Nigeria’s oil nostrum: what is the petroleum reform hoping to achieve? - OFFSHORE TECHNOLOGY
Nigeria is tipped to benefit from the approval of the Petroleum Industry Governance Bill, heralded as the first of four milestone reforms to boost exploration investments and keep Africa’s number one oil and gas producing-nation competitive. How far will it go towards reaching Nigeria’s offshore potential?
After 17 years and more than 20 drafts, the Petroleum Industry Governance Bill (PIGB) sits on the desk of Nigerian President Muhammadu Buhari waiting to be signed into law, having gained support from the National Assembly earlier this year.
The PIGB, or Governance Bill, is the first piece of the Petroleum Industry Bill (PIB) to reach the executive office. The other components of the PIB are the Petroleum Industry Administration Bill (PIAB), the Petroleum Industry Fiscal Bill (PIFB) and the Petroleum Host Community Bill (PHCB).
Nigeria is the largest of the oil-producing African nations and the 13th largest oil-producing nation worldwide in 2016, according to the US Energy Information Administration. The OPEC member pumps out around two million barrels of oil and condensate per day and accommodates global oil giants including Shell, Chevron, Total, ExxonMobil and Eni through joint ventures with state-owned Nigerian National Petroleum Corporation (NNPC).
One of the key provisions is the new tax laws that will make it more attractive for oil companies to invest and re-invest in the nation’s offshore business.
Successful passage of the bill, however, has been plagued by disagreements in the National Assembly over tariffs on upstream oil development, disrupting potentially billions of dollars investment into the industry.
According to the former director of the department of Petroleum Resources and lead consultant to the National Assembly on the PIB, Osten Olorunsola, Nigeria has huge potential for gas-based investments.
“Nigeria needs to move more from 1,500m depths to deeper offshore where the acreages are open. Nigeria can easily become the third in the world in terms of gas reserves if we do the needed exploration work,” Olorunsla said at a recent roundtable hosted by the Nigeria Natural Resource Charter in Abuja. “By 2025, the whole of Africa can have gas. The countries we used to sell to could soon start selling to us. We may be sitting on generations because we refused to take certain decisions at some point.”
He warned that the full PIB is needed to fix such problems as “inadequate gas to power, bloated petrol subsidy, poor oil revenue management, erratic sector funding, ease of doing business, metering, and network infrastructure”.
Encouraging foreign investment
In July, the China National Offshore Oil Corporation (CNOOC) pledged an additional $3bn injection into its existing offshore interests in Nigeria. Chief executive Yuan Guangyu announced the investment on a recent visit to the NNPC.
“Guangyu described its investment in Nigeria as the most strategic important overseas business undertaking and its largest investment destination,” said NNPC spokesperson Ndu Ughamadu during the state visit.
“He said CNOOC had invested more than $14bn in its Nigerian operations, even as he called on the management of the NNPC to seek common grounds of beneficial interest with CNOOC for enhanced productivity.”
But China has been investing in offshore Africa for a long time now, according to Ford Garrard, senior vice president for EMEA at global workforce solutions company Airswift.
Asked whether the passing of PIGB encouraged CNOOC’s investments, Garrard said: “China has always been a big investor in Africa in these locations. I think the country gets some reciprocation with regards to infrastructure and construction projects as well, but I don’t think that type of investment would drive any other company’s investments because China is a key player and part of its on-going strategy for years has been to invest in Africa, so I wouldn’t expect people to use the recent investment as a yardstick.”
Some NNPC stakeholders have praised the bill, saying it represents a much-needed step in Nigeria’s pursuit to reform the oil and gas industry, as well as encourage investments.
“It’s an unprecedented step forward. The PIB is something that has defied the last two governments,” Antony Goldman of PM Consulting told Reuters. “The detail of what is agreed will determine the extreme to which the bill takes politics out of the sector and tackles systemic corruption.”
Indeed, it is concerning that the oil minister’s executive power is not adequately checked, according to auditor PwC. Nigerian oil needs strong and balanced leadership: a team of proven senior management to guide corporate strategy, monitor performance and instigate new reforms if necessary.
However, this is not the main aim of the PIB, according to Garrard. “I don’t think it’s necessarily set out to make the industry more transparent. The primary aim of the PIB is to empower indigenous Nigerian business through localisation of opportunities, and localisation of use of resources that will give Nigeria – its people and its companies – a specific preferential interest or advantage in the industry,” he says.
Supporting local communities
The industry has long been dominated by international companies coming into the country with their experience, money and strategic plans, Garrard explains. The new quota system that has been proposed in the bill should go some way to assessing what expertise is needed in Nigeria based on project requirements.
“Generally, with that type of arrangement there has to be a balance of the amount of national employees they hire compared to expatriates, to make sure that there is a concentration on the development of Nigerian talent and what is not happening is foreign companies bringing in expats to execute all of the work and when the capital project is finished, all those expats leave an executed project that is producing, but there is no talent development, and no development of the local company’s workforce,” he says.
“When the next project comes along, they will then have to use expats again and there is no funnel of opportunities for the nationals.”
Additionally, Garrard hopes the reforms will help empower Nigeria through a greater selection of homegrown talent in senior management roles and more opportunities and benefits for the local workforce and the community.
“I think it will be refreshing to see some significant progress in it and for Nigerian companies as well,” he says. “There are a lot of entrepreneurial Nigerians who are very much establishing their place in the industry, who are waiting for such a bill to come because they have their competence, education and development that they have been investing in for years and are just waiting now for their chances to flourish on the back of the PIB, so it will be good to see that finally progress.”
One such individual is Moritz Abazie, chairman of local oil and gas company Strides Energy & Maritime. Abazie has called on the National Assembly to expedite the remaining three parts of the PIB, which he believes are more contentious.
“For the oil and gas industry, the elephant in the room at the moment is the PIB, the failure to deal with this legislation has caused the country so much loss of investment opportunities,” Abazie told The Guardian.
“Yes, the Petroleum Industry Governance Bill has been passed, a good starting point indeed, however much of the knotty and controversial issues lie in the unpassed components of the legislation.”