oilxOthers are absence of appropriate crude oil policy; lack of refining capacity and epileptic performance of existing refineries; misapplication of subsidy regime; policy summersaults; pioneer status; non-passage of the petroleum industry bill, PIB; gross misapplication of funds from oil and gas; and petroleum products and gas pricing.
The stakeholders, made up of participants at a two-day National Petroleum & Power Policy Forum, NPPPF, which ended last week Emerald Energy Institute, University of Port Harcourt, Rivers State, argued that these challenges are weighing down developments in the sector.
Contractual agreements Specifically, they argued that the current JV and PSC agreements, which are based on memoranda of understanding, MoUs, are not sustainable.
This is because “with the operatorship in the hands of the minority partner and the majority partner only concerned with approvals not based on close supervision, huge sums are usually wasted for items and programmes that the operator decides to embark on without necessary approvals.”
The practice they noted even led to a value for money audit for some of the JV, and called on the Federal Government to “reconfigure the JV relationships and create companies under established laws, provided no divestment of our reserve can take place on the part of NNPC without National Assembly approval.”
Furthermore, they urged that such companies can take the model of the current Nigeria LNG Limited, NLNG format where income is paid through taxes and dividends to support national budget. “This move will increase our reserve portfolio and end problems associated with cash call delays,” they added.
Speakers at the Forum included a former Director, Department of Petroleum Resources, DPR, petroleum industry regulator, Mr. Osten Olorunsola; Vice Chairman/Chief Executive Officer, Emerald Energy Resources, co-organisers of the Forum, Dr. Jude Amaefule, a former Company Secretary, Nigerian National Petroleum Corporation, NNPC, Prof. Yinka Omoregbe. Among them were also members of the academia, government agencies, industry operators and non-governmental agencies.
Theft and vandalism
With regard to oil theft, they noted that the practice had been on for many years, with quantity stolen now estimated at about 400,000 barrels per day or worth about $25million daily and $8.7 billion or N1.5 trillion annually, which is about one-third of the current 2015 National budget.
However, they maintained that such practice can be curbed, “If our Government decides to do so using the necessary security network, local and international and the use of various surveillance technology; and where necessary the introduction of signature for Nigerian crude.”
In their opinion, “It is better to spend $1 billion a year to secure our crude oil than to allow $5billion flow into the pockets of organised thieves.”
Related to this is pipeline vandalism, as oil theft results mostly from acts of vandalism, saying that “the ability of our security agencies to tackle the problem of crude oil theft would also enable them tackle pipeline vandalism, especially crude oil pipelines.”
They also observed that the vandalism of products’ pipelines leads to huge expenditure on products bridging, a subsidy for products price equalization the significance of which has not been brought to the fore. Also of grave concern to participants at the Forum, is the low level crude oil exploration, noting that Nigeria’s oil reserves have remained almost static with reserve addition only about the same level as the quantity consumed each year.
They warned that failure to institute policies that will encourage exploration and production of oil, the country is at risk of being plunged into harsh poverty and economic crisis. Tied to production is the issue of crude swap, in which they questioned the need for such an arrangement, which government said was aimed at reducing pressure on the foreign exchange portfolio.
While there appears to be some standards for arriving at the value of the commodities being exchanged, speakers urged the government “to vet these agreements using independent consultants to confirm the reasonableness of the terms agreed before final agreement is drawn up.”
Policy issues Furthermore, speakers harped on the absence of a coherent policy guiding oil blocks allocation and transfer, saying that “Nigeria needs a coherent policy regarding the process to be followed for oil blocks allocation.”
They equally condemned the practice of discretionary allocations, and “whether the beneficiaries of these blocks paid any signature bonus at all,” adding that “This is a great disincentive to development and growth of the industry.” To boost the nation’s refining capacity, participants urged the government to compel any firm producing crude oil to refine a percentage of the crude produced in Nigeria. They also called for the privatization of the nation’s refineries on a 60/40 ratio with Government owning 60% and the participating partner 40%.
“However, the funds from the 40% receipt from the participating partner should be employed to completely refurbish the refineries and where necessary expand them. It should not be paid into the treasury for consumption,” they added. In addition, the construction of large scale refineries in addition to modular refineries should be encouraged with a policy to guarantee crude supply to such refineries. Funding from lower interest rate sources to sufficiently qualified companies with proven capacity to actually construct and run refineries should be created.
Lending their voices to the rising call for the removal of petroleum subsidy on consumption, participants instead called “subsidy in terms of loans attracting low interest for those investing in refinery construction and similar industries. This would make it possible for them to produce at lower cost and their products would in turn be cheaper for the consumer.”
Tied to this is what they descried as the gross misapplication of funds from oil and gas. They noted that “where over 95% of the oil revenue goes to balancing national budget, as well as state/local government budgets, and devote 86% of these budgets to personal emolument and allowances, we are not encouraging economic survival.”
Against this backdrop, participants insisted that Nigeria is in dire need of industry reforms as contained in the PIB. The bill stipulates fiscal terms, taxes and licences on leases including the payment of royalties and signature bonuses as well as community issues to fast track development in the industry and the economy at large.
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