. Rally support for new governance structure
. Urge transparent utilisation of 3% Host Community Fund
Stakeholders and other interest groups have commended President Muhammadu Buhari for mustering the political will of signing the Petroleum Industry Bill (PIB) into law, thereby ending almost 15 years of uncertainty and defining the new governance structure for the sector.
Those who spoke with Sustainable Economy said the Petroleum Industry Act (PIA) 2021, has not only defined the rules of the game in oil and gas operations but also opened up a new vista of opportunities for increased investments and attendant employment opportunities in the sector for the benefit of the economy and Nigerians.
The President, while still working from home based on COVID-19 protocols, following his return from London, on Monday, surprised the world by signing the long-awaited and controversial PIB, which he had previously refused to assent to during his first tenure as a civilian administrator.
A five-paragraph State House release signed by the Special Adviser to the President (Media and Publicity), Femi Adesina, which made the announcement also said: “The ceremonial part of the new legislation will be done on Wednesday, after the days of mandatory isolation would have been fulfilled.”
Besides the Petroleum Industry Act providing “legal, governance, regulatory and fiscal framework for the Nigerian petroleum industry, the development of host communities, and related matters,” Adesina, insists the signing of the Bill into law notches “another high for the Buhari administration.”
The Nigeria Extractive Industries Transparency Initiative (NEITI), which described the development as “historic”, said the new Law has ended decades of uncertainty concerning the future of Nigeria’s oil and gas sector.
NEITI in a statement quoted the Executive Secretary, Dr. Orji Ogbonnaya Orji, as saying: “The signing into Law of the PIB has demonstrated the government’s resolve to strengthen governance processes and systems especially in the extractive industry through an institutional and legal framework. NEITI is encouraged by the development.”
He added: “The new law has opened a new phase of wider opportunities in the oil and gas industry. For us in NEITI, President Buhari has broken new grounds, created a new business horizon built on healthy legal frameworks that will push the boundaries of reforms in the sector with realistic optimism for inflow of investments, revenue growth and job opportunities.”
The Nigerian Council of the Society for Petroleum Engineers (SPE), believes the new law will position the industry for the energy transition.
The Chairman of the Council, Tunji Akinwunmi, said: “We, the Nigerian Council of SPE believe the law will add significant value for the Nigerian stakeholders – the people, the government, the industry and other investors as well as enhance employment generation. The law will spur and accelerate exploration and production activities.”
For the Managing Director/Chief Executive Officer, International Energy Services Ltd., Lagos, Dr Diran Fawibe, the law has enthroned better governance and the institutional frameworks, especially the fiscal administration, which is what has held up investment for many years. “It’s a question of better late than never because as of now, a lot of investments that were supposed to have come in 5, 6, 7 years ago have been lost.”
Given that a lot of investments have been lost over the years, Fawibe argues that there is a need to regain lost ground in view of the global energy transition to renewables and cleaner fuels.
He noted that at production levels as low as between 1.4 & 1.6 million barrels per day (mbpd), foreign investors can now take the opportunities provided in the law to ramp up production, adding that the long-pronounced targets of 4mbpd production and 40 billion barrels in reserves have almost become a mirage.
“The fiscal regime is favourably disposed to the deep water operations than before, so we hope the IOCs will reciprocate and respond appropriately by investing more in that region.”
As commendable and laudable the signing of the Bill into law is, the CEO, Oildata Energy Group, Emeka Ene, cautioned that Nigeria is no longer the beautiful bride. “We are now dealing with a different industry compared to 15 years ago when the Bill was first initiated because funding is now scarce so FIDs will still have to be sought and accessed.
“The difference now is that there is some predictability in terms of what can happen between now and the next 10 years to enable investors to plot their technical and economic trajectory. Also, there is a lot more optimism now that the law will translate to better oil and gas operations.”
Economist and former Director-General, Lagos Chamber of Commerce and Industry (LCCI), Dr Muda Yusuf, believes the Act is a major instrument of reform in the oil and gas sector and went on to identify a lot of positives in the law.
