Ibe Kachikwu, Nigeria’s minister of state for petroleum resources is leading an Africa-wide drive seeking to raise $9 billion to finance projects in Africa including oil exploration, refineries and pipelines but this faces regulatory framework challenges in Nigeria.
In the recent continent-wide campaign to raise funds for big ticket capital intensive projects, Nigeria is working with over a dozen other nations grouped under the African Petroleum Producers Organisation, or APPO, to raise $1 billion in start-up funding for the African Energy Investment Corp.,Kachikwu said in an interview. At least half of this will come from private investors including venture capital companies, he said.
“The target is to be able to drive work-funding distribution in excess of $9 billion” over the coming year, Kachikwu said on the sidelines of an oil conference in Abuja.
However, for decades Nigeria’s oil industry failed to change or reform itself and now it is being starved of as much as forty billion dollars of investment waiting for the country to change its ways and enact badly needed reforms.
The global professional services firm, PwC estimates that regulatory uncertainty is keeping $40bn of potential foreign investment out of Nigeria.
Nigeria lost an opportunity to reverse this flight of foreign direct investment into the country when President Muhammadu Buhari declined assent to the Petroleum Industry Governance Bill (PIGB), a prelude to the passage of three subsequent bills meant to bring clarity and transparency into the opacity of Nigeria’s petroleum industry.
The implication has been unclear fiscal and regulatory framework to drive investment, management and inefficient operations in the sector, as well as the contentious aspect of the bill (the Host Communities Stakeholding).
Furthermore, Nigerian oil companies have been counting on alternative funding schemes including contractor financing, insurance funds, private equity, pension funds among others to get financing for new projects in an industry where lenders have become weary and wary of.
In exchange for some of the funds, operators say they have been offering equity participation, profit sharing and various crude for payment schemes supported by the Nigerian National Petroleum Corporation (NNPC) which provides guarantees that gives the lenders confidence.
This is probably why Nigeria, which currently pumps about 1.75 million barrels of crude a day, is trying to revive APPO after decades of inactivity and poor collaboration within the African oil group. Producers on the continent have become “silos” and need to start collaborating more on transnational projects to boost development and protect the regional market, Kachikwu said.
Also a member of the OPEC, Nigeria is working to establish the 18-nation African group as a “mini-segment” of OPEC. African members would take a unified position on issues including oil prices, output cuts, project costs and funding, according to Kachikwu.
“I have done this informally through the last two years of OPEC such that whenever we go to Vienna, those who are OPEC members will meet with me first so we toe a common position,” he said, referring to meetings at the producer group’s headquarters. “What we have found out is that it has been very effective because suddenly the likes of Saudi Arabia and the rest find that they could no longer just roll off African support just like that.”
Nigeria is scheduled to hold a general election from Feb. 16, with President Buhari seeking a second term. His main challenger, Atiku Abubakar, has said that he would privatise the state-run oil firm, which he called a ‘mafia organization,’ if he is re-elected. The Nigerian National Petroleum Corp. has a long-standing reputation for inefficiency and opaque management.
Investment inflows into the Nigerian petroleum sector will wait awhile until there is clarity in the regulatory environment for investors to be able to make long-term capital expenditure investment decisions.
