We see a PIB without the contentious issues of derivation, host communities – Kachikwu

The launch of the 7 bigwins is definitely a milestone for you, the government and the ministry. But what is the difference between this roadmap and the other ones we have seen over the years?

The difference with this one is basically the KPI setting. How do we deliver on very specific milestones; most of the plans we intend to see in the long term, medium term strategic potential expectations? What we have done for each of these specific items is for example if you are dealing with the public regulations, we tell you the three, four things we should deliver; the petroleum policy, the gas policy and so on. We will work with the National Assembly to deliver the Petroleum Industry Bill. We give you a time frame and we like to do that within the next few months; in the case of the law within the next one year. That is the difference. If we take Niger Delta, we say to you, there is going to be a specific roadmap on Niger Delta, we like to see investments within there, we like to see more oil companies take responsibility for security, we like to see the communities more involved in the security, we like the ministry to come in a very specialised form, we like to see dialogues going on a continuous basis involving stakeholders, state governors and oil companies and all of that. So, there are specific things that you can look at and say seven months from now, are they doing that? That is why we say 7bigwins. We intend to run away from roadmaps, roadmap tells you that you are looking into a map and you hope to find a road. We have specific identified targets tied to specific time frames. You look at the oil environment, say cash calls, we like to exit cash calls, and we are very specific. You look at volume of production; we like to do 2.2 million by early next year. We like to increase our capacity in the next two, three years. So, we are very specific with things that we hope to achieve. If you look at cost of production, right now, we are 22 but we will like to trend towards 18. That is why I say it is more KPI driven because with this, I can then set the KPI for the rest of the parastatals. NNPC will know what to deliver. Look at the refineries; we say we want to exit product importation from 2019 so the KPI is obvious. That is the whole idea. It is a bullish way to set yourself up for failure if you do not deliver but hopefully we are setting ourselves for success if we can work towards it.

The roadmap is very specific and I think investors will appreciate, but for this to work, a lot of stakeholders need to be on the same page perhaps most importantly the National Assembly. What gives you the confidence that you can meet these targets?

A lot of the targets in the 7bigwins are executive driven. Niger Delta is executive driven, cost of production is executive driven and refineries is executive driven. I think the part of the 7bigwins that concerns the legislature a lot more is regulation and petroleum governance bill and the engagements I have had so far is that they have a lot of energy to getting these things done. I think there is an urgency to get these things done on their minds on how we need to move things up. A lot of collaboration has been happening and is still going to happen so that once we start there will not be disagreements. The nice thing about how the President goes forward for reform bill in this structure is that first we have the government aspect which does the institutional framework. Hopefully there shouldn’t be too much difficulty over what really should work and where the lapses are in the current system and then you get into the fiscal which seems to be more contentious in terms of the numbers that are right for government. The rest are basically the structures that you are putting in place which, again, are going to be largely executive driven. I expect that some of the first bullets, which is the institutional framework, should be able to get the solution on. We are going to try to stay away from some of the contentious areas that usually pull you back, the host community issues and see how that is worked out in the later aspects of the 7bigwins. We are going to look at it to see whether it makes more sense to amend the existing laws to capture the changes that are wrong which we are trying to right. But what is important is that we are committed and, if all my timelines do is to ginger everybody backup on the timeline to deliver from the executive side, then we are fine.

How do you galvanise the $10 billion infrastructure fund into the various MDAs and the private sector?

