As the next Nigerian president awaits taking oath of office following the February 25 polls, the country’s petroleum industry, which remains its highest revenue-earning sector, is full of expectations from the new leader.
Therefore, all investors in that important segment of the Nigerian economy will be eager to see how the new President will revive the country’s ailing oil and gas sector, which has recently been blessed with the long-awaited Petroleum Industry Act (PIA).
According to Prof. Wumi Iledare, who is Emeritus Professor, Louisiana State University Center for Energy Studies, USA, “the industry currently contributes less than 10% to the Gross Domestic Product (GDP) in the country and this is not necessarily because of any remarkable growth in the non-oil sectors. Perhaps, declining industry activities and geopolitical complexity of the global oil and gas business, in more recent times, have contributed to the wobbling of the petroleum sector in Nigeria.
“The good news, however, is the Petroleum Industry Act 2021 (PIA2021), which decreed three governing institutions to effectively, efficiently, equitably, and ethically manage the petroleum operations for sustainable economic growth and development in Nigeria.”
Some of the challenges facing the Nigerian petroleum industry include how to tackle oil theft in the Niger Delta, where militants, vandals and oil thieves have dealt a huge blow to legitimate business activities.
The criminal activities of these illicit groups in recent years have crippled oil production to the lowest levels, heavily reducing revenues into the Federation’s Account and making it difficult to finance critical projects around the country.
Whosoever emerges as President-elect among the four top contenders, namely, Asiwaju Bola Ahmed Tinubu (APC), Alhaji Atiku Abubakar (PDP), Dr. Peter Obi (LP) and Dr. Rabiu Kwankwaso (NNPP) will directly face challenges in the oil and gas industry.
It is expected that action time for the winner, begins from May 29 after assuming office. He should hit the ground running, especially in driving the implementation of the PIA (2021), which has created efficient and effective governing institutions, with clear and separate roles for the oil and gas sector. These are fashioned to address the governance gaps and improve capacity delivery in a transparent, accountable, and appropriate manner, on time, and in a cost-efficient manner.
The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Midstream and Downstream Petroleum Regulatory Petroleum Authority (NMDPRA) have well-defined mandates to regulate, manage, and monitor upstream operations and the midstream and downstream operations, respectively.
And Prof. Iledare maintains that “the separation of roles and responsibilities of these institutions needs a re-evaluation in the first 100 days of the new administration, as the independence of the institutions is very much at stake,” and this, according to him, “is the anchor for efficient, effective, and equitable delivery of the PIA mandates. It is one thing to be endowed with prolific geological and geophysical basins and it is also fabulous to have a progressive and value-creating fiscal framework.”
Yet, he added that entrepreneurial “optics” matter a lot and the perception of investors on the governance of the industry speaks volumes in terms of sustainable investments to grow reserves and expand production capacity.
The new President has a lot of work to do. He will need to vigorously drive the implementation of the PIA and make the Nigerian petroleum industry work for the better by matching words with policy actions.
For instance, NMDPRA, which is tasked with regulating the midstream and downstream petroleum value chain seems not to catch the PIA expectation regarding downstream petroleum operations.
This made Prof Iledare to conclude that “letting go of the pricing regulatory mindsets in the petroleum downstream in Nigeria remains a tradition, despite its illegality. Fixing petroleum products prices in the downstream is detrimental to the economic efficiency as fully anticipated by the Act.
“It makes addressing the diminishing investments in the sector difficult and could easily complicate efforts at reversing the declining investment attractiveness and infrastructure deficits in the sector.”
The PIA, which replaces the former Petroleum Act, indicates that the property and ownership of petroleum within Nigeria and its territorial waters, continental shelf, and exclusive economic zone is vested in the Government of Nigeria.
