Overcoming oil, gas sector challenges hinged on transparency
Nigeria heavily relies on revenue derived from the oil and gas sector. Currently, oil and gas provide the highest external income to the 36 states government that make up the federation but it contributes less than 40 per cent to the country’s Gross Domestic Product (GDP).
As vital as this sector is to the economy, it is constantly bedeviled by rising operational costs; inadequate finance, poor policy implementation, professional knowledge gaps; low capacity building; crude oil theft, pipeline vandalism among others.
Industry stakeholders observe that if the issues transparency and accountability in all the processes involved in all oil and gas dealings are not tackled, Nigeria will continue to experience rot in the oil and gas industry space.
They pointed out that noticeable delay in the contracting processes, funding and security problems are some of the clog hindering the progress of the sector which a transparent process and openness on the part of government can resolve.
Transparency and good governance hotspots in the oil and gas sector in Nigeria revolve around every segment of the industry as well as in the distribution the wealth created by the sector along the value chain said Wumi Iledare, a professor at the Emerald Energy Institute, University of Port Harcourt, Nigeria.
“There are public protests over inefficiencies in the petroleum sector, including domestic fuel shortages, inflated fuel prices, and fraudulent behavior. Inequitable distribution of petroleum wealth, which exacerbates fraud and corruption, abounds in the absence of transparency and accountability”, Iledare said.
He recommended that the only approach to solving the strangulating hinderances threatening to the oil and gas industry in the face of the slide in oil price is the total application of transparency on the part of government, IOCs and local operators.
“Transparency encourages competition and competition enhances industry performance. It discourages fraudulent behavior and promotes effectiveness, equity, ethics, and efficiency.
“Good governance promotes institutional accountability. Accountability empowers institutions to grant rewards and sanctions without interference. It makes national laws effective, increase enforceability of contracts, strengthens regulatory regimes and creates an efficient business environment”, he said.
Iledare further pointed out that transparency and accountability promote accurate reporting of petroleum fiscal revenue collection and distribution to reduce inept management of the Federation Account. It creates an avenue through public education to change the psyche of the electorate to de-emphasize rewards without service.
Interference threatens divestment
High level of government interference in the process of divestment of oil blocks, undue consideration for political stakeholders and lack of transparency in the process have been identified as key reasons why International Oil Companies (IOCs) hold back from divesting their oil blocks. This has led to a situation where due diligence is compromised and investors without requisite technical expertise and financial competence acquire these divested assets.
“It is interference from government and legislators that made the other IOCs to step back from also divesting some of their assets,” said Mutiu Sumonu, chairman of Julius Berger, Nigeria at a panel session on the ethics and transparency for block concession and divestment in the Nigerian oil and gas industry at a recent oil and gas event.
The implication of this interference is that Nigeria is missing out on opportunities to increase local participation in oil exploration and production. The country also loses the opportunity to generate increased revenue from acreages now lying fallow.
Sumonu also said that “Marginal fields are lying idle because some of the bidders who acquired divested assets lack financial and technical competence to run them.”
Osten Olorunshola, chairman, Energy Institute, Nigeria and a former director in the Department of Petroleum Resources stated in his presentation said that “the guidelines are too flexible and confusing leading to low entry requirements. We have developed a system where due diligence is insufficient and predominantly manual. It is also characterised by suboptimal evaluation of bids and evaluations skewed in favour of self-interest, political pressures and forced marriages.”
Charting the way forward
Industry experts insists that government should pay attention to the oil and gas industry as it will remain the cash cow of this country for some time. The low GDP contribution of the oil and gas sector is because we are not adding value and that affects employment.
Dolapo Oni Head, Energy Research, Ecobank Development Company (EDC) Nigeria Limited opines that government would always have to take the lead by making the business environment stable enough to attract investment to grow the oil and gas sector.
Adeyemi-Bero, managing director, First E and P Development Company Limited maintained that government should urgently address reform lethargy as it has significantly impacted on investor confidence adding that certainty and growth in the marginal fields will also help shape productivity to drive the country’s economy.
“Government needs to enhance certainty by developing better strategies to monetise gas and tackle the issues around ease of doing business especially as it relates to regulatory oversight will make Nigeria attractive to investors”, Adeyemi-Bero said.
Felix Amieyofori, managing director, Energia Company Limited said that Nigeria has much bigger issue with security in the country at the moment when it comes to oil and gas industry adding that the growing uncertainties in several parts of the country have further heighten drilling risk, development of marginal field risk and the price volatility in the foreign exchange.
In the summation of Wumi Iledare, the survival of the petroleum sector in Nigeria depends on transparency and accountability as the steam engine that drives the economy. “Creating a transparent and accountable environment requires easy access to information and minimization of the use of discretionary power by the government. Industry reform ought to provide simple text information on all contracts and ensure publicizing the owners and beneficiaries”, he said.
KELECHI EWUZIE