Ademola Adigun is an oil and gas policy expert, who has worked on oil sector governance and transparency for over a decade as the Country Team Lead for the Facility for Oil Sector Transparency and Reform. In this interview, Adigun who is currently the Executive Vice President of Metacura Development Initiative, an Abuja-based policy and Management Consultancy firm, speaks on the issues around the Petroleum Industry Bill, revocation and re-allocation of Marginal Oil fields by the Department of Petroleum Resources to new operators and other industry matters. Hamid Ayodeji brings the excerpts:
The House of Representatives Committee on Public Petition and the Department of Petroleum Resources (DPR) are on a collision course over Dawies Island marginal field loss by Eurafric for holding the national asset without production and making it unviable for 17 years. The Minister of Petroleum Resources through the DPR awarded the field to Petralon 54 Limited and its partners during the last bid round, a decision that has been countered by Eurafric through a petition to the House Committee on Public Petitions. What is your take on this in the light of the debate around the Petroleum Industry Bill and the role of regulators?
The thinking behind it is simple: The oil and gas sector suffers some deficits, one of them is governance which is the foundation of growth for any country. Other deficits include accountability and transparency. You would agree with me that every government in power have had a scandal or more about oil or the NNPC. In the real sense, we have the DPR which is an emergent party from a Ministry. It was first an Inspectorate department then it became the DPR, it has a Director who reports to the Minister. With DPR, there is no independence, there are no real powers. Remember a time in Nigeria when we had a Minister of Petroleum who fired about four leaders of the DPR due to various issues. When there is no independence as a regulator, there are limitations. If you are not accountable to some Board structures, you will not be as transparent as you ought to be. So, the whole reason is to strengthen governance and have a Commission for the upstream and another one for the midstream and downstream. Now, the question people will ask is, why you don’t have a single regulator, which is a practice. But every country determines how they run theirs, every country determines what they want to do and I think for Nigeria, the focus is to develop the midstream and downstream where we can create jobs and grow the GDP. For the upstream again, there were issues around improving the power but not allowing to have a super regulator which becomes super creepy. Those ideas were to have a balance and the way the governance was strengthened, transparency was there and it allows some flexibility. There should be no one man, a DPR Director, Minister or a President who should be the alpha and omega in the oil sector. That was the thinking behind it.
What is your position is on the National Assembly having ratified the three percent for Host Communities Fund which has become a bit contentious and what do you think will be the impact of the PIB on the newly awarded marginal field assets when it comes to the 2020 bid round in terms of developmental efficiency in getting the assets into production. How would you advise new awardees to proceed in light of this?
I think one of the greatest things that have happened which is in the PIB is the concept of drill or drop. We have had a history. I think the first attempt to Nigerianise the oil and gas sector was in 1990 when the Babangida Military government awarded oil blocs to some Nigerians who were thought to have financial capabilities to make the necessary investments. Of the award, only about three or four have been mined, that is Famfa, Conoil and some other two. Now, a lot of people get these licences or win these bids then go sell it off. They sell it off to those who are incompetent and the whole thing stalls and we suffer as a country. We have two problems in the sector right now; we have declining take from the barrel and we have declining returns from crude. Now, we are limited to 1.45 million barrels a day by OPEC quota and we have a failure to ramp up 2.1 million barrels per day. If the oil blocs lie fallow and people are not producing from it, we are losing revenue from the field, we are losing job creation from the field, and we are losing what should be the contribution to the Gross Domestic Product (GDP) as well as field development fee. It’s a whole basket of having something you cannot use, it is therefore better you drop it. To your specific question of what happens to the new awardees, the PIB is clear, you have a timeline, you pay your licensing fee. You also have a timeline to find investors to work with you. If you can’t, drop it. Drop it for someone who can. The truth is, we are fighting a battle; the truth is crude is not going to be as powerful or useful as it is in the next 20 to 35 years. Now, imagine you getting a bag of cowrie shells from your grandmother. At that point or in time past, it was much money but if you have cowrie shells today it is to be used for decoration. So, in a race to ensure that we maximise what is under the ground now, we can’t have people having fields, whether marginal or others and not exploit it. That is because in the long run, the state loses. The relevance of crude and the present value of money also plays a role. We are country with challenges in balancing our budget, so as much as we can get in taxes, royalties and other fees are important for now. So, anyone going into that kind of exploration should be thinking about the capacity. If they don’t have the capacity, they should drop it. Now, laws are not usually retroactive but everybody is going to come under the PIB once there is assent by the President. The PIB repeals about nine laws, all those laws that are currently governing the sector become repealed as soon as the PIB is signed and that means as a sector, we are going to be governed under the new law. Anyone in the sector should be thinking about capacity, capability, efficiency and the ability to say “if I can’t do this, let me look for someone else that can.” As a country, we cannot tap the revenue for the future today because people are not capable or because they are emotional.