The PIA seeks to provide legal, governance, regulatory and fiscal framework for the Nigerian Petroleum Industry. It also offers a radical departure from past norms as it ultimately transforms the oil and gas industry in Nigeria. It maintains the Minister of Petroleum, who shall formulate, monitor and administer government policy in the petroleum industry; creates the Nigerian Upstream Petroleum Regulatory Commission, which is responsible for the technical and commercial regulation of upstream petroleum operations; and establishes the Nigerian Midstream and Downstream Petroleum Regulatory Authority, which is responsible for the technical and commercial regulation of midstream and downstream petroleum operations.
Among other things, the Act provides for: the creation of the new Nigerian National Petroleum Company (NNPC) as a commercial entity; the reduction and streamlining of royalties; rules for environmental clean-ups; dispute-resolution mechanisms between government and oil companies; and the establishment of a midstream government infrastructure fund.
Due to the significant role being played by the oil and gas industry in the development of Nigeria’s economy, both in terms of revenue generation and product availability, affordability and security, it’s imperative for the new President to strategize and marshal a plan that will reinvigorate the sector and make it more efficient.
The industry contributes about 90% of the foreign exchange earnings and 60% of total income. Therefore, any serious government cannot afford to neglect the sector or to continue with adhoc policy development and implementation as witnessed in the industry over the years. It is important to note that any inaction on the part of the incoming President will have a striking and long-term impact on government finances and commercial arrangements in the country.
The new President may wish to also note that the PIA is one of the most audacious attempts to overhaul and reinvigorate the petroleum sector after almost six decades. If implemented diligently, it will help facilitate Nigeria’s economic development by attracting and creating investment opportunities for local and international investors.
The underlying issues of this Act to be urgently addressed as the new administration moves ahead with its implementation include:
Deregulation:
The argument espoused by the Government that 10 trillion Naira has been spent in the last ten years to subsidize the price of petrol gives credence to those who support total deregulation. The retention of the subsidy regime has negative effect as the price of crude oil in the international market increases, causing the government to pay more for importation since the country’s refineries are ineffectual.
The government, which has admitted that payment of subsidies is a factor inhibiting it from providing infrastructure for the people, should quickly take a bold step to end fuel importation and subsidies as well as effect the full deregulation of the downstream sub-sector.
As Prof. Iledare submitted, “removing subsidy is not going to make the economy worse off than it is now or even if it had been removed in 2015 as suggested by many experts, including yours sincerely. Removing subsidy will more likely than not rekindle Nigeria’s economy and perhaps lessen the pressure it imposes on the forex market.
“While, in the short run, the price of motor fuels might rise, it will stabilize in the not-too-distant future. The removal would be just a temporary shock with a short adjustment process subject to foreign exchange stability and Dangote refinery becoming operational as scheduled, as the laws of demand and supply work even under changing market conditions, and the functionality is not static but dynamic.”
Allocation to host communities:
The provision of 3% only for the host communities has raised more uproar because of the impact on the host communities, particularly in the Niger Delta in view of environmental crises and pollution that the region has suffered and is still suffering as a result of the exploitation of oil.
This issue was a major delay in the signing of the bill into law. The 3% is considered a fair percentage to the government and foreign oil companies; the host communities are however demanding for a larger percentage.
Joe Abugu (SAN), a professor of Commercial and Industrial Law at the University of Lagos, faulted the PIA, saying that it does not have any contribution coming into the communities from the government. Prof. Abugu claims that the government has simply, under the PIA, abdicated responsibility for the development of the host communities and entrusted it to the oil companies.
He also demanded that this should be addressed by the implementation committee, which should be able to reach out to companies that have existing oil prospecting and exploration licenses, including mining leases, and be able to harmonize structures for the implementation of the Host Community Development Fund.
His words: “With respect to implementation, I am a little bit worried by the provisions of the PIA concerning the development of the host communities. We must not lose sight of the fact that peace in the Niger Delta host communities has been a continuous challenge for the petroleum industry and it is expected that the PIA will substantially address the issue of stability in that region for continuous exploration and production of oil and gas.”
Frontier Basins:
The NNPC is expected to promote and develop the exploration of frontier basins and according to Section 9(4) of the Act, a Frontier Exploration Fund which shall be 30% of NNPC’s profit will be maintained exclusively for the exploration of frontier basins.
