• Friday, March 29, 2024
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Nigeria still wavering on reforms as Egypt woos energy investors

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Egypt is working out the last details of a new type of oil and gas contract to woo more investors into the most populous Arab nation as Nigeria struggles to reform its oil and gas industry.

The North African country already expects an inflow of $10 billion into its energy sector in 2019 and the new contract will provide investors with incentives to explore for fossil fuels in underdeveloped areas, Tarek El-Molla, Egypt’s oil minister said in an interview without providing details.

Egyptian officials told Bloomberg in October that the new oil and gas contract would allow investors to control their share of production rather than sell to the government at pre-set prices.

“We’re improving the cost-recovery process to be faster, less bureaucratic and more efficient,” El-Molla said. “Egypt will launch a new bid round in the Red Sea this quarter.”

But Africa biggest crude oil exporter’s story of foreign investors’ engagement is different. In the last 17 years, Nigeria’s oil industry has failed to change or reform itself in order to attract foreign direct investments, badly needed. It is now being starved of as much as $40 billion of investment waiting for the country to change its ways and enact badly needed reforms.

Egypt wants to become a gas re-exporting hub on the doorstep of Europe, and the contract overhaul is part of a broader plan to liberalise its energy industry, Bloomberg reported. Italian firm Eni SpA’s discovery of the giant offshore Zohr gas field in 2015 re-ignited waning investor interest in Egypt’s oil and gas industry, the country’s biggest single magnet for foreign direct investment.

Nigeria’s oil and gas sector, which has typically attracted the larger chunk of new FDIs to the country, is stuck, as a set of fiscal reforms (contained in the Petroleum Industry Bill meant to unlock new investments) has stalled for decades.

Incumbent President Muhammadu Buhari, who seeks a re-election at this month’s polls, refused to assent to the bill at the eleventh hour.

The lack of investment-friendly reforms has been telling. FDI flows fell to $2.2 billion in 2018, the lowest in 13 years, according to United Nations Conference on Trade and Development (UNCTAD).

Egypt’s existing production-sharing agreements give investors about a third of a project’s output to help cover exploration and production costs. The rest is split with the government, which has the right to buy the producer’s entire share at the pre-set price. International oil companies have long complained about the contracts. But the new type of oil and gas contract is about to change this.

Egypt struggled before Zohr’s discovery to attract major new energy investments. Its current investment model drew greater scrutiny after 2011, when the country began to experience fuel shortages and power blackouts.

The government halted gas exports at the time, diverting the fuel for local use and stopping payments to investors for their share of output. Arrears to international oil and gas companies mounted, peaking at $6.2 billion in 2012, and stood at $1.2 billion in July.