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Oil & gas: Lack amidst plenty

Nigeria, which suffers dearth of funds for its key projects like the Abuja- Kaduna-Kano pipeline projects experiences inactivity on some of its money-spinning oilfields. ADEOLA YUSUF, in this analysis, examines action by the regulator to stop the country from being made to further suffer amidst plenty

 

As usual, Nigeria went through another round of embarrasment, last week. The country’s $2.8 billion Abuja-Kaduna-Kano (AKK) pipeline project suffered a set back as Chinese lenders withheld their funds.

The Nigeria’s critical gas infrastructure project is, as a result of this, currently suffering implementation delay.

 

The Federal Government is, because of this, seeking $1 billion so that work can continue on the gas pipeline costing up to $2.8 billion after Chinese lenders, which had pledged to offer most of the funds, did not disburse cash as quickly as expected.

 

Implication of failing financial aids

 

This is the latest sign of falling Chinese financial support for infrastructure projects across Africa, after years of major Chinese lending for railway, energy and other projects.

 

A spokesman for Nigerian National Petroleum Corporation (NNPC), which is building the 614-km (384-mile) Ajaokuta-Kaduna- Kano (AKK) pipeline, said it was still negotiating with the Chinese lenders – Bank of China and Sinosure – to cover $1.8 billion of the project cost.

 

“There’s no cause for alarm,” the spokesman said, without saying whether NNPC was turning to other lenders.

 

But sources said that the company was now approaching others, including export-import institutions, to continue work on the pipeline that will run through the middle of the West African country to its northern economic hub, Kano.

 

Unproductive oilfields

 

In the midst of this embarrassing dearth of funds, many oilfields in Nigeria, which could earn the country fortunes, are, acccording to findings, left unproductive due to a number of reasons.

 

As at the last count, the Department of Petroleum Resources (DPR), Nigeria’s oil sector regulator, has begun a move to end this anomaly through revocation of some licenses that it considered unproductive through deliberate efforts of their operators.

 

To DPR, these fields could be made productive and earn the country money in terms of royalty and taxes when they are revoked and reawarded to a more  competent company.

 

This, when done, will help Nigeria out of the economic quagmire the country is facing, which is affecting the implementattion of some key projects like AKK.

 

 

Danger of looking up to Chinese lenders

 

Chinese lenders had originally been lined up to fund the bulk of the estimated $2.5 billion to $2.8 billion cost of the project, which is central to President Muhammadu Buhari’s plan to develop gas resources and boost development in northern Nigeria.

 

NNPC, which was funding 15 per cent of the project, said last year it had used its own funds to start construction.

 

The sources said the Chinese lenders would not agree to disburse the cash NNPC had expected by the end of the summer, prompting it to turn to other sources.

 

“They are looking at Nigeria as one loan, and right now, they feel they are too exposed,” one source said. Bank of China said it would not comment on specific deals.

 

Sinosure did not respond to a request for comment. The Nigerian ministries of transport, finance and petroleum also did not reply to requests for comment. Chinese bank lending to African infrastructure projects has fallen across the continent, from $11 billion in 2017 to $3.3 billion in 2020, a Baker McKenzie report said in April.

 

With the continent facing an estimated annual $100 billion infrastructure deficit, the loss of Chinese funding leaves a big gap to fill.

 

The AKK advantage

 

Nigeria began building the AKK pipeline in June 2020, saying it would help generate 3.6 gigawatts of power and support gasbased industries along the route.

 

The project was to be funded under a debt-equity financing  model, backed by sovereign guarantee and repaid through the pipeline transmission tariff.

 

NNPC awarded engineering and construction work along three sections of the pipeline to Oando, OilServe, China First Highway Engineering Company, Brentex Petroleum Services and China Petroleum Pipeline Bureau.

 

Transport Minister, Rotimi Amaechi, said this month Nigeria was negotiating a mix of loans from Chinese and European lenders to fund railway projects, after media reports said it had initially planned to rely primarily on Chinese banks.

Back to oilfields

 

DPR had revoked the licences of 11 marginal field operators for nonperformance, including Dawes island marginal field located in OPL2006, Okrika, Rivers State.

