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Expert Urges Unity in Regulatory Approach to Boost Investor Confidence in Nigeria’s Energy Sector

By William Emmanuel Ukpoju

Engineer Dr. Wisdom Patrick Enang, an adjunct professor at North Dakota University in the United States, has expressed frustration that the anticipated economic benefits for Nigeria’s oil and gas industry and the country as a whole have not materialized two years after the Petroleum Industry Act (PIA) was signed. The renowned oil and gas expert stated this in Uyo, the Akwa Ibom State capital recently while speaking with newsmen on the state of affairs of the Nigerian energy industry.

Dr. Enang maintained that instead of the PIA acting as a game changer with the capacity to introduce the best global standards in governance, open up investment opportunities, and multiply government revenue; political interference and deliberate refusal to adhere strictly to the law have dampened the initial optimism that preceded the passage of the PIA.

He also expressed worries that the passage of the PIA comes at a time when International Oil and Gas companies (IOCs) in Nigeria, are in the advanced stages of their divestment plans, which presents a temporary set-back to the country’s plans to increase its daily crude production capacity beyond two million barrels per day in 2024.

Enang further explained that it took nearly two decades to draft the PIA, because of the complex nature of the sector, and more so due to lack of political will by our leaders. Dr. Enang’s initial assessment of the PIA equally noted the prevalence of deliberate grey areas, which would most likely necessitate the intervention of political leadership.

According to him, “Apart from the expected implementation technicalities, which should be clarified by accompanying regulations from the NUPRC (Nigerian Upstream Petroleum Regulatory Commission) and the NMDPRA (Nigerian Midstream Petroleum Regulatory Authority), the PIA seems to contain deliberate grey areas, which would most likely necessitate the intervention of political leadership.”

While reflecting on the ExxonMobil/Seplat initial divestment deal attempt under the PIA, Dr. Enang harped on the need for oil and gas regulators and critical stakeholders to hold a common, uniform, and non-conflicting perspective on the implementation of divestments for various licenses under the PIA, to reduce the need for intervention from political leadership; an action which according to Dr. Enang will decrease the confidence of investors in the sector.

In his words, “Seplat Energy Plc had in February 2022 announced an agreement to acquire the entire share capital of Mobil Producing Nigeria Unlimited from ExxonMobil Corporation for $1.28bn. The NUPRC and MPR (Ministry of Petroleum Resources) had different stands on whether or not the deal should be given the much-needed ministerial consent required for the deal to proceed. The NUPRC argued that in line with the provisions of the PIA, the NUPRC is the bona-fide regulator to recommend an upstream acquisition deal for ministerial consent and not the MPR. The MPR on the other hand argued that the NUPRC is an agency under the Ministry of Petroleum Resources, and as such, the regulatory powers given to the Commission under the PIA are also embedded in the Minister’s role as stated in Section 3(b) of the PIA. The MPR further argued that the deal in question fell outside the purview of the PIA, because the assets are OMLs (Oil Mining Leases) governed under the Petroleum Act of 1969, having not been converted to the PML (Petroleum Mining Leases) regime established by the PIA.”

He also added, “Although ministerial consent was eventually declined in line with the NUPRC’s recommendations, the Presidency also bemoaned the embarrassing lack of synergy and coordination between both critical sector stakeholders.”

Dr. Wisdom Enang further stated that the observed lack of synergy between some of the critical sector stakeholders is largely due to unneeded supremacy rivalry, which needs to be nipped in the bud.

According to the erudite scholar, the Petroleum Industry Act (PIA) also commercializes the Nigerian National Petroleum Corporation (NNPC) into a limited liability company, which is intended to be controlled by board members appointed by shareholders, and also listed on the stock exchange market.

“As mandated by the PIA, the ownership of the NNPC Limited should be open to members of the public, through sales of shares. However, this is yet to happen, primarily due to continued political oversight by the government, which is invariably slowing NNPCL’s full operations as an independent commercial entity. Undoubtedly, political interference would continue to neutralize the independence needed to drive NNPCL as a globally competitive commercial outfit.”

He affirmed that “The worry in the minds of most Nigerians is that NNPCL is not intended by the PIA to play the sort of economic interventionist role that the federal government is using it for, both in terms of raising foreign exchange loans to help the government stabilize the exchange rate market or to serve as the government’s main SPV (Special Purpose Vehicle) for importing refined products into Nigeria. Even more concerning is the fact that this interventionist role cannot be sustained after NNPCL’s IPO (Initial Public Offering).”

Dr. Enang further noted that besides NNPCL’s interventionist role not being sustainable in the long run, its current financial encumbrances on behalf of the federal government may be detrimental to its IPO stock price value.

