Tuesday, September 2, 2014

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Clarity Needed: Nigeria's Petroleum Industry Bill

Nigeria cannot afford any further delays to crucial oil sector regulation.
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Oloibiri Well, Bayelsa State, courtesy of Rhys Thom

One industry has dominated Nigeria since the first commercial oil began to flow in 1956. Nigeria is the twelfth largest oil-producing nation in the world. The industry is worth around US$100 billion a year. Oil accounts for 98% of export revenues and 80% of government revenue but only 37% of GDP. And with the world’s tenth largest reserves - at least 20 billion barrels, although some sources suspect double that - and production of around 2.3 million barrels a day, Nigeria’s future in oil trading is secure.

Oil and politics

Since 1938, when Shell received its monopoly over oil exploration, and even at independence in 1960, when more corporations were welcomed, politics in Nigeria has been intertwined with the oil trade. The first coup in 1966, the 1967 Biafran declaration of independence, the war that followed and the military dictatorships that came later during the 1970s, 1980s and 1990s until democracy returned in 1999, have all occurred against a backdrop of oil and its revenues.  Oil revenues have played a significant dual role, providing the money to keep Nigeria together while at the same time contributing to the past tensions that have threatened to tear it apart. 

So strong has this stranglehold been that despite tremendous agricultural and mineral wealth, in addition to gas reserves around three times the size of its oil reserves, almost all development outside the oil industry has been overlooked. Nigeria’s current trajectory compared with its potential is disappointing.

Fossilised legislation

And given the number of livelihoods that depend upon this industry, it is surprising that relationships – particularly through the state, the Nigerian National Petroleum Corporation (NNPC) and the Ministry of Petroleum which controls the NNPC, and the large multinational oil companies – are still governed by legislation dating back to the 1960s and 1970s.

The three pieces of legislation that control the industry are confusing and old fashioned. The NNPC publishes almost no financial information and is not properly monitored, which affords the Minister of Petroleum a de facto power akin to the president.

Nigeria’s petrol subsidy - government-funded help for importers - which is intended to increase the accessibility of petroleum products for citizens has been the topic of further controversy. Its mooted removal could create a lot of unhappiness among ordinary Nigerians and large corporations alike but in the longer term, it is unlikely to be sustainable even with the huge oil reserves Nigeria has.

Unique positions

Being at the forefront of economic activity, government finances and politics creates some unique positions in Nigeria. Domestic production does not meet domestic demand. For a country that produces so much oil, most of its refined product is imported as existing refineries make too little contribution. 

These curious dimensions are echoed in its power sector.  It is disproportionately small even though the market for generators and diesel is huge. Looking out on to Lagos’ port, the oil tankers bringing refined products in are but one example of the many vested interests.

Attempted change

For three years now, the government has been working to change the industry with the Petroleum Industry Bill (PIB). The draft bill went through 165 amendments with parties as varied as the World Bank, industry participants and labour unions having a say.

Although the bill has been around for about three years, the process started in 2000. Following the recommendations of the oil and gas sector reform implementation committee, the first draft was published in 2008.

The delays in passing the bill are having a detrimental effect on the industry. Until there is some certainty, investment in the industry is faltering - Gazprom’s US$2.5 billion investment, for example, has been put on hold until positions are clarified.

Potential losses

Nigeria, one of the few OPEC countries with an ability to increase its oil production, is losing out on revenue and more importantly the development of a domestic oil industry. Marine operators, construction companies, oil service companies and producers are all bemoaning the delay. In the meantime, oil investment goes to other countries in Africa who provide investors with more assurances.

Nigerians on the street are concerned that the bill is being delayed by those who want to uphold a highly partisan status quo as long as possible. There is a growing demand from the electorate for the president to show real drive and push the bill through.

With so much at stake, speculation has been rife. One rumour is that there are three separate and quite different bills that cater for different interests will come into fruition – each separate one could have enough support.

A bill clarifying regulations will benefit Nigeria; transparency in all stages of the industry from the granting of licences to exploration and production to revenue collection will help all of Nigeria move ahead. Transparency and accountability will help Nigeria achieve its 7.2% GDP growth, projected in Tuesday's budget, and even take it beyond that.

In this regard, a proposal to put all debates of the bill on television would be a fantastic move to clear up any skewed perceptions, and ensure that the bill moves ahead in a spirit of transparency and accountability to the Nigerian people.  

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