Experts brainstorm on Nigeria’s petroleum industry restructuring
Experts gathered for a policy roundtable under the aegis of Centre for Petroleum Information (CPI) recently in Lagos to brainstorm on the theme; “Does Nigeria’s petroleum industry need restructuring?”
The consensus of the experts was that if the dearth in investment in recent years in Nigeria’s petroleum industry, reflected in declining production and static hydrocarbon reserves, is to be reversed, some form of industry-wide restructuring is imperative.
In a communiqué at the end of the policy roundtable, signed by the group’s chairman Chamberlin Oyibo and Secretary, Victor Eromosele; CPI made some recommendations on the way forward for Nigeria’s petroleum industry. On the contentious issue of the Petroleum Industry Bill (PIB), the CPI recommends that the industry should move ahead, with or without the Petroleum Industry Bill (PIB) as uncertainty persists as to when it will convert to an Act.
On the fate of the Nigerian National Petroleum Corporation (NNPC), the CPI communiqué states that Nigeria will always need and have a National Oil company (NOC), by whatever name it is called adding that peers of NNPC; Statoil of Norway operate in 25 countries and Petronas of Malaysia in 34 countries but NNPC operates only in one country (Nigeria). Funsho Kuplokun, former NNPC Group-Managing Director regrets the fact that, years back Nigerian authorities “liked the idea but did not approve the recommendation to invest in Libya.”
CPI also recommended that NNPC should be truly commercial and run like other NOCs as an accountable, commercial entity, with freedom to operate and without the undue constraint imposed by remote influence; the Nigerian National Petroleum Corporation (NNPC) can be efficient and can create substantial value, currently lost.
On the shape the restructuring should take, the communiqué states that the options would depend on national objectives and value proposition. For new major “ring-fenced hydrocarbon assets,” there was unanimity that the best structure is incorporated joint venture (IJV). The position was firmly supported by a member of the reactor panel, Emmanuel Egbogah, a former special adviser to the President on Petroleum Matters. He recalled frustrated attempts at its introduction years back despite its strong merits. Nigeria LNG is a classic example of a very successful IJV. Merits, not currently available in the existing unincorporated joint ventures upstream, include compelled accountability and transparency, value maximisation, absence of financing constraint and all parties “singing from one hymn book,” with minimal external interference.
A case was made for partial sell-down of NNPC’s share of JV assets and this approach in relation to existing assets given the speed at which it could be done and obvious benefits in the light of current national liquidity challenge. However, the roundtable raised issues around valuation and the certainty and utilisation of proceeds of sale. Given their legacy issues and their limited, remaining productive useful lives, many at the roundtable favoured the status-quo for existing assets.
The roundtable recognised the challenges inherent in the existing structures both in the unincorporated joint ventures and production-sharing contracts (JVs and PSCs) and suggested that their drawbacks can be minimised by IJVs for future ring-fenced new hydrocarbon assets.
Doubting the sustainability of the Petroleum Product Pricing Regulatory Agency (PPPRA) model, the roundtable questioned the rationale of certain items in the petroleum product pricing template of the PPPRA, made worse by the sliding oil price.
FRANK UZUEGBUNAM