 

DPR justified the revocation of the field licence on the ground that nothing was done on the field from award of the licence till its revocation, adding that no field development plan was submitted for Dawes Island.

 

According to the DPR Director, Mr. Sarki Auwalu, the decision was taken in the best interest of the nation.

 

Expert supports DPR

 

With dwindling review into federation account and declining global relevance of fossil fuel as the world gradually transits to renewable energy, oil and gas industry experts in Nigeria have called for efficient use of mining assets by operators for the country to maximise its current potentials before fossil fuel loses its current value.

 

While speaking on the diminishing status of oil and gas in the global energy requirements in the next 20 years, industry professionals and advocacy groups are, in separate interviews, charging the Federal Government, federal lawmakers, interest groups, operators and other industry stakeholders to wrapup the Petroleum Industry Bill (PIB) for presidential assent so that the country can have a new governing law that will improve investment, increase production, efficiency and transparency in the oil and gas industry.

 

On the current controversy trailing the revocation of some marginal oil fields’ licenses by DPR and the petition to the House of Representatives Committee on Public Petition by Eurafric Energy Limited, one of the affected lease operators, Mr. Ademola Adigun, an oil sector governance reform expert, said that the issue has become a test case why the Petroleum Industry Bill must be quickly signed into law because the ‘Drill or Drop’ provision in the law will prevent process abuse and usurpation of regulatory responsibilities or powers.

Adigun decried a situation whereby oil companies sit on mining leases for years without getting them into production capacity as ‘wasteful and unproductive’ for a country that is facing severe revenue challenges. The country is under heavy borrowing to meet its developmental needs.

 

So, the Nigerian government must do all it can to use the country’s oil and gas assets to build an economy of the future. He said: “One of the greatest things that have happened, which is in PIB, is the idea of ‘Drill or Drop.’

 

We have had a history. I think the first attempt to Nigerianise the oil and gas sector was in 1990 when the Babangida administration awarded oil blocs to some Nigerians who were thought to have financial capabilities to make the necessary investments. Of the award, only about three or four have been mined, that is Famfa, Conoil and some other two. Now, a lot of people get these licences or win these bids then go sell it off.

 

They sell it off to those who lack capacity and the whole thing stalls and we suffer as a country. We have two problems in the sector right now – we have declining take from the barrel and we have declining returns from crude. Now, we are limited to 1.45 million barrels a day by OPEC quota and unable to ramp up 2.1 million barrels per day.

 

 

If the oil blocs lie fallow and people are not producing from them, we are losing revenue from the field, we are losing job creation opportunity from the field, we are losing what should be the contribution to GDP as well as field development fee.

 

It’s a whole basket of having something you cannot use, it is therefore better you drop it for other companies with capacity to explore. On what DPR must do to the new marginal fields awardees who fail to get the blocs into production with a timeframe specified by the regulator,

Adigun noted that PIB has addresses  that, adding that it is one of the reasons politicians and individuals with vested interests must put national interests above personal and sectional interests and allow PIB to be signed into law after almost 20 years of the country’s struggle to get a more progressive law that addresses the problems facing the oil and gas industry.

 

“To your specific question of what happens to the new awardees, PIB is clear, you have a timeline, you pay your licensing fee. You also have a timeline to find investors to work with you. If you can’t, drop it. Drop it for someone who can.

 

The truth is, we are fighting a battle; the truth is crude is not going to be as powerful or useful as it is in the next 20 to 35 years,” he noted.

 

On the propriety of the reported call by the House of Representatives for the reversal of the revocation of unproductive marginal fields following a petition to the Committee on Public Petition by Eurafric Energy Limited, Adigun noted that Nigeria must be a country that respects law and its institution, while noting that the Public Petition Committee of the House has no power to force that demand of DPR. Last line Nigeria should explore all legitimate ways to source funds.

 

While it may not be wrong to seek loans from foreign lenders like the Chinese, the move by operators to leave oil blocks unproductive, thereby denying Nigeria the much needed funds through royalty and taxes, should be discouraged forthwith.

 

DPR should do this by being just and fair to all parties without undermining the national interest of the country

 

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