In Nigeria, a company’s CEO and his gatekeeper both have a side hustle. The woman who cleans your house probably runs a catering service on the side. Their greatest threat is government rules that seem better suited for the stone age, writes ISAAC ANYAOGU.
They have been giving him the runaround for over a month. Each document must be notarized – but he learns about it only after he had come for submission. Then he needs a referee. He must climb down a flight of stairs to submit a teller at Accounts and take it back to the sixth floor to have it signed at Registration. The elevator stopped working in 1992.
The reception has a creaking fan, a side of the sofa has caved and there were five people seated. It was meant for three. His shirt clung to his skin, he joins the queue with a dozen people before a gum-chewing clerk behind a plexiglass taking time-out from Facebook to play civil servant.
Ibukunle Ayoola, a 40-year old attorney who had the bright idea to set up a cooking gas business was going through the motions of registration and seeing firsthand how Nigeria’s creaking civil service grinds at a funeral pace.
When Ayoola completed the necessary paperwork to file for a license, he received a rude shock. The Department of Petroleum Resources (DPR), the government agency that regulates the oil and gas sector has toughened the rules. The DPR now requires applicants to include land tiles in their application and no longer approves siting plants in a gas station.
To open a Liquefied Petroleum Gas (LPG) plant, operators pay fees for town planning approval (N200,000), fire service approval (N100,000), police report (N50,000) and Environmental Impact Assessment done for two seasons (wet and dry) for around N2million.
Ayoola is merely setting up an LPG skid on a space of land you would need to park a saloon car. Securing a land title will put him out of business before he even started.
This is the fate of thousands of Nigerian businesses at the mercy of the next brainwave by a government official. Whether it is opening a restaurant or running a logistics company, government rules, it seems are designed to test the limits of your sanity.
It was the mind-numbing traffic situation in Lagos and the rampant crime by ‘Okadas’ that led to the bright idea of ride-hailing services for motorcycles. The growing popularity of the scheme invited government’s interest. It began talks to formalise operators in early 2019.
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Operators like Max.ng raised $7 million in a funding round led by Novastar Ventures and Japanese manufacturer, Yamaha, in June 2019. Gokada raised $5.3 million in funding from Rise Capital in May 2019. Then, on February 1, the Lagos state government banned the use of motorcycles for transportation. Thousands of livelihoods were destroyed.
Some resilient ones found a use for their motorcycles by converting them for delivery service but soon after, NIPOST published new rules mandating them to pay N1million as licensing fees for a motorcycle.
Regulating for a bygone era
The flaw in many government regulations is that they are not responsive to changes in the economic, social and technical conditions surrounding them. They also do not take into account linkages between regulation and innovation.
In developed countries, regulations follow developed markets and act as powerful stimulus to further innovation, as seen in the case of Ford T model vehicle where the need to enlarge markets and achieve growth necessitated regulation. In Nigeria, regulations are firmed before markets are fully developed getting in the way of innovation.
“This is why regulations continue to fail in Nigeria, because you have regulators who don’t even have a developed market to regulate, said Efosa Ojomo, Senior Researcher, Forum for Growth and Innovation.
An era of price controls and government choke-hold on private businesses has given way to collaborative regulation. The failed power sector privatisation demonstrates the futility of regulating pricing and subordinating markets to political interference. Even closed China know enough to open its markets.
To make matters worse, regulators rarely update their knowledge, seeing foreign training as an opportunity to shop. Yet still, private interests and nepotism often influence public regulations. Securing land titles, accessing foreign exchange, clearing goods from the ports and moving them across Nigeria have been unduly complicated by poor regulation.
Regulating for the slow lane
Sometimes, regulations move at snail speed. For Lekoil Plc, a local oil and gas exploration and production company, navigating through the maze of regulatory approvals in Nigeria represents its biggest challenge in taking its Ogo fields valued at over $1billion, offshore Lagos, to production.
“The single biggest challenge we have faced as a company has not been technical, it has not been money, it has been regulatory approvals,” said Lekan Akinyemi, Lekoil’s CEO.
“We have the Ogo consent which has been pending for three years and this is an asset we have spent over $100million of our money and the other entity we bought has spent $100million so between us there is over $200m spent but still there is no regulatory approval so we cannot move forward,” Akinyemi said.