What is your opinion about the three per cent that has been ratified as development fund for host communities by the Senate?
For me, I am a person that sees a glass that is half full instead of one that is half empty. I have seen a lot of positions from people saying we want 10 per cent or 20 per cent. Yes, we can have any per cent, but the question I ask every day is, what the principle behind this thinking? The second one is, this is an addition. You had zero per cent before now. What has this tried to do? It is trying to bypass capture, in the corruption that has happened allegedly in the Derivation, in the NDDC and other parties and give the communities a voice in determining their own future. It also ties them to the production, it ties them to the state. Now, three per cent of what? Three per cent of previous years’ operating expenses can be significant. But the question is not how much the money is, but how well utilised the money is? It is a starting point and you can move forward from there. You can say 10 per cent tomorrow but they were at zero before. Now, if you say don’t sign the PIB because of that, then you go back to zero. Zero percent of Zero is Zero. So, it is better for the communities to think, we have got something, we still get derivation, we still get what we get through NDDC, we still get other things and it is a good starting point for discussions. Again let me add that I am not concerned about percentages, I am concerned about utilisation and benefits. I am concerned about the fact that we can ensure that the money goes back to the community that really needs it, so I am in support of it.
So let’s talk about the last marginal oil field bid rounds. Some analysts have said that not only was the 2003 exercise more transparent than that of 2020, they also argued that the 2003 was more rigorous, yet 11 fields did not achieve production. I am asking this in light of the recent controversy between the House of Representative and the Department of Petroleum Resources over Dawies Field. What exactly are we dealing with here, what are your thoughts?
We have to ask ourselves a question, do I have the mandate to act in the way I have acted legally? Yes, I can. Now, does the DPR have the right to act and revoke license unutilised? Yes they can. Was it part of the contract you signed at the point and time when the license was given to you? Yes, it is. Now, the problem we have in Nigeria is that people don’t want to follow rules. We live in a country where people want to use influence to get things done and this is why we have an oil sector that is in crisis. You cannot because you are a member of the House or you are a Senator or the President negate the powers of an institution. You asked about why we are having an upstream and downstream commission and institution, the reason is simply because of these kinds of issues. When you take a field and keep it for 17 years, you don’t invest in it, there is no returns from it. Imagine if that field was producing when oil prices was like $120 a barrel or $110, imagine what we could have done with that money. There is something called the net present value of money, which is an accounting term for saying money today is best utilised for today than saving money when you cannot predict tomorrow. So, it is not the business of the National Assembly to get involved in such matters. I see it as an abuse of process and law. The question we should ask is, does the DPR have the power, the mandate, is it following the law? If we can prove that other than the law, there is something else, then the party that is complaining about Dawies Field should fight. I watched a news report about Bayelsa State too and the emotional argument of the governor about the marginal field the state had undeveloped for 17 years. If you have 17 years to make something operational, to invest in it, you didn’t do it. Now, when it is time to take it from you, you say you could have done it. No! it doesn’t work that way. There must come a time when we follow rules and laws. And on the question of transparency and bid rounds. A lot of complains about this bid round have been raised, I mean, I have read reports about this bid round not being as transparent as it ought to be. But I think the issue is, DPR has a process which it published that the law says that is the way the bid round will be conducted and the way it will be assessed. If that is not followed, then, it falls on the parties to go through the right channels to appeal. If the guideline has been followed, then it is a defined case. When you say, 19 years ago we had a bid round and we still have 15 fields lying fallow, now that’s the problem. That is why the PIB now has a clause that says drill or relinquish or drill or drop. It has to be that you cannot hold something in perpetuity just for you. People must know that Oil is a diminishing asset, the oil money is what we need today to build the future. We need to start thinking about transitioning from oil but we need oil money to transition away from oil. So, if you keep something on the ground there, you read the EU guidelines released recently on cutting emission and climate transparency. So, we have an asset that might be worth nothing in four years. I think as it is clearly published, it should not be a matter for the National Assembly. I think this is part of the abuse of processes that happens in the country. This is why people just do the way they do it. We are almost becoming a country of anyhow.
