THE year 2012 started on a promisory note in the oil and gas
sector especially going by the mission statements scripted by the
authorities, with the vision to promote the fortunes of the industry.
Twelve months after, targets set for the operational upliftment of the sector were deliberately or otherwise missed, leaving the opertors in deeper morass.
For instance, the Federal Government promised to pass the Petroleum Industry Bill (PIB), conduct oil licencing round and deregulate the downstream sector, all before the end of the year, which never came to pass.
Just few weeks ago, the Minister of Petroleum Resources, Diezani Alison-Madueke assured the stakeholders in the oil and gas sector that the PIB and oil licensing round would still be taken care of, before the end of the year. The government has not held a licensing round for over five years.
She later told the media that the licensing round would take place in the first quarter of next year, and promised that the PIB would be passed by the first quarter of the year.
The PIB has been in the works for 15 years, intended to overhaul the industry, make it more transparent, improve regulatory institutions and fiscal policies and bring everything up to global standards.
But the bill has been stuck between government and parliament for five years, holding back billions of dollars in investment.
Nigeria’s four refineries are working far below capacity, forcing the country to import most of its fuel needs. The government’s heavy subsidies for petrol are thought to have cost $16 billion last year. President Goodluck Jonathan tried to abolish fuel subsidies in January but chose to retreat, partially reinstating them after nationwide protests.
Regulatory uncertainty, among other things, has helped make Nigeria’s oil industry stagnant. Output is yet to inch near the four million barrels per day target. To stakeholders, these unfulfilled promises could scare away potential investors into the oil and gas sector.
Also, the inability of the Federal Government to deregulate the downstream sector has also hampered investment in private refineries.
Speaking on the performance of the oil and gas sector in 2012, Lagos Chamber of Commerce and Industry, urged the Federal Government to fully deregulate the oil and gas sector in 2013 beyond the removal of oil subsidy and should scrap the Nigerian National Petroleum Corporation.
The chamber suggested that in place of the scrapped NNPC, a regulatory body be set up to properly regulate the oil and gas sector. It also said that the government should take bold steps and privatise all the refineries and depots in the country.
The Chamber in its 2012 end of year business environment assessment report signed by its Director General, Muda Yusuf said that operators in the oil and gas sector have long proposed as the way forward for the industry, “full deregulation of the downstream oil and gas sector beyond removal of fuel subsidy, immediate privatisation of all the refineries, petroleum products depots and pipelines.
The chamber is also in favour of the recommendation that a strong regulator, an equivalent of NCC in the telecom sector be installed in the oil and gas sector and the subsequent scraping of NNPC and its affiliates institutions.”
It said that President Goodluck Jonathan’s transformation of the Nigerian economy agenda was critically dependent on the quality of investment climate.
The chamber noted, “in pursuance of its policy advocacy mandate, the Lagos Chamber undertook an evidence based assessment of the business environment in 2012 with inputs from its members and stakeholders in the Nigerian economy. The purpose of this exercise was to identify key issues for advocacy and engagement for the improvement of the business environment.
“The business and economic environment was typically characterised by upsides and downsides, but the latter seem to have outweighed the former. The economy (as always) offered tremendous opportunities during the year, but the capacity of investors to harness the opportunities was constrained by the prevailing challenges of the operating environment.
It stated, “policy uncertainty was a major issue for upstream investors in 2012. The uncertainty about the Petroleum Industry Bill (PIB) persisted, as the fate of the bill is still unknown. Given the enormity of capital requirement for investment in this sector, it is difficult to expect any progress in the circumstances.
“Government neglect of the host communities created serious challenges for the oil producing companies. The logic of the Derivation Principle in Revenue Allocation was to ensure development priorities for the oil producing communities. The same logic goes for the Niger Delta Development Commission (NDDC) and the tax proceeds from the oil and gas activities. But no such priorities were given, creating a situation where hostilities against the oil producing companies intensified during the year.