Nigeria has about six basins: Chad Basin, the Sokoto Basin, Benue Trough, the Bida Basin, Kolmani River II Well on the Upper Benue Trough, Gongola Basin in the North-Eastern part of the country, Anambra Basin, Chad Basin and Dahomey Basin. Currently, crude oil is obtained from eight states in the Niger Delta region, which include Abia, Akwa Ibom, Bayelsa, Delta, Edo, Imo, Ondo and Rivers States.
But the Act does not exactly define what a frontier basin is or where it is located. Thus, it can be said that there is actually no exploration fund and thus the provision in the Act is suspected to be a means to an end for corruption.
However, the provision for frontier basin oil exploration has multiple advantages which the new administration should be bold and wise enough to exploit. Among the many benefits are, equal contribution by all states to oil reserves; promotion of efficient and sustainable exploration of hydrocarbon in the frontier basins of Nigeria; promotion of oil exploration activities in order to avert the challenges of finance in the economy; opening of the country to Foreign Investment Opportunities; and reduction of existing pressure on the Niger Delta.
Owing to the persistent complaints from the Niger Delta host communities over the 3% derivation fund, steps should be taken urgently to address this provision, especially as it stated that the fund is given by the operators and not the government, which gives room for some companies abandoning their obligations without legal justification.
Environmental and gas flare management:
According to the Act, there was an exception for gas flaring in section 102(7) that if the minister assents to it, then it is legal. This flaw will make a floodgate for more gas flaring than before because there are tons of cases with gas flaring and now that it can be legal, it will get worse. It is trite that the country does not enforce any of its laws on environmental degradation nor does it provide remedies. Sadly, several environmental laws in the country are witnesses of this.
Indeed, achieving environmental justice for pollution-impacted communities goes beyond having a restoration fund known as “host communities development trust” under Section 235 of the PIA. A safe, healthy and good environment is a fundamental right of communities. Environmental disputes are inevitable due to the nature of oil exploration activities.
It is sad that oil producing states are the ones that bear the brunt of most of the outcomes of these activities. Oil spill is a major basis for environmental disputes in the Nigerian oil and gas industry and they are quite predominant. A direct result of these oil spills and environmental problems is inflicted on the host communities.
Then, the host communities of the oil companies in Nigeria are faced with continued flaring of gas and its attendant consequences on the human habitat. There is in turn, inadequate compensation for the negative consequences of oil exploration activities, hence the new government should look at this issue candidly so as to find a lasting solution. And these are just some of the many issues that the industry has for the new Nigerian President, who will be taking his oath of office on May 29.
All Presidential candidates, however, had their individual views about the same issue during the campaign season before the polls. Against this background, the presidential candidate of All Progressives Congress (APC), Senator Bola Tinubu had assured business leaders in the country that, if elected President, he would phase out Nigeria’s controversial petroleum subsidy regime.
Speaking with the business community/organised private sector (OPS) in Lagos, Tinubu maintained that “we must continue with the expansion of infrastructure commenced by the current government. From our roads and ports that will pave the way to more commerce, to improvement in irrigation and water management/catchment systems to stem the humanitarian and economic tragedy visited on us by seasonal flooding.”
He said, “Our forces will be given better tactical communications, mobility as well as improved aerial and ground surveillance capacity.
“Through these and other measures, we shall better identify, monitor, track, and defeat these evil groups wherever they are. They shall have no respite until they surrender or are utterly defeated.”
On his part, Peter Obi had decried the non-granting of the five percent revenue demand of host communities in the assented Petroleum Industry Act (PIA), where three percent was rather approved.
Furthermore, Obi explained that the communities needed adequate funds to prepare for the future when oil would no longer have as much value as at present. He, however, noted that the PIA had become imperative in the nation’s oil sector.
“The Petroleum Industry Act (PIA) is needed but I thought we could have considered the five per cent being demanded by host communities.