I know a lot of journalists took that as headline. But what I said was that we are putting in place institutional framework to enable us drive that. What I expect is that this is not asking federal government to give me money even though we expect it to contribute something. I am looking at the oil companies, international development organisations, business opportunity revenues. If you set up a gas pipe for example, how much do you pull from resources of income that is generated from the business? It is not going to be like you bring in $10 billion and put into an account and say, guys come let us spend money. No, it is the total opportunity capitalisation to the area that is going to yield you the $10 billion. Obviously, there would be contributions from the oil companies and there will be advancement in the fact that if this area is well catered for in terms of infrastructure, you will have less of a problem. You are going to compare what you are losing in terms of security surveillances and what you are spending and what you will save, then you will want to put in some money. We are going to be looking at what the other organs are doing right now. For example, community development, how do you pull out in a way that is presentable, accountable, reflecting the needs of the community because what most of the other companies are doing is just getting there to say this is what I want to run. I want to run a malaria free programme, I want to run economic empowerment programme. Over the years they have stayed away from infrastructure and paid attention more to economic empowerment. Economic empowerment for who, by whom. What is the spread and the size of the population that is affected? So, I like to push them more into infrastructure. And even if you go into infrastructure, I like to see a collective, four-five companies come together and build, say South-South road. Then get the governors of the South-South involved so that they can contribute their own bit and you have a road that comes up. You go into transportation, how do we get all over there? So, the $10 billion from what I am seeing is a capacity of generating funds that you can have for over a 10 year period. We are going to launch that and get a lot of international oil companies to back that up and we begin. The mechanism will be worked out with the Federal Executive Council and the President but the meat of what I am saying is that we need to have a fund that addresses infrastructure that has created a hole in the Niger Delta.

What is the latest about the $80 billion investment you attracted recently from China? Where particularly will the fund be applied?

What we did with the China road show was to take what we call infrastructural gap in the oil and gas sector. The pipelines that were dilapidated, storage facilities were freezing, the refineries were unprofitable also. So, we took all that and I think we came home with a bill of $50 billion. That is what we went to sell. We have sold that in terms of commitment. But we need to move away from commitment to the MoUs to attract the investments. We have set up an internal team that is trying to identify the specific interests of the various companies that have signed the MoUs and what contracting processes we should adopt that will keep them comfortable, and also what kind of security to provide for them. Obviously, we like to push more towards investment rather than taking a facility. So you rather push for joint venture investment in refining area, depot area, in pipeline areas and you start reaping as a basis to pay back as oppose to sovereign guarantees and providing collateral backed by crude. It is still early days but all we need to do is obtain 20 to 30 percent of the $80billion and invest in massive injection of funds in infrastructural development. But it is easy for you to do this more in the oil sector than other sectors because for each of the elements of the oil sector you can see the play out. If it is pipeline for example, you could tariff, if it is refinery you could sell your end product and this could be a way of paying back. In some extreme cases you could trade your crude especially if the investment is in upstream where additional generatives are coming up. It is easier to do that in the oil sector than others but we feel that once you are able to galvanise the oil sector, then the advantages will collate to the other sectors of the economy. The generating income that comes from that avenue will enable the government to get into massive agriculture, massive mining and all of that. The oil sector got us here; the oil sector will get us out.

There has been debate on how government should resolve the joint venture challenge. Some persons have suggested that government sell some of its interests in the joint ventures so as to raise funds. What is government position on this?

There isn’t a government policy on that. I do not think the President is mindful of selling assets. There is a lot of politicisation on assets sell. But at some point if we have some unproductive assets managed by say, NNPC, we will need to look at what is the best way to actually realise the true need of those. It is not likely going to be through equities but there are opportunities to leverage on some of the incomes that we have there to be able to borrow on a short-term basis to fill up the gap that will sustain the economy. So, I think two things we will try to work on, one of which is almost completed. If you look at the gaps in the joint venture funding, that we are trying to do through a joint venture cash collection. We are going through the approval processes and once we do that, it will stabilise production and indeed enable you to begin to look for investments. We expect multi billion naira investments coming out from the stability. I am keener to sell government assets where there is a deficiency, lapse that is not correctable, that it is not performing well. We are losing money. Then you have to say why do you need to keep it; what can you do? If you look at most of the government assets that were sold, they have turned out to be very profitable. So, if you can put in your efficiency to make them work well, fine. But for joint venture, it is excellent. It is run by multi-nationals so it is no longer an inefficiency issue. So, the only way you would want to sell is when you have a huge cash flow problem. We need to be very conservative about selling assets because once you sell, it is gone. So, it is not an area that I see a lot of new energy but I think we can leverage some of the ownership we have here and raise immediate money.

