English

MarketNews

Bureaucracy stunts oil, gas sector as 16 federal agencies stifle operators - BUSEINSSDAY

APRIL 17, 2019

By DIPO OLADEHINDE

 

Nigeria’s population of over 180 million people and oil reserves of 37 billion barrels, the largest in sub-Saharan Africa, should make it an attractive place for any oil and gas investor to do business in.

 

But these advantages are offset by structural bottlenecks as operators are often assailed by a bewildering array of up to 16 federal agencies, making it difficult for them to operate or deploy investments.

The government agencies who all regulate operations, environments, contracts and procurement-related matters include Federal Ministry of Petroleum Resources, Nigerian National Petroleum Corporation (NNPC), Federal Ministry of Trade and Investment, Department of Petroleum Resources (DPR), and Petroleum Products Pricing Regulatory Agency (PPPRA).
Others are Federal Ministry of Environment (FMoE), National Maritime Administration and Safety Agency (NIMASA), Bureau of Public Enterprises (BPE), Nigerian Content Development and Monitoring Board (NCDMB), National Oil Spill Detection and Response Agency (NOSDRA), among others.

Operators in the upstream (exploration, oil production, and crude oil marketing), midstream (refining of crude oil, transportation and importation), and downstream (retail services, distribution, research, and development) would need to deal with these government agencies in order to operate, according to Nigeria Natural Resource Charter (NNRC).

Firms in the upstream sector also have to interface with other agencies such as Nigerian Petroleum Exchange (NipeX), which provides electronic contracting platform for NNPC and its operating partners in the Joint Venture (JV) and Production Sharing Contract (PSC) arrangement, Nigeria Customs Service, and Nigerian Ports Authority (NPA).

Other agencies include PPMC, a subsidiary of NNPC in charge of marketing and distribution of petroleum products, and Nigerian Nuclear Regulatory Authority (NNRA), an agency responsible for nuclear safety and radiological protection regulation.

Kelvin Atafiri, who runs Cavazanni Human Capital Limited, an investment firm exposed to the oil and gas sector, said foreign investors operate in other countries too where they do not encounter all this needless bureaucracy.

“A lot of agencies operating as a standalone agency were just a desk before in the old inspectorate division under NNPC. When political interference came in, people started making a desk as an agency and went further to find a law to back it up, which is sad,” Ademola Henry, team leader at the Facility for Oil Sector Transformation (FOSTER), said.

“If you are setting up a petrochemical plant, six agencies will have to give a report on you starting from the Mnistry of Environment inspection, licences from DPR, downstream inspection from NOSTRA. These have costs and there are other legal processes involved,” Henry told BusinessDay.

On many occasions, concerned stakeholders in the oil and gas industry have expressed worries that the rising operational costs in the industry, among other challenges, have been limiting capital importation. Data from the National Bureau of Statistics revealed that foreign investment inflow into the Nigeria petroleum industry hit a three-year low of $133 million in 2018, a sharp decline of 59.82 percent compared to $331 million recorded in the same period in 2017.

Wunmi Iledare, Ghana National Petroleum professor and chair, University of Cape Coast’s Institute of Oil and Gas, said the problem with Nigeria is the rent-sharing and rent-seeking mentality when it comes to the oil and gas sector because most of the agencies know there is money in the sector and they want to be partakers.

“No regulation should have a higher cost than the benefits of the regulations itself,” Iledare said.
Nigeria is yet to domesticate the value chain in the oil sector which is still in recession as it recorded a real GDP growth rate of -1.62 percent  (year-on-year) in Q4 2018, while on an annual basis it stood at 1.14 percentage as against 4.69 percentage recorded in 2017, according to NBS data.

Iledare said reforming the industry would mean removing the amorphous nature of governance, and having institutional reforms enacted.

“Most of the agencies in Nigeria are personality-driven rather than having institutional empowerment,” he said.

In 2015, Nigeria ranked 170th in the World Bank’s ease of doing business report. However, by 2017, Nigeria’s ranking had improved considerably to 145th. But despite the improvement, multinational companies operating in Nigeria and other businesses do not seem to share that optimism as many continue to close shop and leave Nigeria in droves with all of them citing the harsh business environment.

Last month, oil marketers and the Organised Private Sector (OPS) advocated the need for two regulatory bodies to regulate the oil industry in the Petroleum Industry Governance Bill (PIGB) pending before the National Assembly.

“We strongly canvass for the creation of two regulatory bodies each focusing on the downstream and upstream sectors of the industry and on the entire gamut of technical and commercial issues in each of the sub-sectors,” Obafemi Olawore, executive secretary, Major Oil Marketers Association of Nigeria (MOMAN), said.

The proposed legislation, the Petroleum Industry Bill (PIB), is currently under legislative consideration and represents the most comprehensive review of the legal framework for the oil and gas sector in Nigeria since the industry began commercial operations in the 1960s.

It could signal the dawn of a new era, an era in which restructuring and transformation could address many of the issues that have dominated the oil and gas industry in sub-Saharan Africa’s biggest oil economy.

However, the PIB faced a plenitude of debates, criticisms and opinions for and against its passage which have significantly stalled its passage into law, thus denying Nigerians the full benefit of the radical promise of the law.

DIPO OLADEHINDE

SEE HOW MUCH YOU GET IF YOU SELL

NGN
Real Time Analytics