NIGERIA currently faces the dilemma of the global shift to cleaner energy, as delays in the passage of the Petroleum Industry Bill punctures investors’ interest in oil, a resource on which the country benchmarks its annual budget.
The Nigerian government’s inability to profitably run its national oil company -the Nigerian National Petroleum Corporation, (NNPC), has left it with unsustainable subsidy payment, especially with its budget conspicuously linked with the global oil prices.
Already, many European countries, the majority of who buy Nigerian oil had fixed deadlines to shift priority to cleaner energy, as global concerns on climate change heighten. For instance, the European Union targets at least 30 million zero-emission vehicles on its roads by 2030.
And funding from international organisations such as World Bank and International Finance Corporation, IFC is shifting already from oil to clean energy.
Similarly, lenders to international oil companies, IOCs are laying more emphasis once clean energy transition. Energy analysts say this development could threaten Nigeria’s reliance on oil since IOCs own as much as a 45 per cent stake in the country’s oil blocs.
“International lenders, comprising mainly of World Bank, IFC, are now very attentive where they invest their money. They want to see green-friendly companies investing in clean energy, “Executive Director and Chief Finance of Total E&P Nigeria Tai Oshinaya told The ICIR during the Oloibiri lecture series and Energy Forum in Abuja.
She confirmed that Total E&P Nigeria has devoted efforts towards a transition to cleaner, affordable energy, being a member of the Paris Climate Change.
“Lenders have put stringent measures on environmental issues, and safety guides must be urgently passed to have a better fiscal framework to drive investments in place. We still need oil and gas to fund clean energy space, which is why the Petroleum Industry Bill,(PIB) is needed to drive this.”
Positive investment drive by Buhari without PIB
President Muhammadu Buhari on November 4 2019 assented to the Deep Offshore and Inland Basin Production Sharing Contract(Amendment), Act 2019,(the deep offshore Amendment Act). The Act originally provides for the legislative framework guiding Nigeria’s Deep offshore oil production and was driven by the need to encourage upstream investments in offshore acreages. The amendment seeks to augment Nigeria’s earnings from the oil and gas sector, thereby increasing the revenue of the federal government and establishing and enforcing business and relationships with investors.
The amendment also imposes an additional royalty rate to account for an increase in the price of crude in excess of $20 per barrel. It also includes a new section 17 which prescribes that all product sharing contracts shall be reviewed every eight years.
One of the key benefits of the amended act was the recently executed agreements to renew oil mining lease OML 118, the first deep-water block developed in Nigeria for another 20 years by the National Petroleum Corporation,(NNPC) and its production sharing contract partners Shell Nigeria Exploration and Production Company)SNEEPco), Total Exploration and Production Nigeria Limited,(TEPNG), (ESSO) Exploration and Production Nigeria Limited (EEPNG) and Nigeria Agip Exploration, (NAE). It is expected that the deal will unlock $10billion worth of investments by this contractual deal in the Bonga bloc.
Promotion of auto-gas as alternative cheaper fuel
The Federal Ministry of Petroleum resources working with the Nigerian National Petroleum Corporation, (NNPC), has weighed into the current challenge of rising petrol price with a viable alternative. According to the NNPC, there are the gradual deployment of 1 million conversion kits for trucks and smaller vehicle nationwide to be completed in 2022.15 000 stations also targeted for co-location of autogas nationwide.46 NNPC owned and over 600 NNPC leased co-location stations. The conversion of vehicles to cheaper fuel would see people pay N96 for autogas. This is geared towards providing alternative and cheaper fuel options for Nigerians.
PIB yet to be passed under Buhari’s administration
Recently at the national colloquium on the Petroleum Industry Bill, deputy Senate President Ovie Omo-Agege said Nigeria has so far lost $235 billion to the non-passage of the Petroleum Industry Bill by successive administrations in the country.
The deputy Senate President lamented that Nigeria has lost significant amounts of a potential investment to other African countries because the country now has one of the least competitive fiscal terms in Africa.
“As a result, Nigeria with more significant reserves has attracted very little investment, whereas Egypt, Angola and Ghana with about half of Nigeria’s reserves combined, have attracted more investment for new projects, because they offer more attractive deepwater fiscal terms to encourage investors,”
Shell, one of the International Oil Companies, (IoCs) is currently working on divesting from Nigeria’s onshore oil assets as it pushes for a future of investments in renewable and cleaner energy. Shell is Nigeria’s biggest oil producer.
The Nigerian government stunned by the development is encouraging Royal Dutch Shell Plc to keep its onshore oil and gas business in the country instead of divesting it, as the company seeks to focus more on cleaner energy and offshore production.
While the government is in discussions with Shell about its future in the country,” some actually feel also that Shell should not hurriedly divest and to at least stay” onshore, Timipre Sylva, Nigerian minister of state for Petroleum resources told reporters recently in Abuja. To have a situation “where Shell has completely divested from a sector is not good for us.”
What PIB delay costs Nigeria
The passage of the PIB is expected to drive reforms by strengthening governance institutions, establish a strong regulatory framework, ensure transparency and accountability in oil and gas resource management.
