• Sunday, February 25, 2024
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The Buhari Legacy Series: Nigeria’s oil sector needed deep reforms, Buhari was hesitant

The complexities of fuel subsidy removal and forging ahead as a nation

An analysis of the oil and gas sector within the eight years of Muhammadu Buhari’s stewardship as president and minister of petroleum resources, showed that while he largely met a bleeding sector, he went in and twisted the knife in the wound due to an inability to enact deep reforms.

Buhari’s second stint as oil minister saw the erosion of Nigeria’s oil GDP, rising crude oil theft leading to a decline in oil output and an exodus of international oil companies from onshore fields, but also the enactment of the most progressive oil legislation in two decades and improved local participation.

Performance of Nigeria's Oil GDP

Petroleum Industry Act

Analysts say the most significant success under his administration is the passage of the Petroleum Industry Act (PIA).

“There is no doubt that the biggest achievement of Buhari’s administration in the oil and gas sector is the passage of the PIA into law. It serves as a solid foundation for the numerous improvements expected in the sector,” said Ayodele Oni, partner, energy practice group at Bloomfield LP.

“The key changes introduced by the PIA include establishing two new regulatory authorities for all upstream and midstream/downstream oil and gas activities, establishing NNPC Limited, a business-focused entity, new business opportunities, and improved host communities’ considerations, amongst others.”

However, the delay in implementing the PIA created uncertainty for investors and slowed progress in the industry.

Refinery rehabilitation and huge subsidies

Buhari, who doubles as petroleum minister, had in 2015 pledged to “revive and reactivate Nigeria’s minimally performing refineries to optimal capacity” and boost foreign reserves by ending the importation of refined fuel.

But eight years later, all the refineries are shut down, with some undergoing rehabilitation, forcing the country to rely on imported petroleum products. Nigeria’s petrol import bill hit N5.2 trillion in 2022, the highest on record, as the quest by the country to wean itself off imported fuel drags on.

Despite spending N11.7 trillion on subsidising the product, Nigerians still witnessed persistent scarcity due to FX and distribution glitches.

“Deep-rooted challenges such as addressing petrol subsidy would have been a masterstroke,” said Kelvin Atafiri, who runs Cavazanni Human Capital Limited, an investment firm exposed to the oil and gas sector.

Decade of gas projects

Nigeria's average NLNG since 1999

Under Buhari, Nigeria made a major pivot to gas, declaring a ‘Decade of Gas’ till 2030. The plan seeks to grow gas demand at a compound annual growth rate of 16.6 percent annually, driven by major projects such as NLNG Train 7, Nigeria/Morocco pipeline, NLNG Train 8, Brass Fertiliser and AKK pipeline-related projects.

Buhari formed a ministerial committee at the highest organs of government which includes the ministries of petroleum resources, finance, regulatory agencies, and industry operators, and the NNPC. Eventually, a steering committee was instituted and a consultant was hired to draft an action plan that will deliver the ‘Decade of Gas’. Implementation has been spotty.

“The key promoters who launched this are on their way out. We will have a new administration, but we cannot afford a disruption in the plan. And so the biggest challenge that we have is to ensure that this plan remains on track and is also implemented as plan,” said Phillip Mshelbila, managing director/chief executive officer of the Nigerian LNG Limited (NLNG).

Oil production vs thieves

Buhari’s administration also grappled with oil theft that dipped the country’s oil production to an all-time low, which led to significant revenue losses as its oil-to-GDP hit the lowest since 2015.

Nigeria's average oil production since 1999

To curb theft, it deployed some measures including employing some of the militants Buhari once haunted to secure them.

Buhari appointed himself oil minister, sector fortunes went downhill

Average oil production under BuhariThe powers of the Nigerian petroleum minister are enormous. He grants and revokes oil leases, regulates importation, storage and distribution of refined products, fixes petrol prices and exercises general supervision over all operations under different oil leases. It demanded a minister who is savvy, innovative, and dynamic.

Buhari was none of those things.

The functions of a minister were first drawn up in the Petroleum Decree 1969, created for a time when excellence was a key consideration for position in the Nigerian Civil Service – before ghost workers and tribal quotas became the norm. To his credit, Buhari reformed the process of selecting a minister and regulating the sector, but couldn’t deliver on the expectations.

Data compiled by BusinessDay since 1999 showed that Buhari’s performance as Nigeria’s petroleum minister has been largely underwhelming.

Admittedly, Buhari came into office at a difficult time for the global oil sector. “Between mid-2014 and early 2016, the global economy faced one of the largest oil price declines in modern history. The 70 percent price drop during that period was one of the three biggest declines since World War II, and the longest lasting since the supply-driven collapse of 1986,” said the International Monetary Fund in an analysis.

But Buhari made a bad situation worse.

By 2016, sabotage on oil and gas facilities by Niger Delta militants including the Niger Delta Avengers and the Movement for the Emancipation of the Niger-Delta, were hurting Nigeria’s oil production.

Read also: PIA, regulation and return of investments in oil and gas

A former military general, Buhari, rather than negotiate, sent in soldiers and it became a low-grade warfare. By June, Nigeria was losing over 800,000 barrels of crude daily. The government was forced to open back channels for negotiation.

Buhari’s leadership of the oil sector is littered with missed opportunities, slow reforms and bureaucratic bottlenecks. Regulatory agencies under his ministry soon morphed into mini-fiefdoms. Licences were revoked without recourse to the legal process, and approvals for routine statutory obligations like environmental impact assessment became cash cows.

The PIA, a landmark achievement after over two decades of vacillating, was signed into law in August 2021. But Buhari shifted implementation deadline by 12 months. Less than three weeks to the end of his tenure, critical aspects of the Act including the deregulation of the downstream sector, liberalising gas pricing, implementing fiscal and regulatory rules, remain to be implemented.

The global oil market is marked by boom and bust. Governments around the world use the periods to implement critical reforms. When oil prices were on the floor in 2016, Egypt began a phased removal of electricity and refined products subsidies. The country also allowed a free float of the currency. Buhari did the opposite.

Buhari resisted every call to remove subsidies at a time the pump of price of petrol would have sold for less than N100 per litre as oil prices fell to less than $40 per barrel. After COVID-19 pandemic made landfall, oil prices crashed and again Buhari could not read the tea leaves.

Scarred by the humiliation of being dethroned in a coup and sent to jail, Buhari was always wary of popular discontent turning to military coups. This interfered with reform plans and failed to remove service chiefs Nigerians had no faith in despite carnage in the North Central and industrial scale crude theft in the Niger Delta.