK), and electricity. In the case of petroleum products (PMS and HHK), government provided subsidies by paying petroleum products marketers the difference between the market rate and the government approved retail price^[2]. For electricity, the government required state utility companies to charge tariffs below the costs of electricity production, then it reimbursed as part of a lump sum and by under-charging the electricity sector for the cost of natural gas^[3].While petroleum (fuel) subsidy has increased, other forms of energy subsidies (such as kerosene) have relatively fallen over the years. Notably, the proposed study focuses on petroleum subsidies in Nigeria, as it weighs most heavily on the Nigerian economy and the welfare of the citizens^[4].

As in the case of most energy subsidizing countries, the main rationale for energy subsidies in Nigeria is to protect consumers from the negative effects of increases in petroleum prices, while promoting industrial growth. Also, in line with most oil-exporting countries, the provision of petroleum subsidies in Nigeria is driven by socio-political reasons – the perception that cheap petrol prices are an entitlement for citizens of an oil-wealthy country. However, despite the poverty alleviation justification for providing subsidies, there is strong evidence that Nigeria’s experience with subsidies has been marred with economic, structural, and political challenges, among others.

CSEA organized a policy dialogue on “A Scoping Study of Nigeria’s Tobacco Market and Policy Space” to share findings of the study to policymakers and the public, and also receive feedback to enrich the study. The study was commissioned by Campaign for Tobacco Free Kids (CTFK) and examined four dimensions of the tobacco market and policy space: i) Snapshot of Prices and Taxes on Tobacco Products; ii) Simulation of the Effect of Tax Increase on Public Health and Government Revenue; iii) Prospects for Earmarking Revenue from Taxes on Tobacco Products; and iv) Understanding Political Will for Tobacco Control in the Nigerian Context. The dialogue took place at NAF Conference Center Abuja on the 13th of December 2018.

Debt sustainability in Africa has emerged as a key concern among policymakers and development finance institutions (DFIs). Currently, 19 out of 54 countries in Africa exceed the 60% debt-to-gross domestic product (GDP) threshold prescribed by the African Monetary Co-operation Programme (AMCP) and 24 countries have surpassed the 55% debt-to-GDP ratio suggested by the International Monetary Fund (IMF). Of concern is the changing structure of Africa’s debt: countries are tilting towards non-concessional and domestic debt with higher interest rates. Governments’ ease of access to and control over the domestic debt market is leading to excessive public debt accumulation and macroeconomic instability. Aside from the high interest rate and debt-servicing burden, excessive domestic debt also stifles credit to the private sector, the main engine of growth and job creation.