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 Nigeria may never harness full development potentials in the Oil & Gas industry – Dr. Babajide Agunbiade

Nigeria may never harness full development potentials in the Oil & Gas industry – Dr. Babajide Agunbiade


The Nigerian Oil and Gas sector has been the lifeline of the economy over the years and this has been a source of concern to both local and foreign stakeholders.

In this interview with Dr. Jide Agunbiade, Director, National Oilwell Varco, Houston, Texas, the largest Oil and gas equipment manufacturing company in the world, he shared his views on the nation’s dependency on the sector, the Petroleum Industry Bill among other industry issues.

How would you assess the Nigerian petroleum industry?

An assessment of the Nigerian petroleum industry reveals that the NNPC is one of the inefficient government institutions in Nigeria, with heavy political interference, ambiguities, corruption and nepotism. Recent investigations and probes into government corruption in Nigeria reveals that a substantial part of government corruption, originates from the activities that relate to the management of the oil and gas proceeds, supposed to be channeled towards the growth and development of the nation.

Despite the monetary resources remitted to its coffers, NNPC has since been facing challenges in funding its upstream operations and obligations. NNPC has also failed to effectively manage the downstream sector, which is characterized by moribund refineries, scarcities, inconsistent and uncompetitive fuel prices. Despite the abundance of petroleum commodities in Nigeria, the country’s largest import is from the petroleum products, which increases the supply and reduces the value of the Naira in the foreign currency market.

What about its international goodwill?

Consequently, NNPC has lost its international goodwill, because of its inconsistency and political interferences, and this has caused doubt and high business risk in the Nigerian oil industry. Though an oil rich country, Nigeria is the world headquarters of poverty, which explains further the poor management of the oil resources in the country.

Furthermore, in recent times the Nigerian petroleum industry has also been negatively impacted by a number of external factors such as a surplus of global crude supply leading to global oil price decline, competition from renewable energy, the devastating impact of the Covid-19 pandemic on the global oil economy, as well as the 2020 fracturing of the OPEC+ alliance (with Russia) leading to a sharp decline in oil prices in 2020. Many of these challenges though near to medium term have the potential to continue for the longer term.

In September 2020, President Muhammadu Buhari proposed the scrapping of the NNPC and the creation of NNPC Limited, in the new Petroleum Industry Bill 2020 submitted to the National Assembly.

The hope is that with the proposed scrapping and commercialization of the NNPC, this will mark a turning point for the petroleum industry in Nigeria and that the challenges that the sector has faced for many years will be addressed and remedied.

Former President Obasanjo decided to privatize the nation’s refineries but was reversed by former President Yar’adua. Today, the nation has spent hundreds of millions on them. If you are the President, how will you address the issue?

More than 55 years after Nigeria started producing and exporting crude oil and gas, the government-owned refineries — located in Port Harcourt, Kaduna and Warri, are sitting idle. Prior to their shutdown, the refineries were performing minimally due to years of neglect, mismanagement and pillage, leaving the country almost wholly dependent on imported petroleum products. Claims from successive governments, of turnaround maintenance and rehabilitation of these refineries have yielded no positive results.

The Government has deviated from her traditional role of providing social services, law and order etc., to conducting businesses. She has channeled her funds and energy into business ventures such as running the refineries which have led to spending hundreds of millions with no significant change. Since the de-privatization of the sector by Yar’adua, the nation has suffered a decline in oil-revenue despite the amounts been spent on running these refineries.

If you were the President of Nigeria, what will you do?

Relinquish government control of the operation and management of the nation’s refineries by divesting a majority of its 100 percent equity to competent, resourceful and experienced independent private refining firms with the requisite capital and technical expertise needed for the development and maintenance of the refineries.

I will also establish a governmental agency that would have a board made up of external and independent stakeholders, that would govern and regulate the activities of these independent private refining firms.

Privatizing the refineries, the government and the nation as a whole stand to gain several advantages which include but not limited to improvement in the efficient allocation of resources, for mobilizing investment and for stimulating private sector development; reduce corruption and parasite mentality of Nigerians towards government-owned sectors and infuse capital and modernize technology in our refineries, many of which have not seen any improvement for years among others.

What is your take on the PIB, have you observed any gap?

A major gap in the PIB 2020 is that the government’s continued control of the new NNPC raises concerns of a likely continuation of old practices such as corruption and weak accountability. Also, the PIB 2020 does not specifically require the government to sell shares in NNPC Limited and this may stifle the much-needed fundraising required for the growth of the sector. Furthermore, unlike previous reform proposals, the PIB 2020 does not set a specific deadline for when the privatization/commercialization will be completed.

Also, the passage of the PIB is being pursued without matching the goals and vision of the PIB and the country’s energy policies. Without linking the PIB to a clear energy policy direction that responds to the troubling issues of epileptic power supply, the security of local consumption of gas, reform of the downstream sector and refineries, enhancement of local content, linkages between the Oil and Gas (O&G) sector and local economy in order to unleash the industrialization potentials in Nigeria, Nigeria may never be able to harness the full development potentials in the O&G industry. And for so long, it is unlikely to free the sector from the instability that threatens the revenue peace in the Niger Delta.

What is your take on the alleged unbundle of the NNPC under the draft of the new PIB?

I believe the unbundling of the NNPC would make for a clear separation of powers, increased statutory and sectoral funding, operational autonomy, transparency in appointments and dismissals, and insulation from political influence, within the newly established governmental entities.

