By Zik Gbemre
With recent reports that there are indications that the Peoples Democratic Party (PDP)-led National Assembly is in talks with the leadership of the Assembly to ensure that the Petroleum Industry Bill (PIB) is passed before June 4, 2015 when a new legislative body will be inaugurated, we believe it is high time that the long-over-deliberated and dilly-dallied PIB is passed without any further delay. But before this is done, there are still areas in Nigeria’s Oil and Gas industry that needs to addressed in the PIB before it is finally passed into law.
According to reports, the said renewed effort to pass the PIB came as the latest audit report of the Nigeria Extractive Industries Transparency Initiative (NEITI) said Nigeria lost a whopping N1.960,108 trillion to crude oil theft and sabotage in 2012. It was gathered that, still smarting from the loss of the presidential election, the ruling party may have launched a last-minute effort at ensuring the passage of the bill as a parting gift to Nigerians. The party also sees the possibility of the All Progressives Congress (APC), which will assume the Majority party in the National Assembly from June 4, passing the bill in record time. Since the PIB is seen as a major revolution of the oil and gas sector, the PDP has reportedly told its members in the Senate to ensure its passage. Obviously to make itself look good in the eyes of the Nigerian public and also to score cheap political points as part of build-up strategies towards 2019.
We believe the National Assembly should not make it look like they are doing Nigerians a favour with the passage of the PIB because the essence of them being in the Legislative Arm of Government as elected by the people; is to promptly pass bills that will improve the living conditions of the populace. It is also sad that our lawmakers are using such a sensitive bill in the extractive industry to play politics. This is a bill that has been with them for countless months. What have they been doing in all these years to have waited up till now to start rushing things to pass the PIB? Why all the dilly-dallying all these years in passing the PIB?
The Petroleum Industry Bill (PIB), which has been before the National Assembly for God-knows-how-long, is planned by the government to clarify industry policy and entrench a level ground for all stakeholders. But rather than inspire confidence, the Bill has not gone down well with International Oil Companies (IOCs), especially the aspect dealing with fiscal terms. For us, certain necessary provisions of the Bill, like Local Content adherence for example, have either been expunged, watered-down and bombarded with clauses rendering them of no effect and beneficial to the common man, especially those in the Niger Delta region that one bearing the brunt of the extractive industry.
According to an industry observer; with Nigeria losing revenue and investments from uncertainties over PIB passage, and given the rising incidence of crude oil theft and illegal bunkering as well as well as insecurity, the country’s oil and gas sector is slipping into the situation which took Mexico about 50 years to recover from when it faced similar challenges in its oil industry. The bottom line is that we are where we are today in the country’s oil and gas industry due to the actions/inactions, policy execution and practices of the Petroleum Ministry under the current Nigerian Government and National Assembly members, especially in the last three years or so. However, we strongly hope and pray that the President-Elect, Gen. Muhammadu Buhari, when he fully takes over the new Government, would take these warning signals from industry observes seriously, and start taking practical steps to redeem us from an imminent doom.
One area, which we strongly believe the PIB should address is the issue of making Nigeria to be an exporter of refined petroleum products rather being an exporter of crude oil and natural gas while an importer of refined petroleum products. It is sad and a pathetic situation that a country like Nigeria, despite being blessed and endowed with so many mineral resources, in this case, crude oil and natural gas, that has the propensity to catapult and transform the country into a world class economy to reckon with, is still struggling to attain the judicious use of these abundant resources for the benefit of its citizenry. Despite Nigeria’s over 50 years of crude oil and natural gas discovery, the country’s technological and scientific stance and advancement have not been able to holistically capture the ‘refining capacity’ that is required to properly make her benefit from these mineral resources on the global market.
We consider it as an abnormality that Nigeria, with a population of over 170 million, and is blessed with abundant oil and gas resources, is still facing the woes of “refined petroleum product availability.” Reasons for this have been traced mainly by stakeholders in the oil and gas industry to the continued comatose nature of the nation’s four refineries. All that the Nigerian National Petroleum Corporation (NNPC) knows how to do is to engage in Turn Around Maintenance (TAM) to revive the nation’s ailing refineries. The reliance on TAM every now and then to resuscitate the ever ailing four refineries in the country has proven not to be the best solution in addressing the availability of petroleum products once and for all in Nigeria. The use of TAM on the nation’s four refineries, is not only costly, but has become a channel through which public resources are misappropriated and mismanaged. The TAM strategy has obviously not been helping us as a nation. Despite previous TAMs that had been initiated by the NNPC, Nigerians have remained dependent on imported Petroleum products to service domestic requirements, not to mention export demands as well.
