…says shift in energy markets, COVID-19 put Nigeria’s oil at risk
The Lagos Chamber of Commerce and Industry (LCCI) has told the National Assembly (NASS) that Nigeria’s petroleum in-dustry is on the verge of facing many country-specific challenges, including joint venture funding and arrears, regulatory overlaps, insecurity and inadequate infrastructure for domestic gas development this year if the new Petroleum Industry Bill (PIB) is allowed to be passed without some adjustments.
The Chamber said there were some provisions, which could adversely affect the growth of the industry and the overall economy if some steps are not taken to deliver the true value to Nigeria, which the bill aims to achieve. Director-General, LCCI, Dr. Muda Yusuf, in a statement made available to New Telegraph in Lagos yesterday, emphasised that fundamental shift in global energy markets driven by advances in unlocking unconventional petroleum resources and increasing traction for cleaner energy sources had resulted in a global oversupply of crude oil, thereby putting pressure on prices.
Yusuf pointed out that this had been further worsened by COVID-19 outbreak, potentially putting at risk the viability of on-going and future projects and driving fierce competition for scarce investments around the world with Nigeria not immune to the adverse reactions.
The LCCI director-general said the Chamber was urging the National Assembly to put in place a law that will promote a more effective and efficient governance, administration, host community development and fiscal framework for the petroleum industry.
He said: “The oil and gas industry is a major contributor to the Nigerian economy and government revenue. Nigeria, with the largest oil and gas reserves in Africa, has huge untapped potential to achieve its economic development goals, including gas-to-power ambitions. “However, despite having the largest reserves in Africa, Nigeria only received four per cent ($3 billion) of $75 billion invested in the continent between 2015 and 2019.
This underscores the need to create a competitive environment to attract investment to the oil and gas sector. “The fundamental shift in global energy markets driven by advances in unlocking unconventional petroleum resources and increasing traction for cleaner energy sources has resulted in a global oversupply of crude oil, putting pressure on prices.
“This has been further worsened by COVID-19, potentially putting at risk the viability of on-going and future projects and driving fierce competition for scarce investments around the world.
“Further to the above, Nigeria’s petroleum industry faces many country-specific challenges, including joint venture funding and arrears, regulatory overlaps, insecurity and inadequate infrastructure for domestic gas development.
“The Chamber is fully supportive of government’s efforts to drive industry reform through a new PIB. The key objectives of the PIB 2020, amongst many others, include reforming the institutional and fiscal framework, developing Nigeria’s gas sector further, creating a framework to support the development of host communities and foster sustainable prosperity and further bringing in new investments to grow the country’s production capacity.
“The current bill marks positive steps toward achieving its stated goals. The bill mandates ministries, departments and agencies to consult with the Commission prior to introducing overlapping legislation, which will impact the oil and gas industry.
“It also allows for consultation with industry stakeholders before making regulations. The commer-cialisation of NNPC aims to improve business efficiency and effectiveness, especially in relation to joint venture activities.
“However, some of these improvements appear insufficient to deliver the true value to Nigeria, which the bill aims to achieve. Some provisions in the bill could adversely affect the growth of the industry and the overall economy. We firmly believe that based on constructive co-operation between the Nigerian government and other stakeholders, host communities and industry, the objectives of reform can be successfully met.”
Speaking on recommendations on the new PIB, the LCCI DG said that the PIB should seek to protect existing investments from value erosion. According to him, the assets and operations from these investments are the foundation upon which new projects can be built, adding that “it is, therefore, crucial that projects already underway be able to maintain the conditions under which they were designed and approved.
“Doing so will incentivise the launch of new projects, grow production and revenue for government and stakeholders, thereby guaranteeing long term sustainability of our oil and gas industry.” He said as currently drafted, there are several issues threatening existing projects, which the bill does not resolve.
While the PIB enables companies to elect to either convert to the PIB or remain on existing terms, it does not provide clear assurances that projects whose leases will be renewed in the coming years will be able to retain the rights and benefits they have earned since the start of their operations.
“In addition, the PIB provisions expects lease holders to relinquish (upon conversion or renewal) lease areas and zones, thereby potentially jeopardizing future exploration/development and long-term contractual gas supply obligations.
“To ensure the stability of projects, operators should be able to maintain the structure of gas contracts and pricing agreed between parties prior to PIB becoming law. “The bill should clarify acreage relinquishment requirements upon conversion. Lastly, the PIB opens the possibility of separating liabilities from assets against which those liabilities can be settled (per existing Joint Operating Agreements), which created a significant risk to NNPC’s JV partners of nonpayment of pre-existing commitments. We believe that both the assets and liabilities of NNPC should be transferred to the same entity,” he noted.
To address these risks, he said that companies should retain their right to contractual dispute resolution, stabilisation of historical legislative and regulatory changes, PSC/PSA tax benefits earned but not utilised by conversion date and AGFA based investments retain earned allowances in upstream.