Surprisingly, the PIB has been one of the longest existing bills in Nigerian legislative history as it has been an ongoing conversation in the last 20 years. In the 8th national assembly, the bill was disaggregated into four bills. Three of the four were not passed by the National Assembly while one which was the petroleum Industry Bill was passed but denied assent by President Muhammadu Buhari.
A further delay of the passage of the PIB is far from being an option as the Nigerian Extractive Industries Transparency Initiative, NEITI has stated that Nigeria recorded losses to the tune of $200 billion for failing to pass the bill.
What does the PIB say?
The Petroleum Industry Bill is expected to repeal up to 17 Acts and provide a new framework for natural resource governance, especially in the petroleum industry. The bill proposes the creations of the Nigeria Upstream Regulatory Commission,(The commission) which will act as the regulator of the upstream sector and the Nigerian Midstream and Downstream Petroleum Regulatory Authority,(The Authority) functioning as the regulator of the midstream and downstream sectors of the petroleum industry. It is anticipated that the creation of the Commission and the Authority will provide better enforcement of standards to streamline inter-agencies responsibility.
As proposed by the new bill, the recommended replacement of the NNPC with NNPC Limited positions the sector more efficiently as an operator with no form of regulatory role directly or indirectly.
Also in the proposed bill, the prohibition of flaring or venting of natural gas with fines not subject to tax deduction further discourages gas flaring. More so, a vital role for the host community Development Trust requires oil operators to contribute 2.5 per cent of their actual expenditure. However, there has been increasing demand to raise it to the tune of 10 per cent, an issue that raised concern among industry stakeholders.
Buhari’s regime push for the bill still a dream in six years
Energy analysts are worried that President Buhari being the substantive Minister of Petroleum Resources should prioritise reforms in the Petroleum Sector since it is the main resource that pays the national bills. However, the assurance on the passage of the bill came from the Minister of State for Petroleum Resources-Timipre Sylva.
The Minster had assured Journalists at a press conference that the bill currently before the National Assembly will be passed into law before the end of June.
“I want to tell you that PIB is fully on course and we are very happy because we have focused on that for a long time and we had many meetings with the National Assembly and stakeholders. Today, I believe that we are basically satisfied with where we are. The National Assembly has given a timeline, they actually gave April. We are hopeful that between now and June, they will pass the PIB. I don’t think we are far away with the passage of the PIB,” Sylva assured.
Delayed passage fueling opaque subsidy regime
With the Central Bank of Nigeria, CBN’s adoption of the Investors and Exporters, I& E window rate, subsidy claims have risen while discrepancies in the volume of consumed fuel create concerns about transparency in the administration of subsidy.
While organised labour retains its stance on subsidy payment, development finance institutions, petroleum marketers and some members of the organised private sector see the practice as not sustainable, pushing fiscal authorities to the cliff.
“We may be eating up the future with the way we are going. For some of us, we cannot say this enough. This is not the way to go. Most often, I wonder what the Nigerian Labour Congress wants to achieve in the way and manner they tread with the government on the subsidy issue. We cannot keep making economic decision political all the time You can see the way we’re struggling to pull this through.” the Chairman of Major Oil Marketers Association of Nigeria Adetunji Oyebanji told the ICIR.
Global rise in oil price at slightly above $60 per barrel could have ushered Nigeria into a golden era. It should ordinarily have increased foreign exchange inflows into the country in dire need of it. However, the Federal Government has pledged to continue with the subsidy regime in the next six months, amounting to N720 billion, putting the country’s fiscal status in further peril.
“What we are gaining from the rising oil price, we are losing through unsustainable subsidy payment,” an oil sector governance expert Henry Ademola Adigun told the ICIR.
The number of PMS trucks shipped per day is estimated at 80.23million litres, as confirmed by the Petroleum Product Pricing Regulatory Agency (PPPRA), spiralling the subsidy cost. Energy experts allege that some of Nigeria’s petroleum products find their way to neighbouring West African countries which benefit largely from a corrupt subsidy regime.
Analysts put the blame on the doorstep of the NNPC, which is the sole PMS importer, wondering why it cannot superintend the industry as expected.
“NNPC cannot play the role of an importer and a regulator at the same time. This is why we are seriously advocating for the passage of the Petroleum Industry Bill. It may not be a perfect document, but it would definitely deal with a lot of issues that have been impeding the growth of the petroleum sector.” Adigun stated.
Experts say for Nigeria to address concerns of sole importation by the NNPC, there is a need to have a market-driven exchange rate since the government has been the sole importer of PMS, and most of its detailed import statistics shrouded in secrecy.
The government must find the courage to deregulate the sector and not prioritise economic issues over politics, they stressed.
The PIB is a key framework that gives us fiscal governance about the Petroleum sector, we have delayed long enough on it, said a Professor of Energy Economics at the University of Ibadan, Adeola Adenikinju.
He stressed that the global shift to cleaner energy is already affecting investment in the sector, hence necessitating the urgent implementation of enabling policies in the oil sector.