Nigeria must take deliberate steps to re-engineer the nation’s oil industry to maximise its benefits going further, analysts have said.
From strengthening the regulatory functions of agencies to deciding who occupies the office of the minister of petroleum and harnessing local capacity, industry experts recommend far-reaching reforms that can ensure improved results for the country.
The Petroleum Industry Act (PIA), which came into force last year, has laid out the structure for the new arrangement, but the provisions have to be enforced for the expected results to be realised. These steps must form part of the oil-industry policy framework of Nigeria’s next president, says Omowumi Iledare, a professor of Energy Economics. The new administration must also separate politics from professional expectations in the sector, he said in an interview with Daily Trust.
Prior to the enactment of the legislation, there was no clear-cut distinction regarding who performed these regulatory functions. The result was that even the former Nigerian National Petroleum Corporation was involved in regulatory functions. Now, with the new law that blurred line has been cleared. The regulators are clearly defined.
In the muddled waters of the previous system in the industry, the NNPC of old was just about everything: a player or participant, a policymaker and a regulator, playing these roles through its various units or subsidiaries. Not anymore, says Iledare. It can participate in policy development for the energy sector of Nigeria. It can have input, but it cannot participate in policy formulation, he declares.
The PIA provides for establishing two revolutionary regulatory organs in the Nigerian oil industry. The Nigerian Upstream Regulatory Commission (commonly called the Commission) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (the Authority) are given both technical and commercial regulatory powers. For clarity, the upstream sector of the oil industry refers to the exploratory and production activities. These summarise a whole complex of activities involved in the search for, location, assessment of quantities of hydrocarbon deposits, whether on land or offshore and the deployment of technology to harness the products. On its part, the midstream and downstream sector includes the processes involved in refining the crude oil to produce the various products that our economy depends on and the activities involved in moving the products to where they are utilised.
The commission’s objectives, according to the PIA, include implementing the government‘s policies for upstream petroleum activities “As directed by the minister of petroleum”. Its technical functions include enforcing, administering, and implementing laws, regulations, and policies relating to upstream petroleum operations. It is also empowered to “enforce compliance with applicable national and international petroleum industry policies, standards and practices for upstream petroleum industry”.
For the authority, its functions include regulating and monitoring technical and commercial midstream and downstream petroleum operations in the country. For a leading oil-producing country with recurring shortages of petroleum products, there is indeed work for this Authority to do, if this is to be eliminated.
Under the PIA Section 64, the NNPCL has been given distinct roles and its objectives include carrying out operations on a commercial basis comparable to private companies in Nigeria carrying out similar activities; it is also vested as the concessionaire of all product sharing contracts, profit sharing and risk service contract as the national oil company on behalf of the Federation.
It is also permitted to engage in the business of renewables and other energy investments. It is also permitted to promote the domestic use of natural gas.
Operating on a commercial basis means that NNPCL must have its eyes on profitability, just like any other commercial organisation, including even other national oil companies, like the Saudi Arabia’s Aramco, which made a profit of $39.5b in the first quarter of this year, representing an 80 per cent jump year-on-year.
“NNPCL cannot be a regulatory agency as well. NNPCL has to deal with anything that has to do with commercial operations. What does commercial operation refer to? It has to do with producing oil, selling oil, declaring profit and sharing the profit,” says Iledare.
Two processes are critical in that march by NNPCL to profit-making, says Iledare. They are the commercialisation and privatisation of the company. They must come in that order, he adds and explains why they must be in that sequence. There is a difference between commercialisation and privatisation, he points out. Commercialisation does not deal with who is the owner. It only says that NNPCL must begin to be profit-minded, he explains. Privatisation, on the other hand, deals with ownership.
“Before you privatise the NNPC, you have to think of commercialising it first. Make sure the people see dividends before they can buy. You cannot sell shares until you commercialise. Otherwise, they will be using government money to buy shares for themselves,” he declares.
“Right now, 100 per cent ownership is what we have, but the PIA stipulates that little by little, NNPCL should sell its shares …we should understand the difference between privatisation and commercialisation,” he further added.
He says that commercialising NNPCL before privatising it is to safeguard the privatised oil company from going the way of previously privatised SOEs, which went down after the change of ownership prior to their being profitable.
