29 June 2016, Lagos – The former Special Adviser to the late President Umaru Musa Yar’ Adua and former President Olusegun Obasanjo on Petroleum Matters, Dr. Emmanuel Egbogah, has urged President Muhammadu Buhari to approve the conversion of the existing Joint Ventures (JVs) between the Nigerian National Petroleum Corporation (NNPC) and the international oil companies (IOCs) into Incorporated Joint Ventures (IJVs) to solve the problem of federal government’s inability to provide cash calls for the JVs.
THISDAY gathered that the initial Petroleum Industry Bill (PIB) submitted to the National Assembly by the President Yar’Adua administration had provided for the incorporation of the JVs to become IJVs.
However, the IOCs had opposed the IJVs following concern that the NNPC, which controls the majority stake might run the incorporated companies.
But in a letter addressed to President Buhari, which was obtained by THISDAY, Egbogah insisted that only the conversion of the existing JVs to IJVs would solve the funding challenge facing Nigeria’s oil and gas sector
He noted that one of the biggest challenges facing Nigeria’s oil and gas industry has been that of funding.
“The international oil companies in the existing joint venture arrangements have consistently complained that government’s budgetary allocations for cash call purposes have often and chronically fallen short of requirements over the years, thus never permitting exploration and production developments to reach their real potential. This has negatively impacted capital expenditure requirements for increasing exploration and production levels from the existing Joint Venture fields, thus leaving the industry in a state of stagnation, thus preventing its full contribution to the national economy,” Egbogah explained.
The former presidential adviser further informed President Buhari that the cash call challenge prevented the country from attaining daily production and reserves targets of four million and 40 billion barrels, respectively by 2010.
According to him, as at January 2015 the NNPC was indebted to about $5 billion in cash calls to its six joint venture partners –Shell, Chevron, Mobil, Total, Agip and Pan Ocean.
THISDAY however gathered that as at April 2016, NNPC’s indebtedness to the JV partners stood at $7 billion.
Egbogah noted that due to these cash call shortfalls from government, the oil and gas industry has resorted to rather expensive alternative funding (AF) approaches in financing some green field projects.
He argued that these AF approaches are short term and have not provided acceptable stable solution to the funding problem and cash call crises.
“Rather, the cash call shortfalls have steadily risen from a few hundred million to current $5 billion. JV funding is therefore an immediate challenge for which a long-term solution must be sought,” he added.
Citing Egypt, Oman and the Nigeria LNG Limited, which adopted IJVs, Egbogah insisted that a long-term solution should involve conversion of all JVs to IJVs, which can obtain loans and go to the capital market for funding.
“The IJV will be an entity incorporated under the laws of the Federal Republic of Nigeria, registered with the Corporate Affairs Commission (CAC) of Nigeria and the incorporation process, including capitalisation and restructuring, will be carried out through negotiations with the respective international oil companies during the reform transition period,” he added.
He urged the president to ensure that all existing JVs are converted to IJVs so that they become operational no later than the 2018 budget cycle.
According to him, the realisation of the IJVs will bring to an end the perennial headache to government of funding its share of the oil and gas business through cash calls, as well as establish more sound and profitable management of our economic resource.
Egbogah listed the benefits of IJVs to include the liberation of IJV from funding uncertainty; involvement of NNPC staff in all aspects of the operations; providing government with a better forecast of net revenue from oil and gas industry and ensuring more efficient operation by removing the layer of supervision done by NNPC as well as reducing cost of operations.
According to him, IJVs will also assure efficiency by tension created by staffing with shareholder employees.