By Ovie Omo-Agege
It is with utmost pleasure that I identify with you in an event as this. The Petroleum industry in Nigeria, rightly called the goose that lays the golden egg, will continue to attract the attention of organisations and persons who truly desire that our country will make the best of this all-important resource. We should also be concerned, given the continually rising uncertainties in the industry both at the global level, and here in Nigeria.
Today, there is a growing paradigm shift globally in terms of sources of energy. Fossil fuels are giving way to cleaner sources of fuel that are even envisaged to be cheaper and renewable. Some countries have been known to have laid out road maps for the phasing out of fossil-fuel-based sources of energy. In fact, it is estimated that in about 30- 50 years from now, there will be a total shift from these traditional sources. What this demand is that nations that have abundance of fossil fuels, especially oil and gas that today dominate the present paradigm, must be in a hurry to make maximum use of these resources.
Already, many oil and gas-producing countries have taken the initiative to make the best of these resources by complying with what we may now call global best practices (GBP) in the exploration and exploitation of the petroleum resource in its entirety. They do this by creating the enabling environment for the resource to be best exploited.
As it is, petroleum resources for many countries, particularly the developing and not-so-developed ones tend to have a usually large presence of the state in the administration of the resources. To this extent, there are rules of engagement; usually some form of “contract” with state departments, for anyone wishing to engage in the business of petroleum, at all segments of its value chain. For some countries like Saudi Arabia, Brazil, Russia, Norway and Malaysia, government midwifing is done, using models driven by the desire to ensure that the best values are derived from each segment of the value chain. The result is usually high turnovers at each segment, and with them robust additions to the countries’ revenues and of course, GDPs.
Conversely, for some countries the administration of the petroleum sector is rather handled as a cost-based department of state for the purposes of regulating the industry. This comes with all the nuances, nay negative, that bedevil regulatory institutions, while at the same time, denies the system the huge potential to create value and wealth, associated with the petroleum industry, as the experiences of many climes, have shown. Unfortunately, this is the category to which Nigeria belongs.
But behind such dark cloud, is a silver lining. The good news is that the proposed Petroleum Industry Bill (2020) is coming to change all that. The two major planks of the Bill are:
- Run the Nigeria National Petroleum Corporation (NNPC) as a business enterprise by the name NNPC limited. This is just as we have Saudi Aramco in Saudi Arabia; Petróleo Brasileiro S.A. (Petrobras) in Brazil; Equinor in Norway, and Petronas in Malaysia.
- Establish regulatory agencies to serve as the regulatory agency of the industry.
To this extent the objectives of the Bill, can be summarized as follows:
- Promote economic growth through increased oil and gas production.
- Promote economic growth through strong investments in midstream gas infrastructure to increase gas-based power generation and industries
- Promote frontier exploration
- Establish an effective acreage management system
- Create transparency and non-confidentiality
- Transform NNPC in a viable commercially-based and self-sustaining national oil company
- Create a strong regulatory framework with increased emphasis on midstream development
- Create an effective midstream and downstream licencing system
- Promote improved environmental measures, and
- Assist host communities in petroleum operation so as to achieve their aspirations.
While not letting the details of these objectives of the PIB detain us here, it suffices to emphasise that the greatest good for the communities that host this petroleum resources, is also clearly a cardinal objective of the coming statute, as we can see from the list of objectives. In our recent past history, we have seen perhaps avoidable restiveness from these host communities, that border around what has been perceived as inadequate care or concern for the survival, and, or well-being of these peoples.
I want to say that whatever administrative shortfalls that may have informed these acts of resistance, would not have been there if the appropriate interface between the operating companies and the host communities was the order. The rules of such interface at every segment of the value chain can only be prescribed and administered by appropriately constituted and operated regulatory agency or agencies. In this light, the Bill provides for a dual regulatory system. The first takes care of the upstream sector where the most encounter with host communities, happens. This is the Upstream Regulatory Commission. The second is the Midstream and Downstream Regulatory Authority.
At the upstream segment of the petroleum industry value chain, the host communities are already enjoying the following intervention mechanisms:
- A 13% derivation fund in accordance with Section 16(2) of the 1999 Constitution.
- The Niger Delta Development Commission; an organ of State charged with direct development of oil producing states through
- 15% of the monthly statutory allocations to the oil-producing states
- 3% of total annual budgets of oil companies operating in these states
- 50% of monies due to member states.
- There are also other intervention instruments such as
- Individual States Development Agencies
- The Ministry of the Niger Delta
- The Amnesty Programme
Further, the Bill proposes a Host Community Development Trust scheme to accommodate the following:
- Incorporation of Petroleum Host Communities Development Trusts by Settlors
- Provides direct social and economic benefits to host communities.
- Funded by 2.5% of the actual operating expenses (OPEX) of the settlor for the accounting period of the preceding year; even though in my opinion this should be increased to 5%.
- Advisory Committee to decide projects through engagement with the communities
There are other funds though not directly impactful on host communities but are nevertheless related to the activities in these places. These include the Frontier Exploration Fund which is 10% of accruals from Rents on PPL & PML, to be managed by the Upstream Commission. A Midstream Infrastructure Fund that is 1% of wholesale price of petroleum products sold in Nigeria and natural gas produced and sold. The third is a Decommissioning and Abandonment Fund which is to be domiciled in a financial institution that is not affiliated to the Lessee or Licensee. The fund shall be available only for the purposes of paying for decommissioning and abandonment costs.
Further, with the expected tremendous increase in activities in the natural gas sector that will come with the new Bill, there will be massive networking of natural gas infrastructure, particularly upstream and midstream. This will, inter alia, provide far-reaching solutions to the electricity problems that have bedeviled the country for a very long time. Specifically, the PIB would make a number of provisions for the creation of such gas infrastructure network.
With the lofty objectives of the PIB and the intervention mechanisms for host communities; both existing ones and the ones expected to come with the Bill, a lot of things are expected to happen that will be beneficially impactful on host communities.
The first, by no order of importance, is a holistic interface with the on-going deregulation of the petroleum and electricity sectors of the economy to promote the creation of job opportunities both directly and through petroleum and gas-based industries, plus other industries that are ancillary to them. The impact on youth employment, can only be imagined.
Further, direct foreign investors would have more confidence in the oil and gas economy. They would come in droves to take advantage of the new opportunities the new economy would offer them. Closely related to this is the market-driven competition that will come about. This would mean a capacity for firms both local and foreign that are domiciled in Nigeria to take care of all the segments of the value chain at the upstream, midstream and downstream sub-sectors of the industries.
In all these, the host communities would benefit the most from the boom that will follow. There will be jobs in abundance; as already noted both direct from operating companies and from industries whose activities are ancillary to them. The strict rules of administration and governance enabled by the regulatory agencies, will ensure adequate environmental care and social responsibility by operating firms. There will also be, as a result of the eventual law, robust intervention funds and schemes. It will indeed be a win-win situation for the host communities.
Finally, I want to urge all, especially the youth in these host communities who will benefit the most from the economic activities to be commanded by the new law, to support the PIB.
Once again, I thank you all for inviting me to this noble discourse, while I wish us all fruitful deliberations and the eventual optimisation of the full potential of the oil and gas industries.
Thank you for your attention.