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NNPC: Issues, challenges begging for Kyari’s attention

With the assumption of Mele Kyari as the new Group Managing Director( GMD) of the Nigerian National Petroleum Corporation (NNPC), stakeholders are seriously looking up to seeing a vibrant and more robust operation that will enhance efficiency, increase productivity and ensure sterile and veritable regulation of the oil and gas sector bearing in mind the attending challenges .

Even though most oil industry players sees Mr Kyari as a reform-minded technocrat, who is committed to the emergence of an open, transparent and accountable industry based on international best practice, principles and standards.

Stakeholders are highly apprehensive with rising global demand, highly volatile prices and increasingly stringent environmental regulations.

As at today Nigeria’s oil and gas industry faces many challenges : which include to reduce costs, poor functional refineries, downstream deregulation, Transparency issues , Crude theft, Pipeline vandalism, Pollution in the Niger delta, PIGB, Fuel pricing, Inadequate pipeline infrastructure ,optimize the performance of industrial base assets and improvement of environmental footprint.

The oil industry in Nigeria has matured since its first discovery in 1956 at Oloibiri, suffice it to say that though the industry may have flourished to reasonable level, there are burgeoning issues that have caused setback for the industry in the country.

Also, Operating risks peculiar to Nigeria’s environment have continued to drive the costs of oil and gas projects in the country above the global benchmark.

Despite the efforts of the former Minister of State for Petroleum Resources, Dr. Ibe Kachikwu and the oil and gas-producing companies to drive down the costs of projects in Nigeria, the industry operators have continued to be challenged by cost premium, which falls outside their direct sphere of influence.

The cost premium, which is dictated by Nigeria-specific drivers, according to the operators, represents costs above the global benchmark.

A study conducted by the Oil Producers Trade Section (OPTS) of the Lagos Chamber of Commerce and Industry (LCCI) identified these cost drivers to include insecurity, overregulation and bureaucracy; and absence of infrastructure.

Indeed, insecurity, especially in the oil-producing Niger Delta region, posed the greatest threat to the survival of the oil and gas industry in Nigeria, inflating the costs of projects beyond global average.

Also industry operators are worried at the assessment effects of pipeline vandalism, oil theft and bunkering on the Nigerian economy and the environment

According to Shell report 90 per cent of pipeline leaks are attributable to illegal activities and sabotage spill rate has risen steeply and crude oil theft from SPDC JV’s pipeline network averaged 11,000 barrels per day in 2018

“Since 2017, sabotage spill rate has risen steeply and crude oil theft from SPDC JV’s pipeline network averaged 11,000 barrels per day in 2018, an increase of about 20% over previous year. The number of sabotage-related spills increased in 2018 to 111 compared to 62 in 2017, and, since 2012, SPDC has removed more than 1,160 illegal theft points.”

It has also been reported that every day, oil companies in Nigeria lose between 300,000 and 400,000 barrels of oil to illegal theft. Theft accounts for roughly 15 percent of total number of barrels per day produced. Although estimates of how much oil is stolen per day in Nigeria vary, the British think-tank ‘Chatham House’ reports that over 100,000 barrels of oil were estimated to be stolen per day. Also, the United Nations Security Council estimates that Nigeria lost $2.8 billion of revenue to oil theft in 2017.

Oil export revenue accounts for 70 percent of Nigeria’s total government revenue and 95 percent of the country’s export income. A loss of 300,000 barrels a day costs the government roughly $1.7 billion a month. In comparison, only 5,000 to 10,000 barrels are stolen per day in Mexico, which produces a comparable amount of oil. Despite efforts by the Nigerian government to curtail bunkering by increasing security, theft and pipeline vandalism continues.

The impact of these criminal activities on the safety of people and the environment is huge. This includes degraded local environments, pollution of the environment at tap points. Over 50% of the crude oil siphoned in the process due to high pressure, besides waste of oil residues, are pumped into the creeks, rivers, farmlands, ponds, lakes, thereby blighting the environment further. The degradation to the environment occasioned by the illegal bunkering and oil theft, has reduced arable land for farming and has devastated fishing communities.