Most of the people craving for selloff assets feel it will provide foreign exchange that would be used to inject life in to manufacturing and other sectors. Is the government making efforts to make the funds available for these sectors that need them?

Yes, the government is very focused on that. The Vice President heads the economic team of which I am a member. We are working in that direction. Right now, we are sitting down to say: ‘what are the leveraging possibilities of immediate income that we can have to put money back into the system?’ There is pressure right now. We are absolutely making efforts to stabilise the difficulties without contemplating sell of assets. We are also looking at the timing of the sales. If you sell assets right now you are going to be selling at paltry value. Refineries for example, like the President said, let us get these things fixed and once that is done and everything is working efficiently, we can then begin to look at the continued maintenance of the efficiency whether to sell the benefits of the assets but we are not there yet.

Where do you situate price of oil in the global market on your plans for the sector?

Market is trending from conservative to medium term stable. That is what I see. It started in the year sometime as low as $27-28. At that time, many were panicking but I said the market will trend and we would end the year hopefully with an average of about $40 and we have. I think that in 2017 because of the push by OPEC, I said we couldn’t afford to let go; we need to take very decisive moral boosting steps. What we are therefore seeing was the first decision to reduce stock back to 32.5 to 33 at the most, considering the fact that former figure was about 32 actually and Iran obviously brought in about 3.5million barrels. So the effect of this agreement to cut output which translates into immediate price gains was because almost 2.3million barrels would have to be yanked out to achieve that objective, and I think that trend will continue. We are meeting in November, I expect to see those numbers begin to grow now and I hope to see these numbers getting distributed to those countries. And if that holds, Shale production is beginning to rise but it is very slow, people like Saudi Arabia are getting actually willing to cut down and lot of engagements with Russia are positive. For Nigeria, we have played a very significant role in terms of those engagements. If we continue with those trends, I would see 2017 trending in the mid-fifties, and extreme buoyancy will be to mid sixty but I do not see us sustaining that in the whole of 2017. But in 2018, I see a fairly rapid upswing but not to a $100 barrel but much in the $70 for the latter half for the simple reason that for the last two, three years, investments have been least to nothing, investment budgets of most of the countries are down 30 to 40%. When investments are down, reserves naturally are down, and it is almost a repeat performance in the oil industry.

The projection for the 7big wins is for us to reach 3 million barrels per year and I am wondering if Nigeria can ramp up production to that extent.

We have the capacity, and with very little investment we reached where we are. Exxon Mobil has announced a one billion field, Bonga is a potential 350,000 barrels a day, it is coming back on block by the virtue of financing going on right now. So, getting to 3million is efficiency and once the funding behaviour is stable, it is not so much of an issue. Now, whether the OPEC cuts and discipline would allow the margin to drive- that is a different thing, but then that is where you need to change your model and that is why refining is an absolute key to the survival of this country. If the refineries work, and Dangote comes in late 2019, with all kinds of new applications for modular refineries and co-locative refineries, if we get all those working, we should get to a point where exporting petroleum products, that is crude would become something we want to gradually get out of and export them as refined and processed. So the petrochemicals, your products will begin to become a major distribution generally to all parts of Africa and hopefully some parts of Europe, then the 3million barrels will be a situation where even when there is a cut, what you inject locally into the refineries is not taken into consideration. But if we do not correct our refining capacity, then obviously, we are going to be constrained once there are those cuts but in terms of do we have the potential? Can we get there? We can get there.

Many have suggested that liberalising gas and oil product prices is imperative, if we are going to get to what the 7 big wins is asking for, how prepared is the government to support full liberalisation of oil products?

