With Nigerian President Muhammadu Buhari winning a re-election in the February 23 presidential election, analysts are weighing the implications of another four years of Buhari for the country’s oil and gas sector. The most important question the analysts are asking is whether Buhari can salvage the country’s oil and gas sector.
Oil remains the heartbeat and chief source of income for Africa’s biggest economy, accounting for a whopping 85 percent of export revenue.
While many industry experts believe that the nation’s oil and gas industry can do with some liberalisation, Buhari had historically opposed market liberalisation publicly, citing corruption risk as the rationale behind this position. He also argues that through state control, oil profits can be more easily distributed to nascent sectors of the economy and also help the masses.
But with Nigeria’s economy at a breaking point, Buhari may be forced to adopt unprecedented liberal reforms to solve old perennial problems, with Africa’s most populous nation boasting the greatest number of people in what World Bank calls “extreme poverty”: 87 million Nigerians reportedly live on less than $1.90 per day.
“We have an upstream that’s not operating optimally, midstream that’s not functioning and a downstream that is dying, so we have to think of a way to ensure private sector can make investment in the sector,” Ademola Henry, team leader at Facility for Oil Sector Transformation (FOSTER II), said.
Henry said the major task before the new administration is to reform the sector for more efficiency, more effectiveness, find a way of reducing leakages in the sector, and maximise opportunities in the sector’s value chain.
As it has been for more than a decade, the Petroleum Industry Bill (PIB) remains the biggest regulatory issue in Nigeria’s petroleum sector, although there was a significant progress in the bill in the last three years, championed by Bukola Saraki-led Eighth National Assembly (2015-2019). The PIB was broken into parts for ease of passage.
When presented with the Petroleum Industry Governance Bill (PIGB), President Buhari withheld assent on certain grounds, chief among which was the proposal in the bill to have the Petroleum Regulatory Commission (PRC), the successor agency to the Department of Petroleum Resources (DPR), as the principal regulator of the oil and gas industry, retain 10 percent of the revenue generated by the commission for its own operations.
“If the government does not want PIGB, what does it want?” asked Henry.
Another major dilemma for the present government is the issue around oil bid rounds which last took place in 2011. According to BusinessDay’s February 12 report, the Department of Petroleum Resources, the oil sector regulator charged with the responsibility of conducting the bid rounds, was not ready to conduct the bid rounds slated for the first quarter of 2019.
“The DPR is not anywhere close to concluding preparations for the next bid rounds. In fact, from all indications, it does not seem it will happen any time soon, because the guidance notes for the bid rounds are not even prepared yet. It does not even look like it could happen this year,” said a source that preferred anonymity.
Luqman Agboola, head of energy infrastructure at Sofidam Capital, said Nigeria needs a petroleum minister who will not only ensure transparent bid rounds, but also be more capitalist-oriented which would help the country domesticate the value chain in the oil sector and also increase oil revenue.
“Oil bid rounds should be more competitive and transparent. Let Nigerians know who is bidding for each field,” Agboola told BusinessDay.
Deregulation of the downstream petroleum sector is another key issue that will be facing President Buhari. Before the 2015 elections, Buhari strongly questioned the fuel subsidy arrangement, which was one of the issues that irredeemably dented the image of his predecessor, Goodluck Jonathan.
Despite attempting to coat it as “under recovery”, the current administration has not moved away from subsidy payment. In fact, it budgeted over N300 billion to fund subsidy in 2019.
Today, Nigeria is only capable of pumping some 1.7mbpd barrels of crude oil per day, according to OPEC figures, despite sitting on more than 37 billion barrels of proven reserves with its midstream and downstream infrastructure arguably in worse shape than upstream production.
The country’s refineries – most concentrated in the oil-rich Niger Delta region – currently operate at under half of their intended 500,000 barrel per day consolidated capacity, which billionaire businessman Aliko Dangote sees as a business opportunity leading to a the building of a $15 billion refinery.
Stakeholders in the sector said processing 650,000 barrels of crude daily would give the billionaire a near monopoly on Nigeria’s refining sector, although not necessarily a step in the right direction for market liberalisation.
Also, President Buhari may have a easier ride in his second administration, with the All Progressives Congress (APC) winning more than 60 of the 109 Senate seats and is heading for a majority in the House of Representatives, according to partial results announced by Independent National Electoral Commission (INEC).
DIPO OLADEHINDE
