Ronke Onadeko, is a member of the Expert Advisory Panel of the Nigeria Natural Resource Charter and also the Ogun State energy advisor. She spoke to journalists recently about Nigeria’s protracted energy crisis and the Petroleum Industry Bill, amongst sundry issues. Chineme Okafor brings the excerpts:
What do you make of Nigeria’s protracted energy crisis as an experienced player in the sector?
The fuel crises we have been experiencing for some time now should not be happening to us due to the fact that Nigeria is an oil producing nation. The problem is that we don’t have enough refining capacity within the country and the fact that fuel consumption has increased. Worse still, the refining capacity of the existing refineries is seriously degraded such that we cannot produce fuel to match the previous level of consumption coupled with the fact that we have not expanded these capacities.
The issue of fuel subsidy has been a recurring problem for some time now. We have been going back and forth on whether to subsidise or not to subsidise. Two years ago, we stopped seeing the subsidy line item on the budget and President Muhammadu Buhari also stopped oil subsidy. However, another word is now being used in place of subsidy. It is called under-recovery. Not much has been said about under-recovery and the NNPC is not forthcoming about it. What I know about it as an industry person is that when crude oil is sold, the joint venture contribution that goes into the NNPC account is supposed to be used to fund the Federation Account as well as the cash-call joint venture account. These funds reside within the NNPC and the corporation is dipping into that account. That is where they get funds to subsidise fuel.
So, there is no subsidy line item in the budget but there is a deficit that should be recouped from the money that goes into the Federation Account. That in itself is abnormal and Nigerians should understand that close to N1 billion daily is taken out of what should be used for infrastructure development, education, health and other developmental projects.
But, is this the cause of the regular petrol scarcity?
On the fuel scarcity issue, there is a dual-pricing structure that influences the importation of PMS. There is a summer price and a winter price. In summer, all countries use the same type of PMS, but in winter there are grades that are used in the Northern Hemisphere which most refineries abroad prioritise its production ahead of the type we use all year round. This makes the PMS we use here in Nigeria not readily available and if you want it you have to pay a premium for it. So, we tend to pay higher. From September till March, the price of PMS increases. However, the PPPRA template doesn’t change during these months. So, it doesn’t make sense for marketers to import fuel at a premium for which they would not be compensated. Therefore, they hands-off and the NNPC becomes the sole importer of fuel during these months.
Meanwhile, the NNPC doesn’t have the structure or efficiency and capacity to supply the entire country. That is why we have these recurring fuel crises, not because they are not able to bring in the cargoes. Of course, loads of cargoes are waiting to discharge at the ports. Some of these ports have draft restrictions such that big vessels cannot come in, so they resort to smaller vessels to shuttle in a ship-to-ship arrangement to bring them to the depots to discharge. The pipes that are being used to discharge are too small and there is a limited amount of fuel that can go through it at a time. More so, the pumps are not efficient and, at times, it takes up to a week or more to discharge a vessel. Indeed, there are vessels at the shores ready to come in to discharge but we lack the adequate capacity, and for this reason we pay heavy in demurrage of up to $20,000 per tonne on each vessel. When you multiply this by the number of cargoes, you know we are talking about huge money.
The problems are many. First we don’t have the right infrastructure to handle the vessels, we don’t have enough depots to take in the volumes and when they are discharged at the depots, we use trucks to move them out. So, fuel supply is only as fast as the trucks. In the days when there were pipelines from Atlas Cove straight to Mosimi in Ogun State and Ejigbo in Lagos, things were working because consumption was still small. There was efficiency. Certainly, if we were producing in Nigeria and refining here, we won’t have these problems. We need more depots inland and private refineries to get government out of the way.
Several solutions have been proffered including building more refineries, licensing importers and revamping moribund refineries. These solutions are always coming up whenever there is fuel scarcity. What is the most realistic solution?
These issues will always come up as long as people disobey presidential order on subsidy. It is almost a treasonable offence to disobey the president. Except you want to lose your job. Of course, people don’t want to lose their job especially in the oil industry. We are in a state of deception where people who know what is going on don’t want to speak up because if you are an importer or marketer and you speak up, you would be sidelined and your business will take a hit. So, who would bell the cat and ready to damn all consequences? Who will speak up and say really, there is subsidy and it is costing Nigerians a lot? There is a 5 to 1 ratio on what is spent on both subsidy and intervention in the budget. The subsidy bills can double health, education and transportation bills.
There could be tremendous amount of what we can do in a year with what we spend on subsidy. If we can spend subsidy amount on rails, generating power, education, primary healthcare, housing and other social services, Nigeria will be far better. So, I don’t know why everyone is in denial. Most political leaders are afraid of removing subsidy and deregulation because they are afraid of losing elections. Until a government admits that there is subsidy and we cannot afford it as a country that is when I know that we have a government.
There is the distortion in uniform pump price caused by scarcity, and then there is the PEF, what do make of its role in the sector in all of these?