I think oil products pricing have been done. People do not think this has been done because they are always waiting for us to come and announce it. But I do not think our role anymore is to be announcing pricing; the market will announce its pricing. Our role is to protect pricing, which is you want to be sure that people do not jump up on prices because they have a profit cap that they have determined for themselves as businesses. We are in the business now of price reviews and protection as against price announcement.

The market will announce its price, the reason why we have not gone up in price, quite frankly is because of inefficiency, we are still where we are, but as we get into next year, that may well change but it is not likely to change to any significant number that should bother anyone, and price will modulate, sometimes it goes up, sometimes it comes down.

The key to it is foreign exchange dynamics. In terms of gas, it is a bit more of a difficult situation because we need a lot of investments to pull out the gas, it is not as developed as the core crude market, and so prices are sluggish, and so if you let prices be flexible and reflect what it should be, we probably would never grow a gas consumption market rate. I think what we need to do for gas is to create an incentive scheme that says, over a period of five years, the prices may struggle and government will have to take some kind of support just to get the power systems and everything working and then you can loosen it up. I know for those producing, they would rather match local than foreign pricing or even exceeding it to create the right incentives, but this economy cannot take that. To produce power you need to subsidise it for quite a while, and there needs to be major investments for quite a while.

The way to cushion that effect is to look at the efficiency of cost “limitations” for gas. Some of the things we are doing in terms of gas is how you efficiently, can produce gas. For example, if you look at most of the gas produced so far, they are associated gas, you get them as you are producing oil, they are found by accident sort of, not because you set out to look for them. We are looking now at encouraging nonassociated gas, but doing it in such a way that even those who produce oil can produce gas separately without relying on the economics of oil. What this means is, it provides some long-term gestation incentives over a period of years so that people can actually go and look for gas, produce it, knowing full well that the prices of gas is not enough to cover the cost as such, but the incentives that have been given from tax holidays or whatever is such that enables you to keep a stable market environment.

But if you want to export it, of course, international prices would be there for you; it is a ratio issue, do a whole lot more of export, do a whole less of what you are doing here, but provide enough certainty to power the economy. So it is a balancing act.

President Buhari will be meeting Niger Delta leaders next week. What is the government’s position going into those talks?

I obviously cannot discuss that with you because we are going to be having an open- minded meeting. We all are trying to find solutions. And there is honesty of purpose about it, that is about all I can say. Again, the meeting is not a negotiation; it is a courtesy call on the president so that we can exchange views on how best to go on this negotiation plans. We have about 80 people attending the meeting and you cannot negotiate with 80 people at the same time. But at least, we can hit the nails in terms of where the issues are and get also the consensus of government.

If we can get a consensus as to how to move forward and build a team that will work on the issues as we go ahead, that is fine. And my attitude to it, and I have said this to my Delta brothers, is not an attitude that if you do not do this, I will do this. Government has a responsibility to protect its environment, its citizens, its assets and it will never give up on that. But obviously, going to war is not the way to do it; talk is the best way to do it, but we also have civic responsibility to security, so I do not think the question will be if we do not do it fast enough, you are going to go back and start militancy. I think we should just shuffle off militancy as a tool for progressing the things that we push, because like I have always said, the places that pay most for that are the Niger Delta. If you blow up a pipeline, there is a product rupture; there is environment hazard and health hazard. You are actually hurting yourself to make a point. I think that point has been made over and over again. Year to date, we have had about 1800 attacks on pipelines, over the last four years, we had about 3000 cumulatively and we had more this year. But we have responsibility as a government, and the President recognises this responsibility- to the extent that this can stop and should stop, and should not even be an element of negotiation.

Also, we have a responsibility to go back and look again, ask what has gone wrong in the Niger Delta itself, all the monies that we have put in there, nobody can find it. When I say this, some people get upset. We have spent ten to forty billion over the last how many years, a lot of monies that did not even get there, some of that got diverted through all kinds of schemes. I am not saying that Niger Delta misused it; some did not even get there. For the ones that got there, some were used for very flamboyant things that did not really deal with the lives of the people and our infrastructure need in the area. But I do not think we should negotiate on threats. The right thing is to negotiate on a complete understanding of the urgency of the problem that we have seen in the last few months.

