For several years, a number of projects in the Nigerian petroleum industry had been suspended, while Final Investment Decisions (FID) on several others had been deferred. The major culprits are uncertainty and the absence of clear policies for the sector. This article highlights the effects the delay in the passage and assent of the Petroleum Industry Governance Bill (PIGB) and the remaining components of the Petroleum Industry Bill (PIB) had had on the industry. It also highlights how the forthcoming elections feature in the equation and steps to be taken to address the logjam in the industry.
The uncertainty surrounding the forthcoming elections and the non-passage of the remaining segments of the Petroleum Industry Bills, PIB, had affected the petroleum industry negatively and can be blamed for the lull in the industry, with the widespread deferment of projects and delay in reaching Final Investment Decisions on a number of projects in the sector. Though, political and state actors would oppose this view, operators had by their unwillingness to undertake new projects and their consistent call for the speedy passage of the bills into law that this is the true situation of things. Major oil projects that had remained in the doldrums include the Train 7 of the Nigeria Liquefied Natural Gas (NLNG), 225,000 barrels per day (BPD) Bonga Southwest-Aparo project; 120,000bpd Zabazaba-Etan project; 140,000bpd Bosi project; 110,000bpd Uge project and 100,000bpd Nsiko deepwater project has been delayed.
Other projects that had suffered delay include Anyala (OML 83) and Madu (OML 85) fields in shallow water off the East Central Niger Delta, the second phase of the Escravos Lagos Pipeline and the Ajaokuta-Kaduna-Kano gas pipeline among others. These projects, whose FIDs were supposed to be taken before the end of 2018, were estimated at over $50 billion, and are expected to help boost Nigeria’s crude oil reserves to 40 billion-barrel and also grow the country’s crude oil production to four million barrels per day (bpd). The controversial Offshore Processing Licence (OPL) 245 on the southern edge of the Niger Delta, is expected to be jointly developed by the Nigerian Agip Exploration Limited and Shell Nigeria Exploration and Production Company (SNEPCo) at a cost of $13.5 billion. Agip had planned to achieve first oil production by 2020 and was determined to start the execution of the project in the fourth quarter of 2017.
Apart from other challenges, the oil well, with proven reserves of 560 million barrels of oil, had been the subject of a corruption probe and prosecution in Italy and Nigeria. FID for the 225,000bpd $10 billion Bonga South West-Aparo deepwater project was targeted for 2018, with first oil expected in 2022.
The asset is located in Oil Mining Licence (OML) 118 but also extends to OMLs 132 and 140. However, Shell had attributed the delay in attaining FID on the fact that it was still exploring more efficient and cost-effective ways of implementing the project. For Bonga South West-Aparo, Shell said FID was delayed to allow SNEPCo and its co-venture and government partners explore more efficient and cost-effective ways of implementing the project. It assured that a new timeframe for FID would be announced as soon as the necessary commercial framework for the investment, among other things, is agreed upon with its partners. Confirming this, Shell, had in a briefing note, a few months back, said its upstream exploration and production arm, Shell Petroleum Development Company, SPDC, had put on hold investment decisions on two key offshore oil and gas projects that would have cost about $30 billion till when the new petroleum law is approved.
It said its challenge was not in the potentials to grow capacity to produce four million barrels of oil per day and 40 billion barrels reserves, but mobilising the resources to bring it into reality. It had noted that the key challenge is in making the best out of the resources available by optimising production and making the operational environment more stable for the players. It had stated that if contractors were not sure of a stable investment environment, regular payments, value-adding partnerships and a different project funding approach, it would be difficult to attract fresh investments. It said, “All what the industry is clamouring for is a PIB that would provide for globally competitive returns on investment to all stakeholders as well as a law that would create an investment climate that enables the government to cooperate with industry players without disrupting agreements on funding for oil and gas operations.
On his part, Total E&P Nigeria Limited had also expressed similar fears over non-passage of the bills, saying the relevant authorities should speed up action towards getting the proposed law ready, to help the oil and gas industry continue to grow.
It said the IOCs are demanding a balanced, competitive PIB that would guarantee stable operational environment, ensure security, fair fiscal regime; and that would help investors decide on investment on projects and remove funding constraints. In addition, Angus Rodger, Principal Analyst – Upstream Research for Wood Mackenzie, listed Canada, Angola, Kazakhstan, Nigeria, Norway and the United States, as countries with the largest inventory of delayed oil projects. He said these countries hold nearly 90 per cent of all deferred liquids reserves, including oil sands, onshore, shallow-water and deepwater assets in both greenfield and incremental developments. Also speaking, , Chief Executive Officer, African Initiative for Transparency, Accountability and Responsible Leadership (AfriTAL) and former President of Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN, Dr. Louis Brown Ogbeifun, said Nigeria has lost its dominant position in the global oil and gas landscape as a result of the absence of a proper legislation to regulate the industry.
