Tinubu’s quest for oil investments faces execution hurdle

Three new directives aimed at attracting new investments and halting the exodus of international oil companies (IOCs) are underway in Nigeria’s oil sector, but analysts say execution hurdle is the biggest task ahead.

Oil is the lifeblood of Africa’s biggest economy. It provides roughly half of government revenues and nearly all of its foreign exchange receipts as well as a big part of its presence on the global stage.

But it has also been underutilised as a resource for Nigeria’s 200 million people in the 64 years due to bureaucratic bottlenecks, contracting delays, and low local participation since Royal Dutch Shell first tapped a well in the swamps of the Niger Delta.

To change the narrative, President Bola Tinubu, last week, introduced fiscal incentives for oil and gas projects, reduce contracting costs and timelines, and promote cost efficiency in local content requirements.

This followed “extensive engagements, analyses, and benchmarking with other jurisdictions”, a statement signed by Ajuri Ngelale, the president’s special adviser on media and publicity, said.

The President directed the ⁠introduction of fiscal incentives for non-associated gas, midstream and deepwater developments.

Other policies introduced include the streamlining of the contracting process to compress the contracting cycle to six months and the application of the local content requirements without hindering investments or cost competitiveness.

Analysts have expressed concern that the government’s old habits of lax implementation of the Petroleum Industry Act (PIA), limiting IOCs from 100 percent remittance abroad, uncertainties caused by oil theft and introduction of annual levy on expatriate workers will hinder fresh investments into an oil sector where investments have been too few and far between.

“We see the executive order as a constructive step from the Tinubu government, and one that will hopefully boost the government’s aggressive investment drive, especially on gas. That said, it has been a tricky few weeks in the industry after the changes to energy companies’ forex repatriation rules and the announcement of the Expatriate Employment Levy,” Clementine Wallop, senior adviser to political risk consultancy Horizon Engage, said.

“What energy operators want to see now is seamless and effective implementation,” she added.

Jide Pratt, country manager at Trade Grid and an energy analyst, said the Nigerian government have a history of saying the right things but always ends up with poor execution.

“The PIA has allowed for some of the things you have in the Executive Orders, especially streamlining of contracting process to compress the contracting cycle to six months,” Pratt added.

Analysts at CSL Stockbrokers Limited said tightening regulations on forex remittance has the potential to serve as a deterrent for foreign investments in Nigeria’s oil and gas sector.

They said: “Factors such as rising insecurity and a surge in oil theft have prompted major international oil companies, spearheaded by Shell, to steadily divest from the Nigerian hydrocarbon industry for more than a decade.

“In our perspective, implementing more stringent capital controls would be an additional challenge that could intensify their inclination to exit, adding to their existing concerns. IOCs will probably join the list of FPIs and players in the aviation and other industries who struggle to repatriate their funds.”

Other experts who spoke to BusinessDay said the projected gains expected from Nigeria’s oil and gas sector following the passage of the PIA have remained a mirage as poor implementation leaves principal actors in a battle for supremacy and revenue.

“All the characteristics of the pre-PIA era such as rent-seeking attitude, bride-demanding officials, bureaucratic process, secrecy and multiple taxation are still around when you do business with the upstream regulator,” a senior industry source said.

Aisha Mohammed, an energy analyst at the Lagos-based Center for Development Studies, said the implementation of the PIA has been so slow and short-circuited, adding that the committee implementing the law was sidetracked in resource mapping, especially for the PIA institutions.

“The suboptimality of PIA is majorly because the new institutions were indirectly handed over the task of human resources mapping to the defunct institutions; the old Petroleum Products Pricing Regulatory Agency became the driver of the Authority and the defunct Department of Petroleum Resources indirectly drives the Commission,” she said.

BusinessDay’s finding showed the incentives for the new executive order signed by Tinubu were developed in collaboration with the Federal Ministry of Justice, Federal Ministry of Finance, Federal Ministry of Petroleum, Federal Ministry of Budget and Economic Planning, Federal Inland Revenue Service, the Nigerian National Petroleum Company Limited, the Nigerian Upstream Petroleum Regulatory Commission, the Nigerian Midstream and Downstream Petroleum Regulatory Commission, and the Nigerian Content Development and Monitoring Board.

Beyond the regulatory uncertainties, experts also said the country’s oil production has been blighted by large-scale theft and vandalism, as well as decades of under-investment in infrastructure.

Ten years ago, Shell’s share of production was as high as 300,000 barrels of oil equivalent per day (boed) in Nigeria. This fell to 131,000 boed in 2022, which the company blamed on sabotage and theft in the Niger Delta, its annual reports showed.

Industry experts said Shell, Exxon and other majors who hoped to divest were not putting much money into developing onshore assets – hastening production decline.

Meanwhile, as Nigeria struggles to attract investment into its energy sector, Namibia, a country of less than three million people, is emerging as a global exploration hotspot over the past two years, primarily due to deepwater discoveries by industry giants such as Shell and TotalEnergies.

Additionally, major oil companies like Chevron, ExxonMobil, and Galp Energia have initiated exploration and appraisal activities in the region.

Nambia’s state-owned oil company believes that this series of discoveries could position the country among the world’s top 15 oil producers by 2035, offering the nation a unique opportunity to double its gross domestic product per capita in less than a decade.