A Review of the Nigerian Energy Industry

Transition Committee suggests merger of oil, power ministries

Ahmed Joda handing over report to President Buhari.
Ahmed Joda, Transition Committee Chairman handing over report to President Buhari.

*Creation of office of Reform Czar, passage of PIB
*Wants amnesty extended by one year

Oscarline Onwuemenyi

08 July 2015, Sweetcrude, Abuja – The Transition Committee set up by President Muhammadu Buhari have recommended a root and branch overhaul of the country’s oil and gas industry and increased borrowing to help pay off $20 billion of government arrears, a reform proposal document shows.

Details were gleaned from an 800-page report submitted by the transition committee last month but the details have not been made public.

Among its recommendations were slashing the size of the civil service, overhauling the much-criticized state oil company and removing costly petrol and kerosene subsidies, according to an executive summary obtained by our correspondent in Abuja.

According to the report, Buhari should appoint a “Reform Czar” within the president’s office to oversee changes, the committee suggests.

“Time is of the essence, and expectations are high. The administration must act now,” the report says.
The paper lays bare the dire state of public finances in Nigeria, which has been hammered by the effects the falling oil prices last year. The country relies on oil exports for 80 percent of government revenues and 90 percent of foreign exchange earnings.

The country has arrears totaling 4.1 trillion naira ($20.6 billion), including 400 billion naira in unpaid salaries, 200 billion in arrears to fuel importers and 1 trillion naira to the oil industry, the paper shows.

The committee recommends paying salary arrears and fuel subsidies immediately to avoid “mass labor unrest.”
The Accountant-General of the Federation said on Monday he would share $1.7 billion from the oil savings account between the three tiers of government to cover outstanding arrears, suggesting the committee’s proposals are being implemented.

Paying government arrears should be funded by issuing 600 billion naira in bonds, restructuring existing debt and renegotiating or scrapping some government contracts.

“The incoming government will therefore have very limited resources and a plethora of challenges to address,” it said.

The report stressed the need for an independent central bank and said it would “ensure that only professionals” served on its board. It made no mention of monetary policy.

It also recommends cutting costs by slashing the number of government ministries to 19 from 28 and removing “top-heavy appointments” within the presidency.

Part of the streamlining would also include establishing a new ministry of energy to oversee power and oil and gas, a merger that would create a powerful and important portfolio.

Buhari has yet to announce his cabinet and may not appoint ministers until September.
He has also said he wants to recover funds stolen by former government officials and oil companies.

A 2013 investigation by former central bank Governor Lamido Sanusi found NNPC had failed to pay $20 billion in revenues to government accounts. NNPC denied the charges.

Contracts between NNPC and oil firms and fuel traders should be reviewed, the committee suggested. NNPC works alongside oil majors such as Shell, Exxon, Chevron as well as global oil traders, including Trafigura, Vitol and Glencore.

Buhari dissolved NNPC’s board last month, pledging to purge corruption.
His advisors also said he should pass into law the Petroleum Industry Bill (PIB), a complex and wide-ranging piece of legislation that has been delayed for eight years due to wrangling between the oil industry and government.

The committee recommends passing an old version of the PIB, which includes creating incorporated joint ventures between oil majors and NNPC, a policy strongly opposed by foreign oil firms.

Industry experts believe passing the PIB could take months or even years and a more realistic approach would be to break it up into more manageable pieces of legislation.

In 2009, Nigeria’s government agreed an amnesty and stipend payments with former Niger Delta militants, who during the height of their attacks on pipelines cut up to a third of the country’s oil output and moved world oil prices.

The amnesty should be extended for another year, the committee said.
Furthermore, part of the submission to President Buhari on the roadmap for his government, the oil and gas sub-committee of the Transition Committee recommended the deregulation of gas prices and the acceleration of domestic gas supply to 250mmscf per day within the first 100 days of the administration.

According to the document obtained by our correspondent in Abuja, domestic gas supply can be ramped up immediately, through boosting the current gas processing capacity in the Nigerian Petroleum Development Company’s (NPDC) 2tcf Oredo field, where gas wells have been drilled and can produce additional 135mmscf per day. In addition, Pan Ocean Ogharefe gas plant which is in close proximity to the Oredo field, can also be boosted to optimise its capacity. The plant has a capacity of 200mscf per day but is currently under utilised at 30mmscf per day production.

On medium to long term objectives, the oil and gas sub-committee wants the Buhari government to launch an accelerated programme to develop Non-Associated Gas fields in the Western Niger Delta, to fill the current 200 – 300mmscf per day excess processing capacity available in the region.

The medium term plan of 12 to 24 months should ensure additional gas deliveries from OML 42, OML 34, OML 30, OML 26, OML 135 and 75.

The long term plan should aim at ensuring additional gas deliveries from OML72, Erha, Bonga and Asa North.
Industry players are optimistic that the deregulation of natural gas pricing which has been one of the fundamental issues stunting the growth of the gas sector will make a positive impact on the economy.

“If we get our gas pricing right, people will invest in gas and there will be infrastructure, and that is what is holding Nigeria back from industrial explosion.

“If the new Buhari administration directs attention to gas and we take gas to every part of Nigeria, there is nothing this country cannot achieve. If this administration wants to succeed, gas is the first thing”, said Joe Ezeigbo, chief executive of Falcon Corporation, in an interview.

On his part, the Chairman of Society For Engineers (SPE), Nigeria Council, Mr. Emeka Ene noted that, “We have to recognise that gas projects are long term, high cost and gestations period for recovering of cost is usually 10, 15, 25 years. If that is the case, for you to undertake a 10 – 15 years project, you have to secure the fixed cost, you have to secure the profits, then the project becomes bankable and then you secure the final off-takers.

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