The Incorporated Joint Venture (IJV) model which the Nigerian National Petroleum Corporation (NNPC) says it plans to introduce that would see it replace all the Joint Venture (JV) exploration and production projects in the country is not a holistic solution to the numerous challenges in the country’s oil sector, analysts have cautioned.
NNPC had said the IJV model was conceptualised out of the need to encourage healthy business culture and growth in the energy sector.
Many industry analysts see this as a healthier development for the sector compared to the earlier JV partnership of the corporation. They insist, however, that the step is not satisfactory enough and that a better fiscal framework, which the Petroleum Industry Governance Bill represents, is needed to address Nigeria’s oil industry challenges.
Exploring the IJV model, some analysts say, is a smart move for the corporation, since it provides significantly better asset protection to the JV parties compared to unincorporated ones.
Charles Akinbobola, an energy analyst, told BusinessDay that the IJV is a commendable move by the government because the liabilities of the venture will usually be contained in, and limited to, the joint venture company, rather than being borne by the joint ventures directly.
“This is a great step in the right direction. It would also allow for a more sustainable funding arrangement between the NNPC and for the joint venture in general. The funding arrangement would help get more funding from the state, and put the corporation on a strong financial footing,” Adeola Adenikinju, a professor of energy economics, said.
Mainkanti Baru, immediate past group managing director of NNPC, recalled during his valedictory session how the corporation struggled to offset cash call arrears in excess of about $10 billion, which it had repaid and exited, even as he praised the new IJV move of the corporation.
Notably, a better governance framework for oil sector could have saved NNPC the headache of settling cash call arrears since the impact of non-passage of PIB included, amongst others, decline in oil and gas production and reserves; decline in government revenue; deferment of core investments; prolonged JV funding difficulties (cash calls payment delays); loss of competitiveness, and leakages, oil theft and sabotage.
“For instance, the issue of separation of state from the activities of the NNPC still worries industry stakeholders. NNPC should operate basically as a commercial entity, and subject to the discipline of markets, and could attract funding directly from the capital markets locally and internationally. This is why the passage of PIGB would set the industry on the path of sustainable economic growth,”Adenikinju said.
“This is the only way to compete with its global counterparts, enlist in local and capital markets, make it a proper commercial entity so that it stops running at consecutive loss as witnessed last year. When you compare with the NNPC’s operational performance with its counterparts globally, you discover that it is lagging behind,” he said.
Among other things, the PIGB seeks the creation of efficient and effective governance institutions with clear and separate roles for the various components of the petroleum industry as well as creation of a commercially-oriented and profit-driven petroleum entities.
Also, it seeks promotion of transparency and accountability in administration of the petroleum resources in Nigeria and creation of a business environment conducive to petroleum industry operations.
Despite increasingly huge potential of Nigeria’s oil and gas sector, absence of a structured fiscal framework is dealing a blow on the sector, while sending investors to other countries with better governance framework such as Ghana, Angola and Mozambique to attract oil sector-related investments.
“There is limited funding in the world, and there is limited funding for Africa, and if Exxon Mobil, Shell want to do investments, countries with better fiscal framework is better off and automatically their investment destination,” Ladi Bada, managing director, Shoreline Natural Resources, told BusinessDay.
He went further to state that key companies in Nigeria are not getting the limited funding that is available out there by global oil majors since the country’s our fiscal governance structure is not backed by law yet.
“Mozambique with just 100mn TCF of gas and no oil has commanded significant investment of late because of better fiscal framework to operate on. We have seen countries like Angola with lesser oil barrels than Nigeria also keying in more than ever in attracting huge investment sums because of better fiscal framework,” he said.
Mele Kyari, the new GMD of NNPC, said in his inaugural speech that the corporation would work with the National Assembly to ensure the passage of the outstanding legislation.
Such legal backing, according to him, would provide better fiscal governance framework in the sector, while ensuring the sector competes with its global peers such as Saudi Aramco, among others.
