Oil sector reforms…dawn of economic transformation

Plans by the Federal Government to deregulate the downstream oil and gas sector (petroleum refining & marketing) have been seen as a move geared towards opening up the sector to new investments. However, the outlook for the industry this year seems bleak if the Petroleum Industry Bill (PIB) is not passed into law amid ongoing probe of the fuel subsidy regime, writes ALEXANDER CHIEJINA

The recent six days old strike called upon by the Nigeria Labour Congress (NLC) and Trade Union Congress (TUC) - the two major umbrella bodies of workers’ unions over hike in the pump price of Premium Motor Spirit (PMS), -from N65 to N141 per litre is one industrial action that would linger in the minds of Nigerians for years to come, especially as it was accompanied by a nationwide protest.

Like wide fire, the protest spread across the country; from East to West, North to South as Nigerians took to the streets in outright rejection of the New Year gift dished out to them by the Federal Government following the withdrawal of fuel subsidy.

While properties were destroyed, lives were lost and many more injured during the protests, adamant Nigerians pressurized the government for a reversal of the fuel subsidy policy. Although the pump price of fuel didn’t return to N65 a litre as was clamoured by some Nigerians, the government eventually pegged the pump price at N97 a litre after series of negotiation meetings with labour as the crisis successfully yielded better results.

No doubt, events of the past days have paved way for the much needed reforms in the nation's oil and gas sector bedeviled with the problem of sabotage, poor management, lack of turnaround maintenance (TAM) and corruption which have made the refineries often operate below full capacity.

This resulted in shortages of refined product and the need to increase imports to meet domestic demand. In view of this, implementing the long delayed reforms to the oil sector particularly the passage of the Petroleum Industry Bill (PIB) has been seen as a way towards repositioning the sector.

Meanwhile, despite pressure on the National Assembly to pass the bill aimed at holistically updating obsolete laws governing the industry since 1958 to reflect current international best practices before the end of the last administration by civil society groups and concerned Nigerians, no meaningful result has been achieved.

The PIB, industry experts believe, is a driving force to achieve the much desired reforms agenda in the oil and gas industry, designed to create the National Petroleum Directorate (NPD) expected to replace the current Petroleum Ministry, restructure the Nigerian National Petroleum Corporation (NNPC) into a profit-driven national oil company similar to what is obtainable in some other countries, introduce new fiscal regimes and enhance transparency as well as reduce the level of corruption in the oil and gas industry.

In addition, the bill seeks to meet the nation's needs for fuels at a competitive price all the time, maximise local content and develop Nigerian capacity (5 percent of industry spend) as well as serve as an engine and catalyst for diversification of the economy.

In view of the aforementioned benefits, industry operators disclose that except the bill is passed into law, the outlook for the industry in 2012 would be bleak as oil companies may not invest and the much desired jobs for local companies expected to be stimulated through such investment may be far in sight.

Expressing his view, Simpson Badru, Managing Director, Oil Drips Nigeria Limited disclosed that delay in the passage of the bill was adversely affecting operations of many International Oil Companies (IOCs) and local oil operators.

Badru implored the IOCs to agree with the government on a fiscal regime that would give Nigeria some gains in view of the rising oil prices in the international market even as the bill awaits passage into law by the National Assembly.

“It is for the IOCs and the government to identify the key areas of disagreement and look for a mechanism that will be acceptable to all stakeholders. The international oil companies have their local collaborators who currently benefit from the status quo. They do not want any reform that will take away their pecuniary benefits from the oil and gas sector,'' he said.

Echoing the sentiments of Badru, Biodun Adesanya, managing director and chief executive, GeoStar Services, noted that last year was bogged down by national politics and elections which took the focus off the Petroleum Industry Bill.

“The PIB is still in limbo and the consequences of not passing it, is the attendant lull in business in the industry” Adesanya stated.

The chief executive opined that in 2011, oil companies just concentrated on maintaining their existing assets and directing their efforts towards producing fields such as the Usan project that is being operated by Total Exploration and Production. He however advised that it would be necessary for government to reduce the contracting circle in the industry which still remains long, for any reasonable investment to take place.

Meanwhile, Centre for Petroleum Information (CPI), an organisation that engages in policy roundtable and 

analysis of issues on oil and gas, stated that the PIB hangs over the industry like the sword of Damocles. Investments, the organisation said, are beginning to switch from Nigeria elsewhere, “as we wait in great expectations.”

CPI stated that the country got its first full year of implementing the local content legislation, struggling with realities on the ground in 2011. The CPI added that 2011 ended with the great fuel subsidy debate with people kicking against it as they have had too many promises from the authorities in the past which were not fulfilled, adding that downstream deregulation goes beyond subsidy removal. However, getting a distorted market to be subject to market forces will take quite a great effort.

For Austin Avuru, managing director, Seplat Petroleum Development Company, passing the PIB into law is the only way the oil and gas industry could move forward.

According to Avuru “The year 2011 was a tough year for the oil and gas industry generally. It was a year that was expected to usher in the Petroleum Industry Bill, which would have turned around the industry, both in the downstream and the upstream, but unfortunately, the bill has not seen the light of the day. Again, we have started the year without knowing what would be the fate of the bill.”

