Joe Ezigbo is the Chief Executive of Falcon Corporation. In an exclusive interview with Frank Uzuegbunam, editor, West Africa Energy, he spoke on the restructuring of the petroleum ministry, the place of natural gas in the emerging policy direction of the government amongst other issues. Excerpts:
As the year comes to an end,there is growing concern over the state of the oil and gas industry in Nigeria. What is your take on the current industry situation?
It is encouraging to see that the new administration is gradually finding its feet. It has appointed Ministers who are no doubt currently setting up policies to run the different aspects of the economy. Even with the appointment of the ministers, we should not expect a miraculous turn at least till after first quarter of 2016. There is, however, genuine cause for concern within the oil and gas industry given our dependency on crude oil, the drop in the price, the continuous importation of petroleum products, the process of refining crude at a very high cost, the sale of onshore facilities by the multinational oil and gas companies and the current devaluation of the naira amongst other factors. All of these are threatening the industry.
What are your thoughts on the restructuring needed for the ministry of petroleum?
We are in a position where it can be aptly said “restructure or die”. We can no longer afford the inefficiencies of the past, the endemic corruption that has bedeviled the oil and gas sector and the over bloated structures that have been the order of the day in the oil and gas sector.
There is a need to restructure the NNPC and its subsidiaries to be more financially result oriented. However restructuring without well thought out policies will unfortunately place us in a worse financial quagmire. The new administration is taking the bull by the horn by tightening NNPC to reduce leakages, curtail corruption and remove the bureaucratic bottle necks which has made NNPC a waste pipe in the past. The existing relationships between NNPC and the IOCs have to be revisited to introduce the same professionalism and efficiencies in Nigeria as obtains in other climes. The subsidy regime must necessarily end, and we must stop the application of the equalization fund. These combined factors in themselves have played a great role in pauperizing the Federal Government and we must not continue in this trend. Granted, there will be some difficult adjustments that need to be made and experienced in the process of putting in place appropriate reforms to sanitize the industry, but it is time we looked past the short term difficulties and focus on the imperatives of sustainability, of positioning the industry for a robustness that will in the end benefit Nigeria and generations of Nigerians in the years ahead.
As part of the robust restructuring program also, Dr. Kachikwu has pledged to review all production-sharing contracts as well as the current joint venture agreements.
How would the reforms position the nation amongst other OPEC member countries?
Beyond the reforms, our national aspiration should be to grow our crude oil reserve and thereby increase our production within the overall framework of OPEC. A bigger aspiration however should be to reposition our gas industry by a more aggressive exploration, exploitation, application and infrastructure development in that specific sector, the potential of which we are yet to fully tap into. A lot of investments in both oil and gas have been hampered by the non-passage of the PIB and we need to deal with this decisively. Interestingly, the Minister has said that owing to the volume of extensive consultations and time required to make the bill a workable document, it is only natural to kicks tart the reforms in the industry with the existing laws while waiting for the eventual passage of the proposed law. Investors simply need clarity and assurance of a clear unambiguous regulatory environment and sustainable performance and profits into the long term.
After the rigors of a bid for crude oil Offshore Processing Agreement (OPA), NNPC suddenly abandoned it opting for Direct Sale-Direct Purchase (DSDP) of crude oil and products. What do you make of this move?
The decision was part of a major effort to infuse transparency and eliminate the activities of middlemen in its participation in the crude oil exchange for product matrix. The replacement of the OPA option in preference for the more efficient DSDP alternative was because the DSDP would allow the direct sale of crude oil as well as direct purchase of petroleum products from credible international refineries.
The DSDP option was considered superior after the evaluation of the pre-qualified bidders revealed that most of the 44 companies earlier shortlisted for the next stage of the tender process only had affiliations to refineries abroad.
It is important we cut down the bureaucracy, improve transparency in the system and ensure that Nigeria gets the best opportunities from its resources.
What should be the focus of government with regards to the refineries?
We have started to record some progress with the commencement of work at the Port Harcourt refinery through the Turn-Around Maintenance (TAM) initiated by the current management. If our nation had been consistent with such maintenance in the past, we would not have the sort of nightmare that we face today. There would have been less dependency on imported petroleum products and reduction in the cost of domestic fuel which on its own would boost local production, manufacturing and industries. With functional refineries, we can become self-sufficient, refine crude for other African countries and be in a better position of influence within the region.
We have not seen much of natural gas in the emerging policy direction of this administration. Is there a concern that natural gas may continue to be relegated to the background?
It is not appropriate that current policies are not focusing on the development of natural gas and its associated infrastructure. There is more focus on natural gas for power generation. The current reforms by the NNPC would bring about ultimate gas production. The planned unbundling of the Nigerian Gas Company (NGC) would hopefully bring about increased efficiency in the systems. It is hoped that this would become major priority to the current administration as the opportunities in natural gas is yet to be tapped.
How has the Nigerian Gas Master Plan (NGMP) added to the development of the industry?
The purpose of the Gas Master Plan was to ensure robust development of the Nigerian gas, lay a solid framework for gas infrastructure expansion, reduce gas flaring and turn Nigeria into central gas hub however implementation remains an issue. The main challenges of implementation remain funding and lack of clarity especially around commercial and technical issues. Unfortunately, the current pace of development to boost gas production has not matched the development in gas infrastructure.
Where are the opportunities with the NGMP and what needs to be done differently?
Focus should be on addressing the pricing issue across the value chain to attract investment into the sector. This is the only way we will be able to ramp up the pace of investment in gas field development to be at par with investments in power generation.
Similarly, the issue of policy needs to be addressed. This indeed is where the Petroleum Industry Bill (PIB) discourse comes into play. We need to allow private investment to drive the industry, while the government sticks with providing an enabling environment and regulatory oversight. The government should focus on policy to drive investment by the private sector. Investors need to be certain of returns that are secure and sustainable over the long term. Investors need to be assured of sanctity of their contracts. Investors want to be certain that the regulatory environment is stable, and they will not have to contend with regulatory undulations and outright summersaults that have potential to cripple their investments or threaten their revenues. And due attention, must be paid to the reduction of undue bureaucratic bottlenecks and systemic redundancies that impinge on the close-out timelines for project reviews and approvals, in order to minimize cost escalations and distortions. The issue of multiplicity of agencies must be addressed and streamlined to enable smooth process flows.
How is Falcon Corporation positioning to maximize market opportunities in the natural gas sector?
Falcon is focused on replicating our Natural Gas success stories and deepening our foothold in the sector. We are reviewing opportunities for replicating our Natural Gas distribution service outside Lagos State and to this end we have signed an MOU with Anambra State Government for Natural Gas Distribution in Anambra State. Given the limited gas transmission infrastructure in Nigeria, we are equally looking into bridging the gap in gas transportation through Compressed Natural Gas (CNG) and other virtual pipeline solutions. We are also in strategic conversations regarding our interest in coming in as investors in gas assets in order to play on the supply side of the industry as well. Lastly, we have positioned for a major play in the Liquefied Petroleum Gas (LPG) sector
