Nigeria’s Oil House of Commotion

*A lone boatman in the Niger Delta.

*A lone boatman in the Niger Delta.

Oscarline Onwuemenyi

08 January 2016, Sweetcrude, Abuja — A cursory look at Nigeria’s oil and gas industry would give the impression everything is going smoothly. But, that’s far from the case. In fact, as many industry analysts have told Sweetcrude Reports, the oil and gas industry in Nigeria in its nearly six decades of existence has never had it worse than the current situation.

Indeed, a careful analysis of the industry would reveal a house in utter disarray, lacking clarity and direction, a wobbling giant who has lost its feet in the fast-moving arena of global energy price depreciation.

Like a Hare caught in blinding headlights, the industry managers seem bereft of ideas about how to turn around the huge ship that appears destined for the rocks. So far, in the absence of a clear-cut vision or programme for the industry, Nigerians are being offered platitudes or meager tokens such as the sack of a few officers and reduction of petrol pump price by 50 kobo.

Many observers are of the opinion that Nigeria has lost dominant grip on her oil and gas business. The country has remained a net importer of dollar-driven white petroleum products, instead of the other way round. Even before the slump of crude oil prices, the level of profits in the older Joint Venture agreements had drastically reduced; the nation is mired in a subsidy morass, the system is blighted by an alarming increase in corruption and crude theft, even as it swims from one crisis of product shortage to another in the downstream sector.

But, it won’t be fair to put the entire blame on the present Federal Government, since it has only been in power for seven months. The rot and destruction started many years ago, over several administrations who saw the industry as a cash-cow, only good for milking and not sustaining.

The government of President Muhammadu Buhari won the elections last May against an incumbent, on the promise that it shall no longer be business as usual in the oil and gas industry. Seven months down the line, Nigerians are yet to see a coherent and comprehensive plan to revamp the industry or, at least, semblance of traction on passage of the (in)famous Petroleum Industry Bill, PIB.

Granted, Buhari sacked some directors at the Nigerian National Petroleum Corporation, NNPC, appointed a new Group Managing Director, and made himself Minister of Petroleum Resources, but many industry watchers believe that’s not enough, especially in the face of buffeting global economic headwinds and financial crunch at home.

The new GMD of NNPC, Dr. Emmanuel Kachikwu, who has been given the marching orders to recover some “lost trillions” has, nonetheless, conceded that the mission is a daunting one. Kachikwu has admitted that there is need to redefine the physical and fiscal structures in the industry if any progress is to be made.

During his Senate screening, Kachikwu noted that other countries that relied on oil were leaving Nigeria behind. He cited Qatar and Dubai as two countries that have invested in gas. The NNPC boss noted that corruption was a huge cog in the wheel of progress of the NNPC but said President Muhammadu Buhari had showed his readiness to tackle the problem.

“There is however the corruption and structure problem at the NNPC… We are in an era of a president ready for fundamental change.”

However, a Professor of Energy Law and President of the International Institute for Petroleum Energy Law and Policy, Niyi Ayoola-Daniels, who spoke with our correspondent in Abuja, believes that the present global state of the energy industry calls for a definite and clear-eyed vision and direction about the role of oil and gas production in the long-term sustainability of the Nigerian economy.

He noted that, “These are hard times for Nigeria, and hard times call for hard-nosed re-examination and re-strategizing on the Nigerian Gas Master Plan. Nigeria must be in a hurry now more than ever to work towards the diversification of our economy and stimulation of our import substitution strategy anchored on natural gas development and commercialisation.”

Ayoola-Daniels praised some of the changes happening at NNPC, but advised that the changes should not foreclose the urgent need to overhaul the entire petroleum sector using the yet-to-be passed PIB.

He noted that, “President Buhari wants change in the oil and gas industry, but if change is going to happen in the oil and gas industry and indeed in Nigeria, the Petroleum Industry Bill, PIB, must be passed within a year of his administration.

“The changes should go beyond shakeups at the NNPC. Reorganising the way the NNPC works is good; however, it should not be considered an end to the challenges in our petroleum sector.”

Pass the PIB, already
Some of the key challenges that are currently bedevilling Nigeria’s oil and gas industry and which the PIB will be seeking to address if passed into law, include the NNPC funding challenges in the upstream; the Joint Venture arrangements between NNPC and the international oil companies presently account for more than 60 per cent of Nigeria’s crude oil production but the NNPC has always defaulted in payment of its counterpart funding obligations. Indeed, the upstream sector activities have been greatly hampered and almost being grounded completely by the challenges of funding the operating budget and NNPC cash call obligations.

Other challenges include crude oil theft and pipeline vandalism; decline in Nigeria’s crude oil production, largely caused by the two factors of poor funding and oil theft; legal and regulatory uncertainties; lack of clarity, policy inconsistencies, executive fiat, discriminatory and discretionary practices including special waivers to favoured companies are all part of the challenges facing the oil and gas industry today which the restructuring of NNPC may not provide complete solutions to, but the PIB can.

