Drawing up competitive fiscal and regulatory terms for the oil and gas sector, organising transparent oil licensing bid rounds, removing fuel subsidy, and liberalising gas prices are some of the most urgent tasks awaiting the next Nigerian petroleum minister after a dreary performance in the past four years.
For a country mired in debt, spending N5.74 billion daily paying interest on money borrowed from foreign and local lenders, whose GDP is forecast to grow by a marginal 2 percent if oil prices find a floor around $60, reforming the oil and gas sector responsible for 90 percent of its revenue to attract investments is a critical necessity, experts say.
“The most important agenda for the next petroleum minister is ensuring the PIB is passed to provide transparency in the sector, reform the NNPC and provide clarity for fiscal, regulatory terms so the oil sector can conform to international standards,” said Adeola Adenikinju, director, Centre for Petroleum and Energy Economics and Law and member of the Central Bank of Nigeria Monetary Policy Committee.
Half a dozen experts in the oil and gas sector surveyed by BusinessDay ranked reforming fiscal and regulatory terms by passing into law a competitive petroleum industry bill as the most urgent task facing the government. Next is leveraging the oil and gas sector to provide linkages across the economy and creating efficiency in the oil and gas sector.
President Muhammadu Buhari withheld assent to the PIGB over concerns that the regulatory agency it sought to create, the Petroleum Regulatory Commission retaining 10 percent of generated revenue, could affect other tiers of government.
However, the Nigerian Extractive Industries Transparency Initiative (NEITI) said the absence of the PIB costs Nigeria $15 billion yearly in investments.
NEITI, in a joint study with Open Oil, a Berlin-based extractive sector transparency group, also found that Nigeria lost at least $16 billion over the period 2008-2017 due to non-review of the 1993 Production Sharing Contracts (PSCs) with oil companies. Nigeria’s Deep Offshore and Inland Basin Production Sharing Contracts Acts said that terms should be reviewed if oil prices exceeded $20 per barrel and 15 years from the commencement of the PSC Act.
“In the past, the executive left the industry bill to the legislature, they need to show more interest this time around,” Taiwo Oyedele, head of tax at PwC Nigeria, said.
Oyedele further said the next petroleum minister should reform the NNPC to make it more transparent, adding, “There has been progress in this area in the past, but more work needs to be done.”
He said that capacity development for the NNPC should be another critical focus.
Henry Biose, a petroleum economist based in Port Harcourt, said a petroleum industry law is a critical framework that will drive investments followed by actions to liberalise the gas sector.
“Our current laws are outdated and if the PIB is not passed, uncertainty in the sector will increase and investors will stay away due to the absence of law to protect their investments,” Biose said.
Last year Madagascar, Algeria and Ghana were some African countries that started oil licensing rounds to boost their reserves, increase revenue as well as their capacity to take advantage of soaring oil prices, but Africa’s biggest producer has been unable to finalise bid round plans started since 2016. Over 186 marginal fields lie fallow because bid rounds have not been conducted leading to loss of billions of naira in revenue.
In 2017, cash-strapped Federal Government said it would conduct bid rounds for its marginal fields to raise funds to mitigate a slump in crude earnings and finance the N7.4 trillion budget. But with the rise of oil prices above $80 per barrel towards the end of the year, more cash lessened the urgency for a new bid round.
Austin Avuru, CEO of Seplat, has often advocated that oil should play the role of an enabler to other sectors of the economy, providing linkages with other sectors that will grow jobs. He identified gas as next goldmine if reforms are enacted.
Though responsible for 90 percent of Nigeria’s foreign exchange earnings, the oil sector contributes little to grow the GDP. Contribution has remained in the one-digit margin, with all-time highest contribution of 9.84 percent in Q3 2017. Analysts say the new petroleum minister should make this a priority.
“The minister should ensure that it galvanises the rest of the economy by creating wealth through harnessing the gas sector,” Adenikinju said.
Experts also said the new petroleum minister must boldly reform the downstream sector and abolish wasteful fuel subsidies. The Federal Government spent N2.95 trillion importing petrol to augment supply from the country’s rickety refineries in 2018, data from the National Bureau of Statistics (NBS) show.
“It is a big shame that we are one of the world’s biggest producers of crude oil and still the world’s biggest importer of petrol. The new minister must change this,” Adenikinju said.
ISAAC ANYAOGU
