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Oil Sector: WoodMac, Fitch on possible impacts of Buhari’s re-election

The victory of President Muhammadu Buhari at the just-concluded polls may create stability in the nation’s economy, particularly the oil and gas sector, but challenges confronting the industry may remain.

Analysis by global think-tank, Wood Mackenzie expect limited changes in the direction of the nation’s economy and the oil and gas sector. Indeed, it insists that expected reforms that would drive investment, economic growth, and job creation might remain a mirage for the next four years.

Director, sub-Saharan Africa Research at Wood Mackenzie, Gail Anderson, said: “A second term means stability within key state bodies, such as the Nigerian National Petroleum Corporation (NNPC), and the Ministry of Petroleum Resources. Of course, the President could take the opportunity to re-shuffle personnel, although we expect little change in direction.”

Anderson equally expressed pessimism over economic growth, as the tight control of the monetary policy will continue. “In his first term, Buhari presided over collapsing oil prices, production outages, and a depreciating currency. The economic climate now is better than it was in 2015, but we expect no change in his economic approach, which is about tight control over Nigeria’s monetary policy and its main revenue earner, oil and gas,” she noted.

With $200 billion stranded investment because of failure by successive governments to pass the Petroleum Industry Bill, stakeholders expressed doubt over anticipated reform in the sector, as the President, who doubles as the Minister of Petroleum Resources, earlier turned down the document, which would have tackled critical challenges in the sector.

With the ruling APC regaining control of the National Assembly, Anderson added that there are no guarantees of the bill becoming a reality. “The legislative route to reform will likely hit a roadblock.” This will in turn affect investment inflow into Nigeria, as investors await the assent to the bill. “With major final investment decisions (FIDs) highly unlikely until the issue is resolved, these negotiations will go a long way to determining whether Nigeria’s world-class deepwater has an attractive long-term future. There is a lot at stake in the next four years,” she argued.

Fitch Report on its own part has cautioned that the country may experience slow progress on reforms on oil sector legislation following President Muhammudu Buhari’s re-election for a second term in office.

According to the report, “We expect Nigeria to experience some localised instability in the short term, as the outcome of the February 23 elections are disputed in the courts, and on the streets. Although such political unrest is unlikely to persist, we expect overall political risk to remain elevated throughout 2020, acting as a headwind to investment.”

“The re-elected incumbent, Muhammudu Buhari, is likely to maintain his previous policy stances, suggesting only slow progress on key oil sector legislation and broader reforms. While the start-up of the Egina offshore oilfield in December 2018 , and the planned opening of the Dangote oil refinery in 2020 should see real GDP expand at a more rapid rate than in Buhari’s first term, low capital investment and high borrowing costs will act as headwinds to growth in the years ahead.”

Sources: The GuardianIndependent