According to Ayoola-Daniels, President Buhari must see the speedy passage of the PIB under the 8th National Assembly as a matter of top priority and national importance.

He said, “As the head of the All Progressive Congress, APC, the ruling party, the president must reach out to the National
Assembly where his party is in the majority and take personal ‘ownership’ and responsibility for the speedy passage of the PIB which by law has to start its legislative journey de novo.”

He said the President should, as a matter of top priority, develop a legislative agenda, given the unique significance of the petroleum industry to Nigeria’s economy. Such legislative agenda for 2016 must be laid out by the President and outlined for both the National Assembly and the nation at large.

“Also, the President should vigorously lobby the leadership of both houses in order to help get this PIB passed soonest,” he noted.

He added that Nigeria’s dependence on oil for over 90 per cent of her foreign exchange earnings makes her capital account vulnerable to the fluctuations in crude oil prices. “Given the continued decline in global oil prices and future expectations to remain so there is need for government to give laser-beam attention to gas and re-strategize to ensure survival.

According to Ayoola-Daniels, the NNPC as presently constituted is not structured to succeed commercially since it combines the role of a policymaker, regulator, tax collector and operator. “It operates very much as a government department and is dependent on federal government funding by appropriation through the National Assembly,” he stated.

He explained that this lack of commercial focus leads to inefficiency in its operations and leaves room for corruption. “NNPC’s current legal and corporate structure has given room to heavy political meddling and interference into its affairs,” he said.

Nigeria’s national aspiration for the oil and gas industry revolves around growing crude oil reserves to 40 billion barrels and production capacity to 4 million barrel per day. The objective is to increase Nigeria’s oil production within the overall framework of the Organisation of Petroleum Exporting Countries, OPEC.

Higher levels of production will mean more employment and business opportunities for Nigeria and more government revenue. “We also aspire to significantly monetise our gas, transiting the Nigerian oil sector from being an oil industry to an integrated oil and gas industry thereby generating as much revenue from gas as oil,” he added.

Also speaking with Sweetcrude Reports, a former Industrial Relations Manager, NNPC, and past-President of the Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN, Mr. Brown Ogbeifun, opined that the oil and gas industry in Nigeria has faced its most difficult times in the last decade, adding that NNPC being a key player in the sector has, unfortunately, been the most brutalized and maligned by the Nigerian State.

“When one takes a cursory and reflective appraisal of the spate of criticisms against the NNPC against the backdrop of the fact that oil and gas have been used as a potent tool for the socio-economic advancement of Norway, Brazil, Saudi Arabia, Kuwait,
Qatar, Malaysia; one cannot but empathize with the informed, who falsely accuse NNPC of ills perpetrated by the same government that should protect her; and the uninformed who innocently castigate NNPC workers for no fault of theirs,” Ogbeifun noted.

He said that whereas other oil producing nations have efficient, effective, reliable and enviable infrastructure, health, educational and agricultural systems with sustainable industrial growth, Nigeria’s case reflects a paradox of these ideals.

He further noted, “The desire of the country was to increase the National Oil Reserve base from 36.22 billion barrels to 40 billion barrels with a daily production of 4.5 million barrels by the year 2010. Five years over and above that timeline, we are not doing up to half of that expected optimum because of cyclical and vicious cycles of vandalism, massive crude oil theft and lack of serious direction as typified by the conspiracy of the ruling class in the non-passage of the PIB.”

Ogbeifun noted that the governors not benefiting maximally from the beggarly Nigerian rent economic system, which has worsened with the slump in crude oil price, made it easier for the NNPC to be consigned to the slaughterhouse.

With the present sordid state of affairs and the forecast that the present oil reserve is expected to last for just a little above thirty years, if no additional reserve is added, one has to be worried stiff for the future of the country. There is nothing in the horizon that points to any serious plans for diversification and growth of other sectors. Worst still, the games of crude theft and vandalism of petroleum products pipelines are not abating.

Ogbeifun believes it is for these reasons that every right thinking person must support the oil and gas initiatives of President Muhammadu Buhari.

He noted that, “If this government truly wants to reposition the oil and gas industry for the future we all dream of, it must be ready to go beyond the window dressing of untimely retirements of hardworking innocent staff; and deal with the tap root of the endemic political interference in the running of the NNPC, which has become the Achilles heels of the organization.

“There is no doubt also that there is still lack of clarity in the current financial regimes, royalties and taxes in the oil and gas sector. This is vivid with the confusing and conflicting figures reeled out during reconciliation processes among the agencies responsible for the receipts of the funds meant for the federation account.”

The labour leader observed that, “While the anti-corruption mantra of the government should be encouraged and supported albeit as regards the NNPC, all actions should be cautiously taken in the restructuring, reorganization or re-positioning of the NNPC. The actors involved in this process should be guided by a sense of history.

“Mr. President promised to create jobs not destroy them. It is therefore, an imperative that whatever must be done to clean up the rot in the oil and gas industry, every inch of the journey must be transparent, not selective and must display utmost respect for the dignity of man,” Ogbeifun added.

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