“Long/delays in resolving dispute relating to oil and gas contracts. There were often disputes between the oil companies and contractors and between the government and the oil companies, but no mechanism for speedy resolution of such disputes. It was a major source of frustration for upstream investors.
“Upstream oil and gas companies expressed concern over the capacity of contractors in the sector leading to exorbitant cost of contracts and unsatisfactory delivery in quality and time. No new investment in exploration because of the policy uncertainty, significant drop in the active oil fields from 46 in 2007 to 10 in 2012, rising/resumption of hostilities by the host communities increase operation cost and impact on output, security lapses leading to escalation of oil theft and vandalisation.”
Besides, “legislators and all relevant stakeholders should speed up the passage of the new PIB, while government’s (federal and states) should show better commitment to the development of host communities.
“There should be greater and transparent enforcement of oil and gas laws such as the Nigerian Local Content Act, Security forces should live up to their responsibility and step up on protection of oil insulations and oil workers, uncertainty surrounding the fuel subsidy programme.
Also, KPMG stated that the oil and gas sector recorded a number of big ticket deals in second and third quarter of 2012, such as Shell’s divestment of its interests in OML 30, OML 34, and OML 40 for $850 million, $400 million and $102 million respectively.
It noted that Shell divested significant interests in various OMLs over the period in order to streamline operations and focus on offshore assets. Consequently, local and international players acquired various interests in these OMLs.
“Growth in indigenous participation in upstream oil and gas activities due to the Local Content Development Act and disposal of assets by IOCs in line with operational strategies.
“Reduction in investments by players due to delays in the enactment of the Petroleum Industry Bill. Ongoing privatisation of the Power Holding Company of Nigeria (PHCN) successor companies, which has been concluded is expected to create capital raising opportunities.”
It stated, “Shell was involved in the largest deal by value in second and third quarter 2012 following the disposal of its interest in OML30, OML34 and OML40 for $850 million, $400 million and $102 million respectively. The disposals of these onshore fields were carried out in order to streamline operations.
“Investments by various companies were largely focused on the power sector, which is due to the ongoing reforms which has created various opportunities.”
Twelve months after, targets set for the operational upliftment of the sector were deliberately or otherwise missed, leaving the opertors in deeper morass.
For instance, the Federal Government promised to pass the Petroleum Industry Bill (PIB), conduct oil licencing round and deregulate the downstream sector, all before the end of the year, which never came to pass.
Just few weeks ago, the Minister of Petroleum Resources, Diezani Alison-Madueke assured the stakeholders in the oil and gas sector that the PIB and oil licensing round would still be taken care of, before the end of the year. The government has not held a licensing round for over five years.
She later told the media that the licensing round would take place in the first quarter of next year, and promised that the PIB would be passed by the first quarter of the year.
The PIB has been in the works for 15 years, intended to overhaul the industry, make it more transparent, improve regulatory institutions and fiscal policies and bring everything up to global standards.
But the bill has been stuck between government and parliament for five years, holding back billions of dollars in investment.
Nigeria’s four refineries are working far below capacity, forcing the country to import most of its fuel needs. The government’s heavy subsidies for petrol are thought to have cost $16 billion last year. President Goodluck Jonathan tried to abolish fuel subsidies in January but chose to retreat, partially reinstating them after nationwide protests.
Regulatory uncertainty, among other things, has helped make Nigeria’s oil industry stagnant. Output is yet to inch near the four million barrels per day target. To stakeholders, these unfulfilled promises could scare away potential investors into the oil and gas sector.
Also, the inability of the Federal Government to deregulate the downstream sector has also hampered investment in private refineries.
Speaking on the performance of the oil and gas sector in 2012, Lagos Chamber of Commerce and Industry, urged the Federal Government to fully deregulate the oil and gas sector in 2013 beyond the removal of oil subsidy and should scrap the Nigerian National Petroleum Corporation.
The chamber suggested that in place of the scrapped NNPC, a regulatory body be set up to properly regulate the oil and gas sector. It also said that the government should take bold steps and privatise all the refineries and depots in the country.