“It has a number of significant implications for the oil and gas sector and the economy as a whole. It has a profound investment effect as investment sentiments in the petroleum sector are enhanced by the new policy regime. There is the macroeconomic effect, which is expected from the conservation of foreign exchange as more petroleum products are produced locally; there is the revenue effect on account of new private investments in the sector. There is the employment effect from new investments, and there are the expected foreign exchange earnings outcomes, which higher upstream oil sector investment will generate. The boosting of petroleum refining capacity as well as petrochemicals production will have remarkable impacts on our balance of payment position in the medium to long term.”
On his part, CEO Cowry Assets Management Ltd. Johnson Chukwu, says the Law now provides clarity for governance frameworks, increased the level of certainty and provides clear direction for players and regulators, while some of the issues frustrating investments will be substantially resolved.
Now, oil has been found in practically every country, so Nigeria is no longer the beautiful bride it used to be, so the country needs to be more realistic and humble because many other countries are offering better terms.
Unresolved grey areas
Admitting that there is no perfect law anywhere in the world, all the respondents told Sustainable Economy that Nigerians should rally support for the full implementation of the Act despites its shortcomings.
Fearing that the Law may reawaken agitations in the Niger Delta over the retention of 3% as Host Community Fund given the level of environmental degradation of the communities, Chukwu insists that what is more important now is the judicious use of the fund, especially as there is not much value for funds previously deployed in the region.
“While not supporting not giving them what they asked for – in fact they actually asked for 10%, later it came down to 5%, and they got 3%; we need to have a strong framework that will ensure that the funds that will be made available for the Niger Delta host communities are invested appropriately.”
For Ene, there is no need crying over spilt milk, as according to him, “It is too late now to start crying foul over the 3%; you get what you negotiate for and as it is.”
Like Chukwu, he admitted that funds deployed in the area in the past have not made much difference, but “If this 3% will have a blueprint for the disbursement and how the money will be shared then it will make better sense.”
He added, “But this doesn’t take away the fact that they need to give more to the communities in view of the environmental degradation that has happened over the years. When the lawmakers talk about familiarisation tours, I wish they had actually visited some oil fields and real host communities to see what is happening there; then they would have had a better understanding of what the issues really are. Their means of livelihood is gone; before you eat anything in the communities you must ensure that it is not contaminated.”
Fawibe urged agitators to seek amendment to the law, while noting that the President has promised that the host communities will be engaged in terms of how they will derive benefits from the law, while Yusuf believes that issues of this nature are typically work in progress.
For Ene, there are still other outstanding issues that signing of the bill cannot resolve. “The law cannot solve all the problems, especially operational issues such as security burden, environmental challenge, the Niger Delta challenge, dearth of infrastructure, oil prices and lack of investment in the sector and other inefficiencies, which will not disappear because the Bill has been signed into law.
“If you look at the divestments by the IOCs from the Onshore and Shallow Waters, they’re not just divesting for the sake of it but because business is no longer viable in these terrains. They are still operating in the Inland Basins in other regions but they are divesting because of the challenges in these areas.
“Now, oil has been found in practically every country, so Nigeria is no longer the beautiful bride it used to be, so the country needs to be more realistic and humble because many other countries are offering better terms. For instance, last year, Nigeria attracted only 5% of the total FDI in Africa because the conditions were not favourable.”
Added to these, he said, is the high cost of production per barrel in Nigeria. “Our oil is expensive oil; Nigeria used to produce oil at $2-4/barrel, one of the lowest in the world. But today, the cost of production is above $10 and in some cases closer to between $20 & 30/barrel. Today, we are competing against countries like Saudi Arabia that their cost of production is within the $7 or 8/barrel range, this should be our major concern.”
Against this backdrop, Fawibe urged stakeholders to make the best of the positives in the law and work with them, and if in the future there is a need for review, this can come in the form of amendment.