Issues before the new Petroleum Minister

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Etim Etim expresses concern that no Nigerian is in the driving seat of operations in the oil industry that is at the heart of our economy

Nigeria’s oil industry is understandably filled with expectations over the agenda of our new Oil Minister. Many industry executives and stakeholders believe that Timipre Sylva, sworn-in as the Petroleum Minister six weeks ago, has the gravitas to fix many of the challenges that have beset the sector for decades. Crude oil is central to the Nigerian economy. We are the largest producer in Africa and sixth largest in the world; and with a daily quota production of two million barrels, crude oil accounts for over 90% of the nation’s foreign earnings. In this year’s federal budget, the country expects to earn N3.73 trillion (over $10 billion) from crude oil sales alone. Our oil reserves as at 2011 was 37.2 billion barrels of proven oil reserves, while gas reserves as at last year was 193.35 trillion cubic feet. A major feature of the industry in the six decades since commercial exploration and production of crude oil began is its dominance by foreign-owned oil producers who dictate the costs and profitability of the business. This means key decisions that affect important aspects of the industry are taken in Houston, The Hague and other cities of the world where the oil majors are headquartered. No Nigerian is part of these decisions. In other words, although the industry is at the heart of our economy, Nigerians are not in the driving seat of its operations. Such abnormalities have created huge problems and distortions in the industry in particular, and the economy as a whole.

An important item on the minister’s agenda is the need to get the Petroleum Industry Governance Bill and the Petroleum Industry Fiscal Bill passed and signed into law. These bills provide financial and governance framework to regulate and strengthen the industry, minimize inefficiency, ineffectiveness, rent-seeking tendencies, inequity, secrecy and corruption in the country’s petroleum industry. The bills propose to reform the governing institutional framework of the Nigerian petroleum industry by setting up an independent regulatory agency, unbundling the Nigerian National Petroleum Corporation (NNPC) into two limited liability companies and setting specific policy roles for the Minister of Petroleum Resources, amongst others. The loss in investments due to the absence of these laws is huge, estimated, for example at N1.74 trillion in 2013 alone. The minister will be working with the National Assembly to push through these reforms so as to enhance investment inflow into the sector.

The nagging and protracted problem of gas flaring will also attract the attention of the minister. Huge volumes of gas, about 800 million standard cubic feet daily, by-products of oil explorations, are flared in the Niger Delta by the international oil companies (IOCs). It poisons the air, causes various illnesses and constitutes a huge economic loss to the country. Previous administrations have tried unsuccessfully, through moral suasion and imposition of fines, to get the industry to process the gas into liquefied natural gas for export. At the same time, the irresponsible drilling practices of the IOCs have polluted the waters and land in the Niger Delta, destroying the people’s means of livelihood and further driving them into poverty. The minister will continue to pursue the Nigeria Gas Flare Commercialization Programme launched in 2016. The programme recognizes the wastes and noxiousness in gas flaring. Specifically, the federal government has ratified the Paris Climate Change Agreement, and is a signatory to the Global Gas Flaring Partnership (GGFR) principles for global flare-out by 2030 whilst committing to a national flare-out target by year 2020. It requires third party investments, and so the legal and commercial issues must be clear in order to attract investments.

In the downstream side, Nigerians continue to expect uninterrupted supply of refined products at the pumps. The President Muhammadu Buhari administration is the only administration in the last 25 years that has not recorded acute fuel scarcity. The four government-owned refineries are well passed their useful lives, and so all those intermittent turn around maintenance might just not lead anywhere. Rather, the government should encourage and support the Dangote Petrochemical complex being built in Lagos to commence operation as scheduled. With capacity to process 650,000 barrels of crude oil daily to 50 million litres of petrol and 17 million litres of diesel. These are enough to meet domestic needs and provide for exports. In the meantime, the government should face the issue of petrol subsidy and do away with it once and for all. So far, N600 billion (about $2 billion) has been spent this year to support the N145 pump price. It would be better used to fund roads, railway or some other infrastructures.

The minister will also have to look into the issue of local contents and abuse of this very important policy. Are companies supposedly owned by Nigerians, registered offshore like in the British Virgin Islands, qualified for local contents benefits? Are Nigerians having a fair deal from the contents policy?

It is notable that Mr. Timipre Sylva is well aware of these issues and he’s capable of addressing them in a methodical manner. A former governor of the core Niger Delta state of Bayelsa, the minister understands the challenges and complexities of our oil industry. He’s used to taking difficult decisions. So far, the minister has set out with the right foot, engaging with OPEC and non-OPEC partners, striving to ensure, among other things, that our daily quota does not slip below the threshold.

In his first 30 days in office, the minister has already held a retreat with his team and unveiled his roadmap and deliverables for the oil and gas sector. At the retreat held in Lagos and attended by heads of departments and agencies in the ministry, Chief Sylva listed his priority areas to include: Implementation of the reduction of Federal Government’s equity stakes in Joint Venture (JV) participation to 40 per cent; Curbing petroleum products cross border leakages; Completion of the Nigerian Gas Flare Commercialisation Programme; Increasing crude oil production to 3 three million barrels per day and Reducing the current cost of crude oil production by at least five per cent. Other priority areas include: Aggressive promotion of the passage of the Petroleum Industry Bill (PIB); Promotion of inland basin exploration activities; Promotion of deep offshore exploration activities; Collaboration with the private sector to aggressively increase domestic refining capacity and Working assiduously to support President Muhammadu Buhari’s vision of raising 100 million of Nigerians out of poverty. This roadmap underscores Chief Sylva’s capacity and energy to drive the industry to the Next Level.