He said, “There is no doubt that the country has lost dominance of its oil and gas industry and also lost trillions of naira because of the delay in passing the PIB either in its original form or in a collaborative compromised state. “The IOCs are revaluating, divesting and adjusting their business strategies. NEITI audits from time to time have clearly shown disparities in figures of the agencies of government that should have the same figures from real time data generated. “There are project delays due to funding challenges and delayed approvals from the highest level of governance. The sector has also been impacted by the falling oil reserves in the onshore fields, insecurity in the operating areas, crude theft, vandalism, artisanal refining, community challenges, high Dollar/Naira parity, confused and undefined subsidy regimes and global oil politics.”
According to Ogbeifun, all these resulted in the stunted growth and crippling of the industry as typified by occasional products’ scarcity that have grave consequences for labour, marketers and the country in general. Corroborating it further, global extractive industry watchdog, Publish What You Pay (PWYP), had a few days back, stated that Nigeria is losing N3 trillion annually for failing to put in place a proper legislation for the oil and gas industry.
National Coordinator of PWYP, Mr. Peter Egbule, disclosed that over the years, the country had been losing trillions of naira, as investors were denied the opportunity to invest in the oil sector due to the non-implementation of internationally acceptable laws that would support business. The PIB was first introduced at the National Assembly in 2000, in the Fourth Assembly. Since then, the bill had never been passed, suffering one form of delay or the other, mainly due to political and economic interests.
The National Assembly had in March 2018, successfully passed the PIGB, which was introduced in the current 8th Assembly by the legislators. The Bill is currently awaiting the assent of the President for it to eventually become law. The Bills remaining to be passed include the Petroleum Industry Administration Bill, Petroleum Industry Fiscal Bill and the Petroleum Host Community Bill. However, with the 2019 elections around the corner, stakeholders are skeptical about the passage of the remaining bills before the tenure of the current National Assembly runs out. The stakeholders are concerned that the legislatures would be occupied with seeking re-election than the passage of the bills.
“This will be a major setback in our collective interest in establishing a more responsive and socio-economically impactful Nigeria Petroleum Industry, as well as send the wrong signal to Nigerians and the global community at large.”
It had also been touted that President Muhammadu Buhari may refuse to assent to the PIGB and the other bills after their passage, due largely to his political differences with the leadership of the National Assembly. However, Peter Egbule called for the speedy assent of the PIGB and the passage of the remaining oil and gas bills before the National assembly. According to him, the passage and signing of the Bills into law was in the collective interest of all Nigerians, as this would create a more functional administrative structure, significantly reduce financial leakages, encourage foreign and domestic investments, provide succor for host communities, among others. He said, “Although we hope and expect that the President will assent to the PIGB and the other bills whenever they are transmitted to him, but we also recognize that it is his right to refuse assent. “If the latter happens, it will be disappointing to well-meaning Nigerians, resulting in another round of legislative reconsiderations, political intrigues, delays, and public frustrations.
“This will be a major setback in our collective interest in establishing a more responsive and socio-economically impactful Nigeria Petroleum Industry, as well as send the wrong signal to Nigerians and the global community at large.” He appealed to the National Assembly to immediately refocus on the passage of the Bills, and intentionally dedicate substantial time for the legislative processes required for the passage of the bills, especially before they become engrossed in the obviously heightening political activities towards the 2019 general elections. Egbule also implored both the National Assembly and the Presidency to carry out their respective actions without further delays in the interest of the dwindling economy and the lives being affected by the continuous delay in the passage of the Bills.
“We implore the National Assembly to take the path of national reverence in passing the bills. This is our expectation on the National assembly, and we are confident that when the time comes, they will do so with visible swiftness, in the interest of all Nigerians,” Egbule noted. He further urged President Muhammadu Buhari to on receipt of the Bills, act in line with his incessantly proclaimed stance on corruption and expedites action on his assent to the bills. He maintained that the present administration have a one-in-a-lifetime opportunity of writing its name in the annals of achievements by passing and signing these bills into laws. On his part, Chairman of Council of the Institute of Oil and Gas Research and Hydrocarbon Studies, IOGRHS, Professor Akin Akindoyeni, cautioned against allowing politics to interfere with the assent of the PIGB and passage of the remaining petroleum industry bills.
Akindoyeni, said the passage of the remaining petroleum industry bills was critical, as it was needed to right the wrongs witnessed in the Nigerian petroleum industry over the years. According to him, speedy passage of the bill would send a strong signal that the country was ready to take a bold step in going a bit further to making the Nigerian petroleum industry a world class industry. He said, “We believe if the bill is passed into law, it is a start, and we believe we can still go a lot farther. We hope the provisions in the new bill would be enacted,” he stated. Explaining his expectations from the Bill, Akindoyeni said, “What we would have expected the government and the legislature to adopt is to yield more equity to local people, the landowners where these minerals are being exploited; to improve their life, their environment and to make alternatives available to them.
“The exploitation of oil and gas in their environment had made it difficult for them to earn better income or have better living standards.”