It is really unfortunate that Nigeria, said to be Africa’s leading crude oil exporter and a regional leader in installed crude oil refining capacity, sadly, remains the continent’s largest per capita importer of refined petroleum products. The country’s four crude oil refineries, with a combined refining capacity of over 445,000 barrels of oil per day, according to the US Energy Information Administration (EIA), should easily be able to meet the current domestic demand in refined products (excluding export). EIA estimates this is about 270,000 barrels of oil per day. However, in spite of promises by successive governments to improve the performance of the refineries and commit significant resources to their rehabilitation, the four refineries continue to operate at an average of 22.9% of installed refining capacity in 2012 (NNPC Annual Statistical Bulletin). The simple fact is that Nigeria has to import nearly 80% of its requirement of refined petroleum products. In 2011 and 2012, Nigeria spent between 12 and 15 billion dollars annually to meet the deficit – something that, frankly, deserves sober reflection. It is also instructive that the cost effectiveness of the crude for oil SWAP deals (that is swapping crude oil for refined petroleum products), has raised more questions in recent times. The process, designed to mitigate the depletion of Nigeria’s Foreign exchange reserves, diverts potential foreign exchange reserves that can potentially be used to bolster local infrastructure.
For the obvious fact that Nigeria, despite being ranked 7th in the world in terms of oil and gas reserve, is still dependent on the importation of refined Petroleum Products, is enough reason for The Federal Government, The Ministry of Petroleum Resources and The NNPC to change their strategy of only relying on TAM on the nation’s four refineries to address inadequate supply of petroleum products.
Like we have reiterated before now, the Federal Government should, more importantly, compel the existing (exploration and production) IOCs as well as indigenous oil and gas companies like the Nigerian Petroleum Development Company (NPDC) in the industry to refine at least, 50% of whatever crude oil or natural gas they produce. These IOCs and indigenous oil and gas companies should construct/set up such refineries (plants) beside their existing production facilities, to refine natural gas and crude oil for domestic use in the country and for export purposes. Aside the fact that this will provide enormous employment opportunities for our teeming youths/graduates, the IOCs and indigenous oil companies will also benefit immensely from the huge profit that will be abound from the export of petroleum products and its domestic usage. It will also address the issue of shortage, unavailability and affordability of cooking gas for the common masses and at the same make the importation of Kerosene less lucrative and attractive.
This will not only ensure the “transfer of technology” on the part of IOCs, it will also make IOCs to be more involved in refining petroleum products for domestic and export purposes, other than being only in the extractive industry. All of this will bring about more industrialization and increased employment opportunities for the countless idle youths on our streets. We believe the IOCs need to be more involved in the growth process of Nigeria’s economy other than focus solely on exploration and production of crude oil and natural gas for export. It might interest us to know that Royal Dutch Shell, for instance, currently has the largest Gas-To-Liquids Plant in the world in Ras Laffan industrial city, which is about 80km North of Doha, Qatar. Apart from producing diesel, petrol, and kerosene the said Plant is also producing base oils for top-tier lubricants; a chemical feedstock called naphtha used to make plastics and normal paraffin, which is used to make detergents as well. Why can’t Shell and other IOCs equally establish such Plants in Nigeria? What stops them from doing so? Why can’t the Nigerian Government think and act towards these lines of action? We hope the new government under Buhari will think towards these lines and act accordingly.