Have you been able to put together the various versions of the PIB?

Yes we have. We have reviewed all the past PIBs, 2008/2012, all of them. But we have set up also implementation of what are the key problems people were very concerned with and we tried to address some of those. Some we have tried to walk away from because they are extremely contentious, so you would find that we have taken for example the model. When I was being screened, I did say that one singular PIB is obviously not going to work, the policy has just been too much, it keeps killing some of the good positions. So we tried to sort of divvy it out so that problem in one section does not kill the fact of the need for success in one. We started by looking at the governance, which dealt with institutional framework and the structures. We have adopted and cleaned that up. We have gone further to work on the fiscals, which was also one of the contentious areas.

The issues raised in the communities is what we think has to be taken out of the bill and dealt with, just like the derivation policy, it is not in the Petroleum Act, so they will have to sit down, and deal with that issue and pass a law on host communities and derivation as a concept, because that is something that is going to be driven from the National Assembly and not from us.

Why is the government still spending huge sums of money maintaining the refineries without much result yet? Is it not better sold off?

Frankly, I think that ultimately by the time we finish the PIB and all the rest, some of these things would be self-determinant, because if NNPC for instance looks at its refinery and finds them not a profitable entity, it cannot keep carrying them as non-profitable entity. It will have to make decision, and that decision might be to invite shareholders to come in and raise more money or bring them into management to hand over management or whatever it is. But my immediate concern over the two, three-year period that is left of this government is how do I get a policy to achieve exiting importation of oil?

Obviously, dealing with the refineries does help, but dealing with sale in itself can take you two years, and that does not help me achieve my objectives. The first thing I want to do is achieve that objective, and I cannot keep pushing it on the basis of who is holding what. Let us face it, you can sell these refineries and the unions tie you down for the next three years, and it just closes down, and there is nothing you are going to do. It is a very complicated process, and the refineries are holding quite a bulk of most of the staff of NNPC, so it is quite a huge operation. My attitude is, do not tinker with things that are going to be too volatile, that can stop you from the main objective, and that is exiting importation which is about 35 to 40 percent of our FX consumption, so that is a much more important threshold for me than even who is running refinery.

That is one. Two, do not use government money to repair the refineries and so, go out to third party who is ready to bring in money, work with him on a JV basis under some structure of forward sale or whatever, repair the refineries, get paid his money plus interest over maybe a five or six year period and help with the process of improving the management. What that does is, it saves jobs, reduces friction, gets the work done, and achieves the policy. And the decision in terms of sale will be made at the point where the asset has a value, because, you sell it today, you lose much.

You will notice that most government agencies that were sold were worth nothing and at the end of the day, people turned them around with very little injection of money, just to get them efficient and they are back, which is not necessarily a bad thing. But if the government is not reaping from that or sold at such a discounted number or figure, and suddenly they are making so much money, the same people who were asking you to sell will turn around and say this government is so foolish, how could they have sold our national asset?

I have tried to focus on the policy framework of dealing with the importation of products, which is the greatest nightmare you can have. During the time of fuel scarcity, I could not sleep. So it is not even something I want to see in my bad dreams. So I would rather deal with that first and deal with these other ones later.

Recently, the federal government entered into direct sales, direct purchase agreement. How much has the government saved from the daily oil lifting so far?

We have saved over a $1 billion through that process from the old structures that we were using for importation, from the swap processes that we run.

Is there any plan to merge or scrap PPPRA and DPR?

I am sure you know I cannot give you an answer on that. They are both going to run efficiently during my time; we are going to submit the PIB and we are going to work collaboratively with the National Assembly to find the best way to run these institutions, whether they will run collaboratively or collectively as one entity or multiple entities, time will tell; it is too early to begin to say that.