Renewal of oil leases and organising licensing rounds are routine processes in other countries, but they suffer undue complications in Nigeria. For over a decade, Nigeria has been unable to enact a comprehensive petroleum sector law.
“Without the law, new investors are not clear on how to proceed,” Chuks Nwani, an energy lawyer said.
Yet, for operators with expired leases, waiting on renewals, it is even worse. Their bankers are threatening foreclosures to recover loans due to lack of clarity over the future of the assets. One operator compared the situation to driving without a license, in a car that is not yours.
A decentralised approval process will hasten the process. A marginal field operator drilling 1,000 barrels of crude daily in Otuoke, does not need approval from Abuja to conduct soil tests when the state capital is thirty minutes away. The result is several assets lie fallow, in a country aching for investments.
Over regulation
What is even worse than slow pace of regulation, is multiple and often conflicting regulations/regulators. Here’s why it is dangerous.
While Saudi Arabia spends less than $10 to produce a barrel of crude oil, Nigeria spends close to $30. Operators say the multiplicity of regulators with contradictory regulations is the main culprit.
Operators in Nigeria’s oil and gas sector answer to at least 36 different regulators with overlapping functions . The DPR, the Federal Ministry of Environment, National Oil Spill Detection and Response Agency (NOSDRA), Nigerian Maritime Administration and Safety Agency, (NIMASA), Nigerian Nuclear Regulatory Authority (NNRA), Niger Delta Development Commission (NDDC), Nigerian Electricity Regulatory Commission, Nigerian Content Development and Monitoring Board spew different regulations.
Others are ministries of Health, Power, Niger Delta, Petroleum Resources, Transportation, Mines and Steel development, Science and Technology all have different rules for operators as the Inland waterways, Port authorities and at least half of Nigeria’s 36 state governments. Even Nigeria’s president directly controls the Petroleum ministry and his Chief of Staff is on the NNPC board.
This raises cost for operators, creates ambiguity, distorts project timelines, stifles investments, fosters inefficiency and leads to poor utilisation of manpower. The many regulators notwithstanding, environmental pollution in the Niger Delta continues and the sector has not become any less opaque.
“These agencies often issue directives outside the law setting them up, they prescribe offenses and penalties that are not in the act setting them up and they even refuse approvals granted by another agency over the same project,” said Carol Antaih, general manager Safety, Health & Environment, ExxonMobil Nigeria at conference in Lagos some years ago.
In 2013, a protracted dispute over statutory charges and levies led NIMASA to block the Bonny River channel and detain the vessels belonging to Nigerian LNG (NLNG) leading to a loss of $525 million to NLNG as a result of blockade of shipment of LNG from its export terminal.
This pattern of regulation continues today. Different government agencies stipulate different Environmental Impact Assessments (EIA) for the same project insist operators use their distinct template, and pay their own fees. Regulators
depend on the regulated to fund their monitoring activities creating room for corruption.
This is different from the Norwegian system. Regulations for resource management in the petroleum sector are under the jurisdiction of the Ministry of Petroleum and Energy and the Norwegian Petroleum Directorate. The regulations are divided between Acts, Royal Decrees and NPD Regulations. Roles and functions are clear and operators have a process to seek redress.
It’s really not difficult to see why it does not make sense that the National Agency for Food and Drug Administration and Control (NAFDAC) does not accept tests/approvals issued by the Standards Organisation of Nigeria (SON). And why it costs more to move goods from China to Nigeria, than from Apapa to Sagamu.
Good regulations pay
Nigeria’s telecommunication sector privatisation was a huge success largely because the government was willing to tax the proceeds rather than ruin business. They gave them free hand within bounds and the sector blossomed.
LPG adoption in Nigeria has risen from a mere 70,000 Metric Tonnes ten years ago to nearly 900,000 Metric Tonnes due to forward looking regulatory policies. These include the removal of 5 percent VAT on the product and 30 percent import duty waiver LPG equipment and appliances by the government and increased advocacy. This led to a 30 percent reduction in the cost of infrastructure development and set up an industry now ripe for taxation.
