A Review of the Nigerian Energy Industry

Buhari’s delayed flight to Forcados


Chijioke K. Mama

18 May 2015, Sweetcrude, Lagos – Nigeria’s problems are organic and so should their solutions be. If taking a flight to the Oil Terminal at Forcados, figuratively means a solution to the myriads of problems facing Nigeria’s oil and gas industry; then President-elect Muhammadu Buhari’s flight has already been delayed; it may as well be cancelled.

There is palpable optimism in the industry and in the larger Nigeria that the incoming government will salvage a bedeviled industry. This feeling is justified by the pains of a resource-endowed nation that has nothing to show for it. The good motives of Mr. Buhari and his economic team is not being questioned, however, the position of the industry, the reality and scale of the required restructuring largely betrays that optimism and that sense of urgency.

The policy thrusts of the Petroleum Industry Bill (PIB) has been in existence for 15 years; having been derived from the contents of the submissions originally made by the Oil and Gas Sector Reform Committee (OGIC) constituted by President Obasanjo on April 27, 2000. Every President since that date has had the will to implement it, which inspired the commissioning of the second version of the committee by President Yar’adua on 7th September 2007. Succinctly, Presidential or executive will has never been the problem.

Despite this history, the incoming administration in Nigeria is confronted with a number of realities that may further undermine the speed of the much awaited reformations.

The Realities:
Reality A) given the drama that preceded Buhari’s election and the pitch of his party’s campaign, based on the change mantra, the electorate’s expectation has been raised beyond the ceiling and this government must deliver!
Reality B) the nation currently faces huge fiscal and revenue challenges, occasioned by the yearlong fall in oil prices and accusations of embezzlement and theft on the part of the outgoing government. This simply means that the federal pocket (aujourd’hui) is lean.

Reality C) Nigeria is a hydrocarbon-dependent economy, as it contributes about 70 percent of government earnings. A non-diversified economy means the new government has to hold even stronger to the single source of income (petroleum) until an effective diversification strategy is implemented (which ideally take years).

Invariably, the massive disruptions that accompany a huge change program such as a PIB implementation may not be immediately healthy or attractive for this government to embark on. The President-elect while addressing a delegation of Northern elders led by Maitama Sule recently, has asked Nigerians to “Temper their expectations with justice” A pointer to the utter absence of the magic everyone is waiting for.

Reality D) the most conspicuous problem facing the oil and gas industry in Nigeria is its relationship with government and thus its governance. The role and structure of the Nigerian National Petroleum Corporation (NNPC) as a state owned company. The obsolete and non-commercial administrative models in agencies such as the Ministry of Petroleum and The Department of Petroleum Resources (DPR) are major huddles (they are largely based on the Petroleum Act of 1969 and the NNPC act of 1977). These regulatory frameworks, originally designed for a nascent industry, have evolved in ways that enable the executive to keep a tighter grip on the resources and thus revenues, while simultaneously promoting non transparent practices.

This reality is captured in the words of Dr. Egbogah (Former adviser to the President on petroleum matters) when he pointed that “NNPC is simply a typical State institution that operates as a huge amorphous cost center with little or no sensitivity to the bottom-line”

In as much as Buhari would be very willing to salvage the oil and gas industry. if that becomes his first move (as many expect) then he is more likely to fail in the rest of his electoral promises. This is because the multi-year restructuring plan is bound to keep the industry in an even greater state of instability and uncertainty (normal in all big change projects), a condition that may well endure till his first tenure finishes in 2019 and even beyond that.
Secondly, if he agrees to run a model that frees the executive’s grip on the industry (immediately) and allow a fully commercial, private sector-based model of governance as outlined in the PIB, the impact would be a reduced ability to retain that control that empowers government to muscle all other stakeholders or delay its obligatory expenditures in Joint Ventures (JVs) (“Cash calls” that NNPC calls “burden”).

These situations will fiscally undermine the infrastructural development promises of Mr. Buhari and the capacity to empower state agencies that will execute his “beloved” anti-corruption campaigns.
While many Nigerians do not understand the governance framework in the oil and gas industry and its peculiar challenges, they expect (yesterday) a quick turnaround in the economy in measurable ways. Especially through policies that will deliver inclusive growth by reducing cost of living and supporting SMEs (the part of the economy they interact with frequently).

What Buhari’s economic team might advise him to do is to sustain the status quo in the oil and gas industry in other to at least ensure executive buoyancy and much needed calm, in an industry that holds so much. Once this fiscal buoyancy – in its various forms – is guaranteed at the expense of the continued mismanagement in the industry; then the team will have enough funds to deliver infrastructure, education, security and fight corruption; a cogent argument that will not be understood by many.

When these have been delivered to a reasonable extent, then the decade long journey towards the restructuring of the oil and gas industry might as well commence. That flight to Forcados we talked about earlier; with many stopovers that will not be brief.
*Chijoke K. Mama is a Senior Oil and Gas Analyst and Founder of Kevin & Butlar (www.kevinbutlar.com)
Chijioke.mama@yahoo.com | 070-6101-3333 | twitter @chijiokemama
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