“Look at everything the government has privatised. What happened to them? Is that what we want to happen to the NNPC?” A properly privatised NNPCL should be able to sell shares “like a corporation, like Shell, does as everybody does,” Iledare said.
“Look at NITEL, Nigerian airways…just begin to list them. Nobody says that the government cannot have assets. The unfortunate thing is, who is the government appointing to manage the assets? That is the biggest challenge. Do you know what they call nepotism? It is a situation whereby all my people, whether my tribesmen, my church people, my kinsmen, or my political party stalwarts occupy positions, even if they are not competent.
“Listen, Nigeria is about normal people with normal memories. I was alive when NNPC refineries were making money; I was alive when the shipping companies of Nigeria were making money; I was alive when Nigeria Airways was making money. So what happened? Picking those that are incompetent because they belong to you.
“You cannot do that going forward. You cannot leave human resources that are competent out because they don’t speak your language. That’s what will destroy the oil and gas sector.”
The Act also stipulates that the board of NNPCL is responsible for the strategic guidance and determining the business structure of the company, which means that its board of directors cannot be peopled by political appointees, Iledare says.
The industry needs a competent person to be chairman of the board that investors can respect, he added.
Part of the reforms in the industry, according to him, should be the abrogation of combining the office of the President of the Federal Republic of Nigeria with that of the minister of petroleum resources, he said. The PIA stipulates that the minister of petroleum will formulate, monitor, and administer the government’s policy in the petroleum industry and also “Exercise general supervision over the affairs and operations of the petroleum industry in accordance with the provisions of the Act”.
Advisers of whoever emerges as president from the February 25, 2023 election should advise him not to be the minister of petroleum, Iledare warns. “Because of the things that are going on, we have too many pseudo-ministers of petroleum. Because President Buhari is the Minister of Petroleum, so everyone is assuming the role of the minister. You can’t do that,” he added.
The absence of a full minister of petroleum, who is not the president, has made the local oil and gas industry very difficult to govern “Because a lot of people do a lot of things in the name of the president. That is the pitfall, in my opinion, that the new president must avoid,” he said.
Since 1999, all the presidents, with the exception of Goodluck Jonathan, have allocated the post of minister of petroleum to themselves. Jonathan appointed Diezani Alison-Madueke to the coveted seat, but her tenure is now remembered more by the plethora of allegations of wrongdoing leveled against her.
Will the incoming politicians, those who surround the president, not usurp that power, should the current arrangement subsist? “I do not want to bet. It will take the oil and gas industry down the drain if the incoming president continues to be the petroleum minister. They will surely put a nail on the coffin of the oil and gas sector,” says Iledare. “We must have a minister who has full authority.”
Such a minister (as well as others in charge of other sectors) must have unfettered access to the president. They must not report to him through someone who will be screening what the ministers want to tell the president, he stressed.
He declares that the new president needs professional special advisers in the key sectors of the economy, apart from the ministers, who will be the eyes and ears of the president in each of the key sectors of the economy.
And such special advisers must not be active politicians, though theirs can be political appointments. Like the ministers, Iledare says the special advisers to the president are his prerogative and they are not to talk to the president through anybody “Because they are not advising the nation; they are advising the president. So, if I am advising the president of Nigeria, he can have a minister of energy in charge of power and gas and he can decide to have deputy ministers who are in charge of petroleum, gas and power. But those deputy ministers will be professionals, whereas the politician can be the minister, not the president.”
Further, on the structure of the oil ministry portfolio, Iledare advises that should the incoming president not want to have deputy ministers, he could go for special advisers in the key areas of power, natural gas and petroleum.
We need to build local capacity – Economist
Despite the signing of the PIA, a key challenge to its implementation could be the dearth of local capacity in the industry, says Dr. Austin Nweze of the Lagos Business School.
“This sector is not in the hands of Nigerians. We don’t control that industry. That is a major weakness. It is a critical asset that is controlled by foreigners.
“The genesis of the PIA is that the industry was in the hands of foreigners. Then they created the PIA. Creating the regulatory agencies is to enable them to take hold of the whole industry.
“Still, even with the Act, we just have partial control, especially in technical matters. It is still in the hands of foreigners. We still depend on them for most of the things we are doing. We need to build capacity and capacity takes time.”