“We must learn to care for those generating resources for us whether it is petroleum, VAT. We should consider supporting communities that are generating resources that we are sharing,” he said.
Then making a case for his own political party, Vice-Presidential Candidate of the People’s Democratic Party (PDP) and Governor of Delta, Dr Ifeanyi Okowa, had said that the Presidential Candidate of the Party, Alhaji Atiku Abubakar, would ensure that the PIA was implemented, including the provisions on host communities development fund, if he became the next President of Nigeria.
“There is a provision in the Petroleum Industry Act (PIA), that is the host communities development fund and we will ensure its full implementation for the benefit of the oil-bearing communities,” he said.
On how the party intends to tackle insecurity in the country, Okowa said that Atiku Abubakar would engage relevant stakeholders to ensure constitutional amendment to legalize state police.
“We have observed that the Federal Police is grossly inadequate to secure Nigerians and, therefore, we are advocating the establishment of State Police to enable every state to have its own police to handle peculiar security challenges.
“Aside from the State Police, we will recruit more hands into Federal Police, procure more weapons and provide adequate logistics and intelligence gathering devices for effective policing,” he said.
These issues of security or insecurity are of utmost concerns to all petroleum businesses and truly deserve the best of attention they can get.
Then, in November 2022, Atiku himself vowed that oil thieves and their accomplices will face prosecution no matter their status in the country should he become the president of Nigeria.
He was speaking during the Business Dialogue Stakeholders Forum held at Eko Hotel in Lagos, where Aliko Dangote, Jim Ovia, Femi Otedola, Tony Elumelu, Herbert Wigwe, Governors Udom Emmanuel of Akwa Ibom and Aminu Tambuwal of Sokoto were also present.
The former Vice President insisted that, in the interest of national development, he would confiscate all oil blocs allocated to some Nigerians who have failed to make them functional.
“If you are not going to develop oil blocs given to you, we will take it away and give it to those who will develop it,” he said.
“We will also assemble the names of those involved in oil theft, publish the same and prosecute them.”
Speaking on plans to boost the oil and gas sector, Atiku recalled that under the administration of ex-President Olusegun Obasanjo, Nigeria’s quota of oil production was earmarked for increase to four million barrels per day.
He said he intends to sustain the plan beyond the projected figure, if he is voted into office. He pointed out that in order to do this successfully, the Petroleum Industry Act (PIA) and any other enabling law would be implemented.
“When we were in government, we started this process. However, there were hiccups. We were unable to pass the legislation to encourage IOCs to partake in the sector. We will go back to where we started,” he said.
He reiterated his commitment to privatizing the refineries in Kaduna, Port Harcourt and Warri and promised to hold frequent interactive sessions between the government and the country’s’ business class, if voted to power.
For Rabiu Kwankwaso, he had spoken as far back as 2012 on some of the contentious issues which are now embedded in the PIA, when he slammed what he described as a Federation Allocation regime that enriches some states, especially those in the South-South, but impoverishes the northern states.
Kwankwaso was reported to have said that, “in this context, many other states, specifically in the South-South are today ahead of the northern states in terms of income from the Federation Account. This means that some states are getting richer, while others are getting poorer by the day and people are wallowing in devastating poverty.”
He hinted that the northern governors are also making an issue out of the then Petroleum Industry Bill (PIB), which was at that time in the works in the National Assembly, saying the implications of the Bill being passed in its form had dire consequences for the North.
Kwankwaso maintained that “we in the North are keenly watching and we will not allow our region to be plunged into yet another uncertain future as we will do all we could to make sure that there is equity that will guarantee a sense of belonging to every citizenry”.
The North today, he said, is at the lowest political ebb, stressing that it is the more reason stakeholders from the region need to sit on the roundtable to make their stand known on the PIB and other sundry matters in the polity.
But now as we await the Presidential inauguration on May 29, 2023, the issues of contention in the body of the PIA, as regarded by different interest groups, should make the first list of issues to be tackled or addressed in the interest of Nigeria and the Nigerian people.