The Chamber in its 2012 end of year business environment assessment report signed by its Director General, Muda Yusuf said that operators in the oil and gas sector have long proposed as the way forward for the industry, “full deregulation of the downstream oil and gas sector beyond removal of fuel subsidy, immediate privatisation of all the refineries, petroleum products depots and pipelines.
The chamber is also in favour of the recommendation that a strong regulator, an equivalent of NCC in the telecom sector be installed in the oil and gas sector and the subsequent scraping of NNPC and its affiliates institutions.”
It said that President Goodluck Jonathan’s transformation of the Nigerian economy agenda was critically dependent on the quality of investment climate.
The chamber noted, “in pursuance of its policy advocacy mandate, the Lagos Chamber undertook an evidence based assessment of the business environment in 2012 with inputs from its members and stakeholders in the Nigerian economy. The purpose of this exercise was to identify key issues for advocacy and engagement for the improvement of the business environment.
“The business and economic environment was typically characterised by upsides and downsides, but the latter seem to have outweighed the former. The economy (as always) offered tremendous opportunities during the year, but the capacity of investors to harness the opportunities was constrained by the prevailing challenges of the operating environment.
It stated, “policy uncertainty was a major issue for upstream investors in 2012. The uncertainty about the Petroleum Industry Bill (PIB) persisted, as the fate of the bill is still unknown. Given the enormity of capital requirement for investment in this sector, it is difficult to expect any progress in the circumstances.
“Government neglect of the host communities created serious challenges for the oil producing companies. The logic of the Derivation Principle in Revenue Allocation was to ensure development priorities for the oil producing communities. The same logic goes for the Niger Delta Development Commission (NDDC) and the tax proceeds from the oil and gas activities. But no such priorities were given, creating a situation where hostilities against the oil producing companies intensified during the year.
“Long/delays in resolving dispute relating to oil and gas contracts. There were often disputes between the oil companies and contractors and between the government and the oil companies, but no mechanism for speedy resolution of such disputes. It was a major source of frustration for upstream investors.
“Upstream oil and gas companies expressed concern over the capacity of contractors in the sector leading to exorbitant cost of contracts and unsatisfactory delivery in quality and time. No new investment in exploration because of the policy uncertainty, significant drop in the active oil fields from 46 in 2007 to 10 in 2012, rising/resumption of hostilities by the host communities increase operation cost and impact on output, security lapses leading to escalation of oil theft and vandalisation.”
Besides, “legislators and all relevant stakeholders should speed up the passage of the new PIB, while government’s (federal and states) should show better commitment to the development of host communities.
“There should be greater and transparent enforcement of oil and gas laws such as the Nigerian Local Content Act, Security forces should live up to their responsibility and step up on protection of oil insulations and oil workers, uncertainty surrounding the fuel subsidy programme.
Also, KPMG stated that the oil and gas sector recorded a number of big ticket deals in second and third quarter of 2012, such as Shell’s divestment of its interests in OML 30, OML 34, and OML 40 for $850 million, $400 million and $102 million respectively.
It noted that Shell divested significant interests in various OMLs over the period in order to streamline operations and focus on offshore assets. Consequently, local and international players acquired various interests in these OMLs.
“Growth in indigenous participation in upstream oil and gas activities due to the Local Content Development Act and disposal of assets by IOCs in line with operational strategies.
“Reduction in investments by players due to delays in the enactment of the Petroleum Industry Bill. Ongoing privatisation of the Power Holding Company of Nigeria (PHCN) successor companies, which has been concluded is expected to create capital raising opportunities.”
It stated, “Shell was involved in the largest deal by value in second and third quarter 2012 following the disposal of its interest in OML30, OML34 and OML40 for $850 million, $400 million and $102 million respectively. The disposals of these onshore fields were carried out in order to streamline operations.
“Investments by various companies were largely focused on the power sector, which is due to the ongoing reforms which has created various opportunities.”
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