As a matter of fact , the effects of pipeline vandalism among others include huge economic losses from pipeline & plant shutdown, environmental pollution, fire outbreaks usually resulting in loss of lives. Scarcity & shortage of petroleum products as well as decrease in electricity

Some analysts maintain that one solution to the issue of illegal bunkering is the establishment of modular refineries in the Niger Delta. The Federal Government has expressed commitment to pursuing the goal of establishing such refineries. A total of 38 licenses have been issued to prospective operators, ranging from high-scale refineries of 50,000 to 100,000 barrels per day. Reports show that out of these, about 10 of the modular refineries have advanced and they have all secured permit to construct.

Also industry experts have insisted on genuine cleanup of Ogoniland and all other areas affected by oil spill.

A stakeholder ,Mr Niyi Awodeji, who presented a report on oil theft by the Nigeria Natural Resource Charter (NNRC), State that Nigeria may continue to lose an estimated N995.2 billion yearly to crude oil theft except the Federal Government adopts efficient technology in metering and mapping movement of crude from extraction to exportation.

According to him the Federal Government should also enforce stringent penalties for oil thieves and their collaborators across the country. He argued that combating crude theft would not only end the loss of N995.2 billion yearly, but would result in increased oil production, export and revenue, thus paving way for economic diversification and investments.

The managing directors of leading oil and gas companies in the country, such as Shell Petroleum Development Company (SPDC), ExxonMobil and Chevron Nigeria Limited (CNL), amongst others, noted that one single approach or mechanism to curtail crude oil theft may not guarantee expected results to Nigeria.

Osagie Okunbor explained that issues around security, contracting cycle, sanctity of contracts and thresholds of JVs and Production Sharing Contracts (PSCs) still needed to be sorted, as well as the reform laws in the industry. Also, the Managing Director of CNL, Jeff Ewing, stated that government did well in clearing the JV arrears. “The execution of those agreements have gone very well, and it has really boosted our confidence in the JV. “Some of the things that have happened have increased our activities in the JV because we have come confidence.”

Jeff Ewing, however explained that the rise in oil prices had brought a. Level of confidence as regards uncertainties in the industry. He added that Nigeria needed to be competitive globally in the fiscal policies and ease of doing business adding that it was part of the IOCs discussion with government. “The government is making some good steps on the PIB, changes to the JV oil terms – we are looking forward to that. We have also talked about our concerns in the public hearing on JV gas in deep-water terms, they need to be competitive to draw more money into Nigeria. “We see a lot of potentials in Nigeria, there is a big oil and gas reserves here; we just need to have the right framework in place to have a globally competitive fiscal prices in place to help us develop,” he added.

Similarly, the Managing Director of MPN, Paul McGrath, explained that: “To unlock the potentials in the country, we need first of, certainty. The recent work that is being done in the petroleum industry bill and the reform in the national assembly is an excellent piece of work, but it needs to have an end result.”

“We need to have an industry reform bill or set of bills that will attract international investment not push it away. I’ve been very encouraged with the dialogues we’ve had with the national assembly and the technical teams till date. “They have listened, they are listening and tried to engage the industry and I think that is very interesting but at the end of the day, we need to stop talking about industry reform, have industry reform and then move on and unlock the potentials,” he noted On deregulation and Halting subsidy.

Operators are seriously complaining on tough operating environment in the downstream sector which they claim has warranted many players in the industry divesting while some close shops.

According to them the sector is in desperate need of reforms which will stop government’s interference in the value chain, saying its activities are fast destroying and frustrating downstream-focused businesses.

The operators appealed to the government to take its hands-off the downstream sector and argued that the potentials in the downstream sector could only be unlocked in a deregulated environment.

The Chairman, Major Oil Marketers Association of Nigeria (MOMAN), and Managing Director/Chief Executive Officer, 11 Plc, Tunji Oyebanji stated that the nation’s downstream oil industry is “in serious trouble.” , stressing that majority of the oil marketing companies doing business in Nigeria are running at a loss.

“Today, many of the players in the industry, not necessarily MOMAN, have closed shop; now people are divesting while some people are closing shop”, he said.