For instance, there is need for the expansion of the current gas facilities in Utorogu (OML 34), in Iwhrekan Community, Ughelli South LGA, Delta State, to include Gas-To-Liquids Plants just like Shell has done in Doha, Qatar. In other words, IOCs and other indigenous Oil Companies like the Nigerian Petroleum Development Company (NPDC) that has taken over divested oil and gas assets in Delta State (which includes OML 34) should build Gas-To-Liquid Plants close to the existing facilities in Utorogu areas. This is hinged on the fact that there are enormous gas reserves in Utorogu. In fact, the largest natural gas reserve and condensate reserve in West Africa is in Utorogu. Utorogu Gas Plant for instance is described by Shell (SPDC) as the “gas hub of West Africa”. Utorogu can best be described as the “life wire of Nigerian Power Stations and domestic industries”, and is also where gas is supplied to neighbouring West African countries through the West Africa Gas Pipeline Project (WAGPP). All these important Utorogu oil and gas assets are currently being operated by NPDC with excellent results to show forth. They can do more if given the needed financial support by the Government.
Though, the local content law had made provisions to compel IOCs operating in the country to establish refineries that will refine petroleum products, however, we believe the prescribed 1000 barrel stream per day is too small and is one-sided on petroleum products expansion, hence the suggestion above. When half of the crude products they produce are refined in the country, and other chemical Plants built, the finished products will be more than enough for export purposes and to service domestic demands. And ultimately, Nigeria will become less – dependant on imported refined petroleum products and petro-chemical products in due time. Besides, it is about time we stop exporting crude oil and natural gas at a cheaper price and import the refined products at a higher cost. This is counter – productive to the nations’ economy.
The truth is that successive and present Nigerian Government has not harnessed the enormous potentials of crude oil and natural gas reserves in the country to develop other sectors of the Nigerian economy. All the Nigerian Government and its parastatals/Ministries are known for all these years is to depend more on crude oil and natural gas revenues to run their administration. This is what we hope the new government under Buhari will holistically address. We cannot continue to sit and wait for crude oil/natural gas revenues without taking practical steps to harness the “refining potentials” of these natural resources for the good of all. The Nigerian Government should stop all the dilly-dallying and take the bold initiative/steps to re-organize the oil and gas industry and the nation’s refineries, as suggested here.
We are aware that in 2007, attempts by the previous administration were made to facilitate the sale of the refineries, which were reversed due to pressure by the Unions and NNPC Management renewed commitment to revamp the refineries, but there is need for us to start doing things differently in the new government to see the needed changes we seek. While Nigeria continues to squander a fortune on importing petroleum products, we know that attempts by governments to offload the existing refineries to competent private investors remain hampered by misguided policies, corruption and the lack of political will to confront entrenched, short term interests and fears, such as the unions like the National Union of Petroleum and Natural Gas Workers (NUPENG) and the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), whose fears are proven to be largely unwarranted. Savings from the reduced cost of import in the form of tariffs and demurrage on landed vessels can ease the need for budgetary allocations to oil subsidy funds. But it is in the public’s best interest for these refineries to be sold to competent private hands and not government cronies or fronts. And there is no better time to do so than now, which will raise the much needed revenue, conserve foreign exchange, reduce corruption and augment national security by reducing our vulnerability to imported oil and gas products. It will be for our mutual and collective benefit as a nation.
It is a shame that Nigeria with her abundant oil and gas reserve, is still heavily dependent on the importation of refined petroleum products, when rather, it is the country that is supposed to be doing the exporting of refined products. As a nation, we do not make much money if we only export our natural crude oil and gas to other nation’s who after refining them, we now import back into Nigeria at a higher cost; thereby putting the Government in the precarious situation of having to ‘subsidize’ petroleum products for Nigerians. There is absolutely no sense in this.
We therefore employ the new government that will be coming in next month government to create the enabling environment to encourage private investors to go into the oil and gas sector, to build refineries and pay taxes to government, rather than allowing ex-public officials to do same in other countries in Africa and across the globe. All of this should be addressed in the PIB, for it is the best way forward.
Another thing the PIB should address in the restructuring of the current system of doing things between the NNPC Board and it the Executive arm of the Ministry of Petroleum. The NNPC Board and its operations should be separated from the Executive Arm of the Petroleum Ministry. The current situation where the Minister of Petroleum Resources is also the Chairman of the NNPC Board is unacceptable and not good for the neutrality and functionality of the NNPC and its subsidiaries. There is need to maintain the ‘neutrality’ of the NNPC Board, as separate and different from the Executive Arm of the Ministry for adequate ‘checks and balances’ in the system. To this end, the Group Managing Director (GMD) should be the NNPC Board Chairman and the NNPC Board should only be answerable to the Presidency and not to the Ministry of Petroleum Resources. This is the best way to sustain an ‘independent Board of the NNPC’ devoid of any infiltrating tendencies from the Executive Arm of the Ministry. Each of the NNPC Subsidiaries should also have their own separate and independent Boards without any interference from the Executive Arm of the Ministry.
