How to derive value from West Africa’s oil sector

Ghana signalled its intention to better manage its oil sector when in August this year, its parliament passed the Petroleum (Exploration and Production) Act 2016, a comprehensive fiscal and regulatory framework for the country’s oil sector first introduced in 2012.

The same cannot be said for Nigeria whose petroleum sector bill has been stuck in the national parliament for close to a decade because parliament have allowed parochial interests trump national and economic imperatives.

Now the country’s Ministry of Petroleum Resources have resorted to breaking the bill down into different components that addressed critical areas such as fiscal issues, governance and regulatory frameworks and even by sectors. There is a National Oil Policy and a National Gas Policy.

Other African countries like Tanzania are in the process of strengthening their fiscal and governance regimes in their oil sector to deliver better value for their people.

A key to developing better regulation in the sector is benchmarking regulations against international best practices. This is because regulations from some highly advanced countries are the product of rigorous legislative process tested over time and have demonstrable results to the people.

What is even more imperative is to domesticate or adapt these policies to suit the current realities in the sub-region. The realities are determined by the peculiar socio-political realities in the sub-continent but what rings true is that sub-nationals demand greater participation and inclusion in the management of the resources found in their domain.

“A major challenge that is often unaddressed by development plans is the governance of extraction by communities closest to a mine or oil and gas field,” according to a post by Daniel Kaufmann, president and CEO of the Natural Resource Governance Institute and a non-resident senior fellow at Brookings on NRGI blog.

It adds, “In most countries, national governments negotiate extraction contracts with companies and collect the revenues, but it is those closest to the extraction site that see their physical and economic landscape change most dramatically. Experience working on local governance issues in resource-rich countries has shown that for a country to fully benefit, subnational governance issues must be addressed.”

A major contention that has stalled passage of the Nigerian petroleum sector bill is the provision of a 10 per cent revenue share with host communities which the oil and gas sector operators have kicked against with the support of parliamentary members who are not from oil producing areas.

An argument often advanced is that sub-nationals and even agencies created to manage funds allocated to oil producing areas have been misappropriated. While these arguments have serious merits considering that investigations often unearth mind-boggling sums of money stolen by government officials meant to develop their communities, it does not sufficiently address the fundamental issues.

Norway is a good example regarding the management of oil income. It is used as a driver for other sectors of the economy rather than applied to local communities and white elephant projects. Applying oil incomes to investment vehicles allows for private sector participation and creates avenue for smart fund managers to deploy it to areas that deliver the best value.

Another critical area is regulation as some countries in the sub-region have complex, contradictory and ineffectual systems.

Oil and gas operators in Nigeria, one of Africa’s highest oil producers groan under the most intensive, if not gruelling regulatory regimes in the world. Forced to answer to at least 36 regulators with overlapping functions and contradictory regulations, their agony is reaching epic proportions.

In Nigeria, the Department of Petroleum Resources (DPR), the Federal Ministry of Environment (FME), National Oil Spill Detection and Response Agency (NOSDRA), Nigerian Maritime Administration and Safety Agency, (NIMASA), Nigerian Nuclear Regulatory Authority (NNRA), Niger Delta Development Commission (NDDC) and Nigerian Electricity Regulatory Commission (NERC) and Nigerian Content Development and Monitoring Board (NCDMB) have the task of regulating the sector.

Other federal regulators in Nigeria include: Ministries of Health, Power, Niger Delta, Petroleum Resources, Transportation, Mines and Steel development, Science and Technology have different rules for operators. Also Inland waterways, Port authorities and at least half of Nigeria’s 36 state governments make regulatory inputs. Even Nigeria’s president directly controls the Petroleum Ministry.

Ghana simplified the process, perhaps a bit too much, as it concentrates regulatory powers in the hands of its Petroleum Commission and Minister of Petroleum. The Energy think tank, the Africa Centre for Energy Policy (ACEP), cheered the passage of the Petroleum (Exploration and Production) Act 2016 but decried the absence of punitive actions for conflict of interest by public officials.

But Ghana’s petroleum sector act fosters transparency by providing for an open and competitive public tender for the allocation of petroleum rights requiring the Minister to publish the reasons for vetoing the outcome of a competitive public tender to address the wide use of discretion by the Minister previously proposed in the Bill.

Ghana’s act also provides for the use of direct negotiation if only one company expresses interest in the area, after a notice to tender has been published. There is also a requirement to enter into Petroleum Agreement with persons or companies that have the requisite technical competence and financial capacity to fulfill the obligations under an agreement.

The establishment of a public register for the disclosure of Petroleum Agreements, Authorizations and Permits, which will be available for public scrutiny will enhance transparency in the sector.

“We also take note of the provision for the disclosure of beneficial ownership information in the Companies Amendment Act, 2016, which will complement the governance principles provided for in the Petroleum Act,” ACEP said in a release.

These are very strong governance provisions, which make the Act very progressive and other oil producing nations in the region are best served to adopt similar provisions in their respective national oil policies.

To arrive at such a policy, Ghana consulted far and wide and sent a draft of the bill to even international agencies like Natural Resources Governance Institute to make input. Their contributions were invaluable in the evolution of a sound fiscal and regulatory framework for the sector.

“The current bill gives the petroleum minister discretion to disregard bid results and to skip the tender process altogether. While there may be good reasons for bypassing or skipping the competitive bidding process under specific circumstances, we recommend that the minister be required to publish the reasons,” NRGI recommended when the bill was sent to them for input.

Ghana’s parliament took the suggestion and the result is a law that improves transparency.

However, the best of regulations is no match for a system subject to abuse and corruption. This has been the bane of the oil and gas sector in Nigeria where lack of coordinated regulation has created rooms for misappropriation of national resources.

So the best safeguard against corruption is to create systems and processes backed by law and enforced without exception. This action will promote transparency and deliver greater value to the country.

ISAAC ANYAOGU