He cautioned that the fact that there are fuel products and no queues at the fuel stations should not warrant that the health of the industry is good.

He said the situation where the oil industry keeps going on a downward trend is something that calls for urgent concerns, “a day will come when things will get very bad and we end up having only a national oil company because all the other entities have closed shop.”

According to him MOMAN is advocating for free and deregulated market.

‘’We cannot control government policy; ours is just to advise. We have to try and operate in whatever system that exists, but we believe based on what we have seen in many other countries, especially since many of us are heritage companies/multinationals, the long-term survival and sustainability of the industry will come in a deregulated environment.

‘’When the government is controlling everything, it is unable to respond freely because sometimes political considerations outweigh economic considerations. I have always had the personal belief that you cannot solve a problem that is basically an economic problem by political means; it is not sustainable. You can do it for some time, eventually, the numbers would not add up.’’ What you are trying to do is just trying to patch this situation because you don’t want the political fallout on it. Ultimately you have to find an economical solution to an economic problem. ‘’ he noted

‘’Our position as MOMAN is that a free and deregulated industry is better for the country. Governments should then concentrate on making sure that quality products are brought in and that nobody is overcharging consumers. The government needs to ensure that people are not forming monopolies and doing what you call price gauging, in order to ensure that standards are maintained by all players in the industry as well.’’ He stated

‘’Today government, through NNPC is busy importing fuels and doing things that should have been left purely to the private sector. There is no way that government will do business efficiently and that is reflected in the fact that our refineries, as you see today, are not working, purely because of the way the government is set up. If you look at our refineries, they are just like an old Peugeot 504 bought and driven many years ago, yet the same car is being put on the road in 2019, even when it was not maintained regularly. Such a car will not survive.’’

The Director General, Lagos State Chambers of Commerce and Industry (LCCI ), Mr. Muda Yusuf said that perhaps the biggest burden on the economy today is the petroleum subsidy regime.

 said the government should encourage private sector players to take over the downstream sector of the petroleum business.

He said, “When this is done, most of the challenges we see as regards subsidy, refineries and others will be adequately addressed. The government should only play a regulatory and not an operational role.

“Government has no business refining petroleum products, retailing or distributing fuel as well as the marketing of these products. We cannot continue to carry that kind of burden in the oil sector,’’ he said .

Yusuf added: It is a big hole in the finances of government. It puts tremendous pressure on the foreign exchange market and foreign reserves, just as it exerts immense stress on the nation’s treasury. `It remains a cause for concern that the subsidy regime had subsisted, especially at time when the economy is facing unprecedented fiscal challenges.` `At a time when productivity in the economy is constrained by acute infrastructure deficit; at a time when public institutions are finding it hard to pay salaries. There cannot be a better example of resource misapplication.

Equally, the Group Chief Executive, Oando PLC, Wale Tinubu, urged Mr Kyari to ensure he provides the leadership for the industry “to speak with one voice against the government’s continued payment of fuel subsidy.”

Mr Tinubu described fuel subsidy as one of the issues hurting the country’s oil and gas industry and the economy.

“Government has chosen to effectively subsidize the price of petroleum products as a social palliative, not that we support. The debate about subsidy is one that needs to be made.

“The oil industry absolutely needs to challenge and champion the debate on subsidy removal. But, there is long-term damage to our country’s economy and the oil and gas industry with the continuous payment of petroleum subsidy. We need to ensure the subsidies are halted,” Mr Tinubu said.

He said the industry must have a voice on the subsidy removal matter, rather than accept what the politicians are saying. “The industry has a voice that needs to be heard,” he said.

Mr Tinubu described Mr Kyari as a blessing to the industry, not only for his experience, but also his positive disposition towards industry reforms.

The Group Managing Director of Nestoil Group, Ernest Azudialu-Obiejesi, advised the federal government to allow market forces to dictate the price of gas and petroleum products to allow the country’s economy benefit from the vast endowments.

As it stands now all hope are high as Mele Kyari ‘A transparency champion, reformer’ is in full charge.

How far he goes to in surmounting these awful challenges and providing genuine leadership in NNPC will determine how far his name will be written in the heart of oil and gas stakeholders.

SOURCE: Champion