He also pointed out that under the PIA, 30% of NNPCL’s profit should be earmarked for the Frontier Exploration Fund, which is intended to support the exploration of potential basins in the country. He however added that this is yet to be the case and that there is no clarity on when this provision of the PIA will be operationalized.

Dr. Wisdom Enang equally harped on the often under-discussed issue of environmental degradation resulting from oil and gas production activities, as well as the compensatory provisions from the PIA for the host communities.

“The PIA cleverly recognizes the need to provide compensatory measures, leveraging on the Host Community Development Trust Fund (HCDTF), to primarily improve the living conditions of the host communities, as well as foster a more inclusive and collaborative partnership between the host communities, and the oil and gas operators.”

While appealing to regulatory agencies within the sector to play an oversight role in ensuring that the interests of the host communities are protected at all times, Dr. Enang noted with deep displeasure, that some of the reports that have featured in the national news recently, where some oil and gas operators refuse to remit 3% of their annual operating expenditure to the Host Community Development Trust Fund, as mandated by the PIA, two years after the law was enacted. Dr. Enang further specified that a harmonious relationship between the host communities and oil and gas operators remains a foundational imperative, which must complement technology, and the efforts from the security forces, to bring a lasting and sustainable solution to the menace of crude oil theft, which is currently plaguing Nigeria’s petroleum sector.

Discussing factors that have impeded Nigeria’s ability to meet its OPEC (Organization of the Petroleum Exporting Countries) production quota for a while now, he lamented that at a time when the country should be reaping huge dividends from the PIA, everything seems to remain business as usual, especially in the attitudes of operators across the sector.

In his words, “Nigeria’s declining crude oil production profile is mainly a result of a culmination of several impedance factors including the delayed passage of the PIA, which reduced the confidence of investors in the Nigerian petroleum sector, with a resultant effect of under investments over a prolonged period, and divestments ultimately. The situation is further compounded by the lack of an intentional exploration effort towards discovering more potential production volumes, to replace the future volume loss expected, as the existing production wells mature.”

Expatiating further on the issue of divestments, Dr. Enang also explained that some IOCs were divesting in a bid to align their investment portfolios with the global clarion call for energy transition, as well as due to other economic considerations like moving to jurisdictions like Guyana, Papua, New Guinea and the Permian Basin in the US, which offer higher proven crude volumes on their acquired assets, cheaper cost of production, and more attractive fiscal terms.

He however blamed the oil theft menace, which has resulted in an estimated economic loss of N16.25trn to the Nigerian economy over the last 11 years, to Nigeria’s declining crude production profile. He further added that concerns of oil theft, and the quest for more favourable fiscal terms, rank chiefly on the list of reasons why most IOCs in Nigeria are divesting their onshore and shallow water assets, whilst expanding their deep-water investment portfolios.

Speaking on the recent deregulation of the Nigerian petroleum downstream sector, as mandated by the PIA, Dr. Enang informed that although fuel subsidy no longer existed, the federal government was operating a floating-peg price control mechanism for the sale of PMS (Premium Motor Spirit), rather than a free-market system where pricing is determined by market forces, primarily demand and supply forces.

According to Dr. Enang, the federal government’s decision to deploy a floating-peg price control mechanism, rather than a free-market system for the sale of PMS is due to the need to balance economic considerations with consumer protection considerations, especially given the cost-push inflationary effect that the transportation sector exerts on every aspect of the Nigerian economy.

“With Nigeria’s current inflation exceeding 28%, a further PMS price increase will be somewhat insensitive, given the cost-push inflationary effect that the transportation sector exerts on every aspect of the Nigerian economy.”

“Whilst the floating-peg price control mechanism is understandable in the short-term, concerted and intentional efforts need to be directed by the federal government towards boosting Nigeria’s domestic refining capacity, and ensuring the steady supply of crude feedstock to the domestic refineries. Efforts geared at boosting the nation’s domestic refining capacity must primarily include the expeditious operationalization of government-owned refineries, which has been hitherto moribund.”

“In addition to ensuring the security of crude feedstock supply to the domestic refineries over the long-term, the federal government must provide clarity on which currency and exchange rate it intends to apply for domestic crude supply transactions. More importantly, any concessionary considerations towards domestic refineries must be ring-fenced with suitable domestic supply obligations to ensure that refined products intended for the domestic market, are not exported for higher profits.”

Finally, Dr. Enang advised that in implementing economic reforms, the federal government must at all times focus on reforms that are in Nigeria’s best interest, and balance the drive for capitalism with the realities and peculiarities of the nation, and not reforms that are intended to please the international community.