Even though the Federal Government has repaid $2 billion or 40 percent of the $5.1 billion cash call arrears it negotiated with International Oil Companies (IOCs), an inability to establish fiscal and regulatory reforms has kept investors away.
Cash call is the amount the Federal Government is required to pay or remit as its own share of production costs to facilitate the production of crude oil in partnership with some IOCs, namely, Shell, Chevron, NAOC, ExxonMobil, and Total, also called Joint Venture partners.
Oil majors are holding back on taking investment decisions to develop Nigerian oil fields because of uncertainty about what fiscal terms to use and the difficult operating environment in Nigeria, analysts say.
“Investors are uncertain about what regulatory and fiscal terms to apply since the PIGB was not passed,” said Bank Anthony Okoroafor, chairman, Petroleum Technology Association of Nigeria (PETAN), an association of leading local producers.
President Buhari withheld assent to the Petroleum Industry Governance Bill (PIGB) over concern the regulatory agency it sought to create, the Petroleum Regulatory Commission, would retain 10 percent of generated revenue which could lower the revenue of other tiers of government.
The bill was sent back to the 8th National Assembly which completed sitting last month. According to lawmaking rules, the new assembly would begin work afresh on the bill.
Lawmakers in the previous assembly could not agree on fiscal terms and even though the Ministry of Petroleum Resources began work on the bill, it remains stuck in the National Assembly.
BusinessDay checks at the Ministry of Petroleum Resources indicated that work on the fiscal bill has been suspended and the consultants hired to work on it have left the ministry.
“Nigeria has to pass the PIGB for new investments to come,” said Ayodele Oni, an energy lawyer and partner at Lagos-based Bloomfield law firm.
The Nigerian oil fields are considered high-risk investment by IOCs who are shifting investment to other countries due to insecurity in the Niger Delta.
Oil companies have seen their operating expenditure rise over 500 percent due to extra cost to provide security for oil assets.
“Now every oil producer has to pay billions of naira to procure a gunboat, hire security personnel to move product from one swamp to the other,” says Okoroafor.
Operators have to also contend with extortive taxes and revenue generating drives of various government ministries and departments who demand one form of levies or the other on the profits of oil companies.
This makes it difficult for operators to model for profit and costs and often leads to expensive litigations or shutdown of their operations which impact the companies’ bottom-lines.
“We are making it cheaper for investors to invest outside Nigeria,” said Okoroafor.
This constricting business environment is pushing investment outside the country. Big oil companies including Eni and ExxonMobil have announced new sets of investments in Mozambique and other smaller oil producing countries.
A recent United Nations report said foreign investment in sub-Saharan Africa rose 13 percent last year to $32 billion, but the bulk of these investments went to countries with better fiscal and regulatory terms.
The Southern Africa region performed the best, taking in FDI of nearly $4.2 billion, up from -$925 million in 2017. Foreign investment in South Africa alone more than doubled to $5.3 billion.
Ghana, currently experiencing an oil and gas boom, saw inflows of $3 billion and became the leading destination for FDI in the West African sub-region.
Italy’s Eni Group is backing Ghana’s largest greenfield investment project while new investments plans for Nigeria have stalled.
Nigeria, the biggest oil producer on the continent, on the other hand, saw FDI fall 43 percent to $2 billion due to a hostile business environment arising from trumped-up taxes on telecommunication giant MTN.
ISAAC ANYAOGU
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