If unbundled, what structure do you suggest should be implemented to further block holes in the sector?

I believe the structures/new entities proposed by the PIB 2020 (as discussed above), should be adequate to block holes in the Nigerian oil and gas sector.

Globally, one key structure that helps block holes in the oil & gas sector is sustainable finance. International experience shows that NOCs need flexible, reliable options for accessing capital while maintaining checks and balances that prevent them from becoming states within the state. Of particular importance is developing a workable revenue retention model that allows the kind of medium and long-term planning needed for effective commercial operations. This can be achieved by publicly listing the NOC shares. If managed well, public listings can enforce market discipline. They have encouraged innovation and efficiency in Petrobras (Brazil), Statoil (Norway) and KMG (Kazakhstan).

As a case study, Brazil partially privatized Petrobras in 1997 with the ratification of Law 9.478. At the same time, the state established a regulatory body, the National Petroleum Agency, to guide Petrobras through its transition to a mixed public-private entity, and in particular, to assist in the sales of its shares abroad (notably on the New York Stock Exchange). Proceeds from the sales then went back into the sector, principally in offshore drilling and exploration.

This exercise served Petrobras’s stated goal of increasing revenues in three ways. First and most obvious, the share sales raised cash upfront. Second, compliance with stringent U.S. stock exchange reporting requirements incentivized better, more efficient management, which in turn reassured investors when Petrobras went out to raise capital. Third, the share sale helped reduce fuel subsidy costs, which were ballooning Brazil’s public debt and inflation. By creating new and binding obligations to maximize Petrobras’s profits for shareholders, Brazil gave itself a fresh legal argument against entrenched interests around subsidies. Phaseouts were then done gradually to reduce political fallout, with price controls on products with smaller market shares (jet fuel, lubricants and kerosene) reduced ahead of the big gasoline and diesel subsidies. Within a period of years, Petrobras’s production levels, proven reserves and revenues increased substantially, and the company has further enhanced its skills and reputation as a world leader in deepwater exploration and production.

The Bill provides for a 10% Host Community Fund for inhabitants of communities hosting oil and gas resources but failed to disclose how the fund will be sought. Do you think this will create issues in the future?

The PIB 2020 states that the funds will be sought from contributions received from E&P companies operating within the community. The issue I foresee arising is how the payment of the 2.5% of the actual operating expenditure of these E&P companies will be enforced, in terms of if the E&P companies can be made to accurately disclose their actual operating expenditure for the preceding year. However, this may be resolved by ensuring they submit their audited accounts for the preceding year for confirmation.

That being said, the creation of PHCF is arguably not the solution to the Niger Delta crisis and it is indeed incredulous that so much agitation has arisen in this regard. Prior to the proposal and subsequent inclusion of the PHCF in the PIB, various government intervention has been put in place in addition to the allocation of derivation, such as the Niger Delta Development Board, the Oil Mineral Producing Areas Development Commission (“OMPADEC”), the Niger Delta Development Commission (“NDDC”), and the Ministry of Niger Delta Affairs (“MNDA”). Rather than identify and address the root cause of why the various government interventions in the past have not yielded the desired result, there is a shift towards either placing an additional layer of responsibility on oil companies and/or creating another layer of institution which would likely be bogged down with the same problems plaguing the existing institutions.

Restructuring of an institution like NDDC such that a large portion of the funds accruing to them can be channeled towards creating a PHCF or a Fund with similar characteristics should be considered.

It has been suggested that a good way to prevent mismanagement of such a Fund would be to involve international agencies such as the United Nations (“UN”) in its management.

Such a partnership initiative would reduce the layer of corruption by ensuring that disbursements from the Fund are utilized for the specific community or regional development project it is earmarked for. The Federal Government also has a major role in ensuring that it meets its funding obligations as and when due.

Bill also allows the Agency to accept gifts of money or other property upon such terms and conditions as may be specified by the person or organization. Will this not affect the integrity or accountability of the agency?

This is a provision of the PIB 2018 (this provision may also be replicated in PIB 2020). The provision is replicated below –

(27) The Commission may accept grants of money or other property upon such terms and conditions as may be specified by the person or organization making the gift provided, such gifts are not-

  1. inconsistent with the objectives and functions of the Commission under this Act;
  2. accepted from persons or organizations regulated by the Commission. (2) Nothing in subsection (1) of this section or in this Act shall be construed to allow any member of the Board or staff of the Commission to accept grants for their personal use.

From the above exceptions in a) and b) as well as (2), I believe these clauses adequately limit the ambit of the Commission to accept gifts and also secure the integrity or accountability of the Commission.

What is your take on a modular refinery?

Modular Refineries are ideally suited for remote locations and are viable for investments by Public-Private Partnership (PPP) as a source of rapid production of primary fuel products and raw materials for Petrochemical Downstream Industries.

Establishing a crude oil refinery requires approval from the Department of Petroleum Resources (DPR) in Nigeria. Investors may need to apply for oil block allocation or partner with the government at different levels to guarantee investment and feedstock for the production plant.

No doubt, Nigeria’s refining sector holds great prospects for the future. There have been some government initiatives to increase local refining capacity to offset the continued growth of importing finished products for growing consumer demand. The goal is to provide lower-cost, steady supply of fuels and products on a local level.

This is very commendable as it will go a long way in increasing local security of supply for transportation fuels, local electricity as well as sustained use of LPG cylinders for cooking and heating fuel obtained in-country, benefiting from lower regional pricing, transportation, and other incentives such as local jobs creation.

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