Also speaking, Professor Charity Emaviwe, Deputy Chairman of the Institute of Oil and Gas Research and Hydrocarbon Studies, also advised that timely passage of the bill would address most of the challenges confronting the petroleum industry. Again, Dr Louis Brown Ogbeifun, has warned of dire consequences if the fiscal and host community Bills component of the Petroleum Industry Bill, PIB, are not passed by the National Assembly and President Muhammadu Buhari sign into law before the end of August. Ogbeifun who is also a former Industrial Relations Manager of the Nigerian National Petroleum Corporation, NNPC, called on stakeholders to work creatively to enable the National Assembly pass the Bills for the President’s assent without delay.
According to him, if the Bills were not signed into law by the end of August and full politicking begins ahead of 2019 general elections, both the lawmakers and the president would no longer have interest for the bills and that would lead to a very serious setback that the nation could not afford. Speaking in Lagos, at a strategic engagement of stakeholders on the Petroleum Industry Administration and Fiscal Regime Bills, before the National Assembly, the PENGASSAN former President lamented that 18 years after the PIB was first came to limelight; Nigeria was still foot-dragging on the Bill. Ogbeifun argued that no country could develop its hydrocarbon potentials to the optimum with the type of procrastination and indecisiveness as had been the case of Nigeria since 2000 till date.
He said, “My worry is that, despite the efforts of the 8th Assembly in breaking the Bills into smaller components, it does not still look like stakeholders are ready as a group to effect the positive changes that would lift the industry higher. “Some of the reasons for the failure in the past include but not limited to: Lack of political will by the previous administrations to follow through the reforms; Positional bargaining by the critical stakeholders especially on the fiscal regimes; Perceived possible job losses, inadequate guarantees on pension and employment security of the workers and perceived loss of economic, political, administrative and governance benefits/powers by various agencies.
“Others are the voluminous and complex nature of the Bill; Political interests especially on the host community funds etc. In midst of our inaction, we have been running the oil and gas sectors with policies that were majorly not enacted into laws. “We have also tried several administrative and financing regimes like the, Crude Swap Arrangements, third Party Financing, Carry Arrangement and Modified Carry Arrangements in managing the agreements with the JV partners. Our nation’s oil and gas sector cannot develop with obsolete laws, inability to restructure or carry out the necessary reforms over a long period of time.
“This surely cannot promote investors’ confidence and therefore, not likely to come out strong like Saudi Arabian Oil Company, which earned a revenue of about $455.49 billion in 2015 and had employees in the range of 65,266 in 2016. “It is said to be one of the largest companies in the world by revenue with a market value of about $2-$10 trillion. China Petroleum and Chemical Corporation were founded in 1988 with employees totaling 1.64 million in 2014 and a revenue of $428.62 billion in 2015. Hindustan Petroleum Corporation runs like the NLNG with 51.11% state holding. In 2013, it ranked 260th in the Fortune Global rankings. It has more than 18,000 employees. “Abu Dhabi National Oil Company was founded in 1971 and restructured in 1988. It is rated world’s 12th largest oil company by production of about 3.1 million barrels per day. It returned revenue of $60 billion in 2014 and had 55,000 employees in 2015.” He added that “these companies though state or partially state owned entities run like ideal businesses with strictly commercial orientations. They make money for their countries and companies, provide massive employment opportunities to their citizens, and invest outside their shores in oil and gas, and other profit yielding businesses.
“This is possible because their countries’ laws and best practices support them to so excel. But in our clime, our models reflect the Father Christmas approach, in which government in the past discretionally allocated oil blocs as gifts to who they liked without due process. We entrenched monthly “share the money syndrome (STMS)” without commensurate reinvestment programmes at the expense of Nigeria and the development of the oil and gas sector. “The change in the operations of the NNPC; as typified by the incessant firing of the Corporation’s Chief Executives at will; and by extension the change at the top management level by successive political administrations has come with dizzying astonishment.
However, the Senate had insisted that the forthcoming electioneering and politicking ahead of the 2019 elections would not disrupt the passage of the remaining components of the Petroleum Industry bill.
Speaking at an Oil and Gas Public Lecture Series in Abuja, organized by the Institute of Oil and Gas Research and Hydrocarbon Studies, IOGRHS, Senate President, Olubukola Saraki, said the National Assembly would not allow politics interfere with the passage of these critical bills which would help in the development of the Nigerian economy.
Saraki, who was represented at the meeting by the Vice Chairman of the Senate Committee on Petroleum, Upstream, Senator Gershom Bassey, said the country is losing up to $30 billion annually in terms of foreign capital, due to the absence of a clear legal framework for the petroleum industry. Also, leadership of the House of Representatives had at different for a, assured of a speedy passage of the remaining bills, promising not to allow politicking hamper them from taking decisions on the bills. Despite the assurances by the Senate and the House of Representatives, the next line of action of operators remained to be seen. However, it is a known fact that no business would thrive in an uncertain environment, hence the Executive and the Legislature should walk their talk, shun the distractions of campaigns and politicking; put their sentiments and interests aside and work towards uplifting the petroleum industry and the country in general. Investors and operators in the petroleum industry would be willing to resume investment activities in the industry when there is certainty and clear policies guiding activities in the industry.