The long - held aspiration of the Nigeria’s Upstream Sector is to grow crude oil reserves to 40 billion barrels and production to 4 million barrels of oil per day (bopd), improving local content, maximizing sectors value and most importantly derive as much revenue from gas as from oil.
One of such needed reforms is to overhaul the multiple laws governing exploration and production and help Nigeria reach these goals. The Petroleum Industry Bill was splitin tranches to allow for its speedy passage. One of the components of the bill is the Petroleum Industry Governance Bill, which aims to emplace an effective institutional framework, set up structures for establishment ofa commercially driven petroleum entities while also promoting transparency in the administration of Nigeria’s petroleum resource.
The laudable effort by both House of Representatives and the Senate in addressing the long-standing gap in the industry’s legal, institutional and regulatory framework needs to be commended by all.
However, it is still not yet uhuru as the fiscal aspect of the bill that will address the revenue inflow to both the state and investors is still on the offing. When the issues of the PIGB came into radar sometime last year, critical governance and performance issues in the industry with the long standing matters threatening the sustainability of the industry were the cause of disagreement.
After a critical study of the myriad of challenges on ground, we observed that crucial to the fixing of these problems lies the question of the governance of the industry. Efforts were made from the legal wing that could play a critical role in presenting a robust, effective governance and institutional framework for the management and regulation of petroleum resources in Nigeria.
The role of the government needs to be better clarified by refocusing the mandate of the policy, regulatory and commercial institutions to ensure better sector governance, transparency of regulations and operations, accountability of the institutions and removal of opaqueness around the industry.
Until now, the fiscal framework for the exploitation of Nigeria’s oil and gas resources has been predicated on two key pieces of legislation:
- The Petroleum Act of 1969
- The Petroleum Profit Tax Act of 1959
The aggregation of industry laws, which had governed the oil and gas sector over the years, has become archaic and no longer competitive and needs review and harmonization into a comprehensive law.
After an internal dialogue within the executive, civil society and stakeholders within the oil industry on key sector issues, the executive decided to overhaul sector policies.
The outcome of the process gave birth to the new National Oil Policy and the National Gas Policy, already approved by FEC and the draft National Fiscal Policy awaiting presentation to the federal executive council.
The second bill addresses fiscal issues around the industry. Since the fiscal tool remains an important tool for managing our oil and gas resources, it is urgently imperative to fix the fiscal dilemmas to ensure viability of the industry as well as providing a fair return to the state while offering a risk balanced return to the investors.
Various infrastructural gaps exist in Nigeria’s domestic gas sector, while transportation and distribution of produced natural gas remains an underdeveloped segment of the value chain.
Numerous investment and operations of mid-stream sector falls solely on upstream producers. Litany of examples abound in our oil and gas space, such as where you find economics of gas across the value chain relying on cross - subsidies from oil which is not the case in most mature global market.
This unorthodox custom often results in reduced government take in oil projects and an entry barrier to investors who may lack upstream tax capacity.
Our perspective is to enhance the concept of fiscal neutrality and a broad based development so that each segment of the value chain does not lean on the other. The robustness of the PIGB is well able to address these industry lapses.
The bill will also address the issue of cost. Nigeria operates one of the highest costs of extraction among oil provinces in the world.
The message is becoming clearer that we have to reduce cost of production if the country is to be competitive in the modern low oil price world.
Now is the time to tweak the existing industry laws and come up with a new legal, institutional, commercial framework that will liberalize the petroleum industry as well as create a competitive business environment that will enhance Nigeria’s revenue.
With North America becoming more energy self-reliant, Europe the technology for alternate energy and China maintaining a grip on the natural resources of the entire Africa flank, in addition to the search for oil and gas through fracturing at home front, our window of opportunity to benefit maximally from the petroleum industry is narrowing.
It is clear that the shale play revolution is gradually changing the geopolitics of oil, with ripple effects likely to linger on for years, which could have a serious global implication if we do not organize our affairs.
Our policy response in this regard should be to grow gas-based industries and start looking inwards by capturing the Nigeria market rather than searching for foreign market. Domestic utilization of our gas resources will help Nigeria grow its local manufacturing sector, which will also have a multiplier effect on employment for our teeming population that has been a serious concern in the country.
Numerous discoveries of petroleum plays in the East Africa and sub-Saharan African region signifies more incentives and new licenses are up for the grabs for investors who would need a more stable business climate.
This is no good news for us, as increased supply base in oil and gas in the international market is making the market share getting tighter. However, by virtue of the size of the country’s assets we will have a competitive edge once we begin to take advantage of our enormous gas resources and our new laws that are more competitive.
Finally, it is a national priority to have certainty and clarity over the operations of the petroleum industry as it will foster more licensing rounds, enhance revenues and increased economic activities.
New acreages will be awarded for exploration and production under new laws and terms, especially offshore which is likely to account for much of the growth in the nation’s reserves.
For too long we have waited for this moment expectantly and sheer excitement, knowing that the bill will disentangle us from the manacles of inefficiency, low investment drive and opacity.
There were some complaints of shrinkages of some agencies in the Bill and there is a need to consider the concept of ability to stand alone versus efficiency of service deliveries.
We must relish the urgency of this moment, as all hands should be on deck to make sure the bill achieves what it is meant to achieve.
Getting to the yes on the PIGB is a great milestone, I am so glad we have begun heeding the clarion’s call.
An Abridged Address by Dr Emmanuel Ibe Kachikwu, Honorable Minister of State Petroleum Resources at a Symposium on PIGB organizedBY NEITI.