Still on the renewed effort by the National Assembly to pass the PIB, some experts in the oil industry said the incoming legislators would need to garner enough political-will towards resolving the controversial aspects of the bill which is the main driver of the reforms, and ensure that the country is rescued from imminent cash crunch. The stakeholders have come up with different figures Nigeria is losing due to the non-passage of the PIB. For instance, the NNPC had disclosed that Nigeria loses over $287 million from the Production Sharing Contracts (PSCs), monthly, following the non-passage of the PIB. However, the International Oil Companies (IOCs) under the aegis of Oil Producers Trade Section said Nigeria risks losing $185 billion within 10 years, as higher taxes proposed by a new law will deter investment in the country. The Managing Director, Danvic Concept, Afe Mayowa believes that since about 25 per cent of the lawmakers are returning to the National Assembly, the new legislators should tap from their wealth of experience to expedite action of the oil sector reforms. In his words: “They should focus more on the contentious areas that have generated concerns, because we really need to move forward with the PIB. There must be a framework for people to put their investment in this country and that is something that must be done quickly by the incoming government, if these incumbent legislators fail to do it.
“There are issues raised by the IOCs and I think what they should do is to listen to them. The NEITI report, entitled ‘Financial, Physical and Process Audit: An Independent Report Assessing and Reconciling Financial, Physical and Process Flows within Nigeria’s Oil and Gas Industry – 2012’ found that Nigeria lost 2,842,116 barrels per day valued at N1, 960,607,108 to export crude theft and sabotage. Within the same period, Nigeria also lost around N31,771,108,795 to the nefarious activities of pipeline thieves and vandals. The report frowned at the NNPC, which acts as agent to, and sells crude oil on behalf of the Federation. NNPC is also customer for Nigeria crude oil and sells crude oil for domestic refining to itself through one of its subsidiaries – Petroleum Products Marketing Company (PPMC.) It noted that whereas there are executed Sales and Purchase Agreement (SPAs) between NNPC and other crude oil customers, there is no contract in place for the crude oil sales to NNPC-PPMC for domestic use.
The report also found that the Department of Petroleum Resources (DPR) could not provide any data on gas production or gas stock data due to some inherent difficulties associated with gas production and storage, coupled with the lack of proper equipment to handle such problems, that maintenance of accurate gas production and stock figures may only be attainable in the future. NEITI audit 2012 also discovered that there were no bid rounds in the period covering 2012 under review, saying the examination of the Central Bank of Nigeria (CBN) statements and DPR records did not reveal any payment of Signature Bonus during the period under review. It added that domestic crude oil losses reported by PPMC in its populated templates were 3,045,625 barrels per day with an estimated value of USD$304,562,474.00 in 2012. All of these are sensitive issues the non-passage of the PIB ought to have addressed.
Reacting to the findings of the audit report, a collation of more than 100 civil society groups under the auspices of Publish What You Pay Nigeria (PWYP) has called for the urgent passage of the PIB to reposition Nigeria’s oil and gas sector for future challenges. Its National Coordinator, Faith Nwadishi, said in Abuja recently that the coalition still believes that the PIB can still be passed before the end of the current National Assembly as a comprehensive framework to remove executive discretion and restoring sanity to the management of the sector especially in view of fast declining oil revenues.
We therefore employ that while it is expedient for the PIB bill to be passed as soon as practicable, we however urge that all the issues raised above should form part and parcel of the PIB before its eventual passage into law. These measures as suggested above are for the benefit of the Nigerian people and relevant stakeholders in the industry. We ask the new Government that is coming in under Buhari to put all of these issues raised into proper perspective for adequate implementation.
Zik Gbemre,JP.
National Coordinator
Niger Delta Peace Coalition (NDPC)
No.28, Opi Street, Ugboroke Layout, Effurun-Warri,
P.O. Box 2254, Warri, Delta State, Nigeria.
Tel: +2348026428271
+2348052106013
Website: www.ndpc-zik.org
