As Nigeria Takes a Deep Dive into Oil Sector Reform

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In the course of last week, the Ministry of Petroleum Resources assembled stakeholders in Nigeria’s oil and gas industry to evaluate the draft National Oil and Gas Policy. Chineme Okafor reports

Addressing the participants in a recent two-day consultation on the draft oil and gas policies which the federal ministry of petroleum had recently released for comments and appraisal, the Senior Technical Adviser to the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, Mr. Gbite Adeniji had noted that in designing the new policies, the government wanted to clearly define its roles and that of operators in the oil and gas industry.

“We want to achieve with these policies, a clean break from the past. We must understand that the previous ways of conducting petroleum business in Nigeria has not been sustainable and so cannot continue,” Adeniji had said.
He also said the government would through the policies, separate gas from oil as a stand-alone industry.
According to him, the government will push further the frontiers of transparency in license and contracts awards, procurements and projects execution in the industry, as well as ensure maximum cost efficiency in oil and gas production, and smartly regulate processes in the industries to cut existing regulatory headaches.

All of these, Adeniji noted were geared at making Nigeria’s oil and gas work as the lever needed to drive industrial development.

He also stated that the sector would from the implementation of the policies cease to act as just an income earner, which it had been since its discovery, but more as an economic driver.

Away from the status quo
Adeniji, in an overview of the draft policies – National Oil Policy (NOP) and National Gas Policy (NGP), outlined what he said was wrong with the previous policies Nigeria used in running her oil and gas sector.

He noted that the previous policies were quite unimaginative and could no longer sustain Nigeria’s participation in the global petroleum industry, especially now that it has become quite volatile.
Adding that the industry has continued to witness fresh dynamics, Adeniji said the 1969 Petroleum Act which bears most of Nigeria’s operations in the industry, alongside several supplementary laws, did not sufficiently provide for gas as an industry in its own or for a mid and downstream gas industry.

According to him, the policy through a crude oil export for cash business, encouraged rent seeking and ensured that Nigeria remained without satisfactory values from her petroleum resources.
He noted that from its configuration, the policies operated in manners that ensured the sector progressively lost needed investments in mid-stream infrastructure like storage facilities, product terminals, transportation and processing facilities, as well as in the upstream crude oil business, which appears to have suffered some investment setbacks.

Similarly, the old policies used by Nigeria had from Adeniji’s overview granted more ownership and dominion of market power in the upstream and mid-stream petroleum sector to the state, consequently constraining private sector participation, and its ability to muster prudent investments for growth.

In addition, the old policies ensured that the regulatory space and practices were poor and lacking of adequate ethics to govern cost efficiency for projects delivery and productivity, the resultant effects of which include Nigeria’s inability to guarantee energy security and development using oil.
All these, he said would change with the new policies when ratified and legislated into law.

What will change?

According to Adeniji’s summary of the policies, the global petroleum industry has witnessed remarkable changes, thus rendering Nigeria’s policies in the sector irrelevant.
The Petroleum Act 1969, Associated Gas Framework Agreement (AGFA) of 1991 and 1992, Associated Gas Re-injection Decree of 1979 and its amendment of 1985, the Nigerian LNG Fiscal Incentives, Guarantees and Assurances Decree of 1990, and the Year 2000 Memorandum of Understanding among others have existed to support the country’s petroleum sector, albeit inefficiently.
“Essentially, the oil world has changed and the old policy is no longer relevant to Nigeria’s future. The oil price has crashed and could remain at a median $45 per barrel for the foreseeable future.

“Also, production around the world is high and there are large inventories in storage around the world. We must come to the reality is that the world is awash in oil now,” he added.
According to him, the draft policies will be presented to the Federal Executive Council (FEC) after the consultations and relevant views from stakeholders are factored into them.
He said the policy would build a petroleum industry that could thrive on the mutual strengths of the public and private sectors, but with clear separation of roles between the government and private players.

Similarly, the individual roles of the parties in the policy will include: for the government – policy setting, adequate legislation, setting of fiscal rules, smart regulation to incentivise non-discriminatory participation that eliminates arbitrage, and encourage market development, as well as operational discipline, development of a fair and competitive petroleum markets.

For the private operators, the policy will strive to see them implement its key objectives, as well as create markets that will sustain safe, healthy and environmentally friendly operations.
However, the policies also indicated that there are some fundamental modifications that will be made in the industry, and they include the lumping of every operators – state-owned corporations, international oil companies (IOCs), independents, and indigenous companies, on the same level playing field, as well as the management of gas as separate from oil.

By this, it means state-owned corporations which by the policies will be corporatised, will have the same responsibilities and opportunities as other operators, and all of them treated equally with no particular preference.

It will basically open up the petroleum sector to operate in a manner devoid of government’s stringent controls and dictation of investment drives.
The reformed sector, the policy said will drive Nigeria’s economic development using gas to provide adequate electricity for industrialisation, transportation and others, as well as oil for domestic refining and other petrochemical productions, in addition to its export earnings.

Implementation

Adeniji said the comments and views expressed by stakeholders at the various consultations the government had set up, would be factored into the draft policies and presented to the FEC for ratification and onwards legislative actions.

He explained that when ratified and it comes into law, the final document would be binding on all, including on government, operators, investors and all stakeholders in Nigeria’s oil and gas sector.
He equally noted that a new policy document addressing fiscal issues in the petroleum industry would also follow the draft policies. This he added will address the thorny issues surrounding the industry’s fiscals.

Underlining its potentials to reposition the country’s petroleum sector, Adeniji explained that the last petroleum policy which was approved in 2006 indicates that Nigeria was now far from the new chapters that the global oil industry was on.

He noted that the policy was due to be reviewed to reflect current trends, and that Nigeria from her response to the current volatility in the global petroleum industry, showed that it lacked a clear cut policy or coordination to withstand the challenges.