That is another place we have a leakage. One major role of the NNPC is to ensure there is sufficient fuel, good quality fuel across the country and at a uniform price. One of the challenges is that we don’t have enough fuel and even if we have the right quality, it is not evenly distributed across the country to make prices homogenous. Of the four major things the NNPC is supposed to achieve, I can only score it above average in one. That tells us that something has to happen in the NNPC because the basic things it was set up to do, it is failing at it. We should ask why the NNPC was created and see if it is achieving its goals and then we can move forward.
What are your views on the Petroleum Industry Governance Bill (PIGB), it’s trending now?
Finally, the House of Representatives has passed the other half of the bill and the House has also harmonised with the Senate. There is a stalemate between the Executive and the Legislature and nothing is being passed or the Presidency is withholding assent to passed bills. Even the budget is hanging just as some appointments in agencies and parastatals are yet to be ratified. Of what good is the fact that they have passed the PIGB that may not get presidential assent because they are at each other’s throat?
Interestingly, the PIGB is just one part and it is not the most important part of the bill. The most important part is the fiscal terms which tell investors how to balance their finances. If investors are not guaranteed profit from their business, they will take it elsewhere and that is what has been happening to us. Nigeria is losing oil and gas investments to other jurisdictions in Africa and emerging markets. Until the Executive and the lawmakers sort out their differences, I don’t really see how we are going forward.
Which jurisdictions in Africa benefit from this lost that’s linked to the non-passage of PIB?
We have lost a lot of investments to East Africa, Angola and even Ghana. Also, we are not the cheapest producers of crude oil but we already have a lot of oil and gas multinationals on ground. It is easy for them to continue investing in the country. However, they will not continue to operate in this opaque system where they don’t know what is going to happen in terms of remuneration, taxes, levies, and how to structure production sharing contract, among other issues. If these issues are not addressed, investors will not take us seriously.
What about the hot-button issues of host communities rights?
Host community issues, insurgencies, disturbances, vandalism all revolves around cost of doing business to these oil majors. These issues are hindrances to companies who will have to spend huge sums to protect staff and facilities. In addition to undefined fiscal terms, these are huge obstacles to investments. It is a 17-year old problem and successive governments have done nothing significant to address these issues through the PIB. They should fast-track the remaining three parts even if they have to get three different committees to work on them simultaneously. They don’t have to wait for the current one to get signed before they commence work on the others.
The NNRC is wants stakeholders to buy into the global precepts for the oil and gas industry, how best do you think this advocacy can be achieved?
One of the things that plague oil and gas discussions is that it is not an “interesting†topic. It is not something of interest to bloggers that could help to push it into people’s consciousness. Unlike entertainment, fashion, sports and politics among others, oil and gas is quite technical and boring. Oil and gas topics are full of jargons, acronyms, and terminologies. Reading a report on oil and gas is an exercise in endurance and you jump hurdles of terminologies, indices and measurements. From first page you see measurements in barrels, then next page, they are in metric tonnes and next they are litres. So, it is not really easy to grasp these details especially the lay person.
We need to break things down using the media especially social media to educate Nigerians and develop their interests. Without that we won’t be able to do much with advocacy. The likes of us and industry people can talk oil and gas jargons, compile conference and seminar papers and reports, but those reading it will be just us. We in the industry know the problems and the solutions. But most of these people are afraid of speaking up. There are a lot of papers and documents that address the challenges in the oil and gas sector that we don’t need new advocacy or research work done. The basics that could turn the industry are known such as liberalisation and deregulation, pulling government out of running commercial entities because they are not efficient, investing more in Infrastructure, making it conducive for investors to invest including local investors.
Unfortunately, oil is the largest revenue line item under Nigeria’s revenue drive. So, politicians are probably benefiting from the sector and perhaps that is what they use to run their politics. Politicians don’t want us to speak and if you do, you get into trouble. So, we are just going round in circles when we actually have what we need to move forward. Everything boils down to leadership. Of course, if the much-needed leadership is lacking everything collapses. The 2019 general elections are around the corner and the question Nigerians should ask themselves is: are we going to be deceived once again? We need politicians that would be steadfast and do the right things. That is important and all other things we aim at will fall in line.
Developing local content is regarded as one of the ways Nigeria can wean itself of excessive dependence on foreign expertise in the sector. Are you satisfied with the state of local content in the sector?
I am not so involved in upstream and downstream sectors to know much about level of content development. However, not much has been achieved given the drive for local companies to participate in the sectors. The question is: do these companies have the capacity and the funding to take advantage of this, because oil and gas sector is capital intensive? I know that NNPC and the government owe oil marketers about N800 billion over the last two to three years.
The marketers borrowed this money from the banks and without paying the marketers, it impacts on investment. The banks will be hampered to lend to the industry because there is a limit they are allowed to lend to a particular sector as well as specific companies. It will be difficult to develop local content in the sector even if there are regulations in place to ensure that.
At the end of the day, you give a contract to a local firm to execute because it cannot access the funds; it now has to go abroad in search of partners that can handle the job. That is not local content. That is just adding another middle man who is interested in rent and that rent affects productivity and adds to the cost of doing business. If you give me a job and I take the contract abroad to be executed, I also want my own cut. So, a job that is supposed to be executed for say N10 I bid and get it for N12 of which N2 is my cut. That is not local content. I don’t know how serious we are about local content.