Already, Diezani Alison-Madueke, Minister of Petroleum Resources, has set up a special task force to facilitate the quick passage of the bill. This action follows the President's promise. According to the Petroleum Minister, the bi-partisan special PIB task force is to work with the ministry of petroleum resources to achieve a quick passage of the Bill.

Members of the special PIB task team under the chairmanship of Udoma Udo Udoma as chairman include Tunde Ogbeha, Lawan Shuaibu, Chibudom Nwuche, and Habeeb Fashino. Others are Peter Esele, President of TUC, while the legal adviser of the petroleum ministry will act as secretary.

Downstream oil sector deregulation

Recently, President Goodluck Jonathan disclosed it was not going back on deregulation of the oil sector as the policy is one of the plans which the administration plans to disconnect cabals which have been holding the nation by the jugulars in the distribution and sale of petroleum products.

In a nationwide broadcast to the country last week, President Jonathan, who accused some politicians and other interest groups of going beyond the implementation of the deregulation policy to hijack the protests, noted that he took the decision after consulting widely with state governors and the leadership of the National Assembly.

According to President Jonathan “Given the hardship being suffered by Nigerians and after due consideration and consultations with state governors and leadership of the National Assembly, government has approved the reduction of the pump price of petrol to N97 per litre.

“Before now, there had been allegation from government quarters that some politicians and civil society groups, as well as political elements were using the platform of Labour on the controversy generated by the fuel subsidy removal to whip up political sentiment.

“It has become clear to government and all well-meaning Nigerians that other interests beyond the implementation of the deregulation policy hijacked the protests. This has prevented an objective assessment and consideration of all the contending issues for which dialogue was initiated by government. These same interests seek to promote discord, anarchy, and insecurity to the detriment of public peace,” Jonathan said.

Meanwhile, in view of government’s plan to deregulate the downstream oil and gas sector (petroleum refining & marketing), industry experts believe this move will open up the sector to new investments. However, when competitive forces are unleashed, it will result in efficient resource allocation expected to eventually drive down the price of fuel in the country.

Commenting on the issue, Haruna Abubakar, a public analyst noted that the petroleum sector in the country right now could be compared to what telecoms in Nigeria looked like before the market opened up. While disclosing that there was only one carrier-NITEL- which was government owned, it was a monopoly as there was no competition and service was poor.

According to Abubakar “Very few people owned a telephone and it was very expensive. Also because telephone is an infrastructure crucial to economic growth the Nigerian economy also suffered in those years. Any observer of the telecom sector in Nigeria will notice that the advent of GSM in 2002 has fueled economic growth. The deregulation of the oil sector will also have a similar but larger effect (oil is a major input in manufacturing) on the economy.”

For Labaran Maku, Minister of Information in a statement issued through his press secretary, Joseph Mutah, he noted that the oil sector deregulation intends to open up the sector for growth and investment.

According to Maku, though removal of petrol subsidy might cause an initial hike in the price of petrol at the take off of the deregulation policy, government is taking measures to check the trend through the active participation of the Nigeria National Petroleum Corporation (NNPC) in the sale of fuel to prevent profiteering.

The Information Minister revealed that the control of petrol price had stifled growth of the downstream sector and prevented private sector investment in the refining of petroleum products.

“Private investors will now seize the opportunity to establish refineries that will compete in production to bring down the price of petrol in no distant future and create more job opportunities for Nigerians,” the minister stated.

While assuring that funds that will accrue from deregulation would not form part of the regular budget but would be managed by credible Nigerians from diverse interest groups who would apply the resources to projects that have direct bearing on the common-man, the minister hinted that part of the Subsidy 

Reinvestment Programme is the restoration of the railways across the country to provide alternative and affordable means of transportation of goods and services.

Already, the Federal Government has entered into partnership with the original builders of the nation’s existing refineries to turn them around for production at installed capacity between 18 and 24 months. However, three new refineries are expected to be built in Lagos, Kogi and Bayelsa states by the private sector with government equity participation to refine 400,000 barrels of crude daily.

Fuel subsidy probe

Although the immediate cause of the strikes and protests was fuel prices, the crisis served as an eye opener for Nigerians as it prompted questions bordering on corruption in the management of petroleum subsidy.

Even as various analyses were made and circulated to Nigerians via the social media, there were arguments that while some analysis were on point, some were off track but one fact became obvious; there was corruption in the oil and gas industry.

Apparently sensitive to this, the federal government was left with no choice but to act quickly by inviting the Economic and Financial Crimes Commission (EFCC) to launch an investigation into the fuel subsidy management.

For Stephen Eze, a lawyer involved with the oil industry, “This is the best outcome of this whole saga. If they bring in the long promised changes to the Nigerian National Petroleum Corporation (NNPC) and others, it will be the best thing that happens. People are asking serious questions and government is on its toes.”

Meanwhile, Diezani Alison-Madueke, Minister of Petroleum Resources, hinted that the move to probe the oil and gas industry between 2009 to 2011 became necessary to deepen the reforms and ensure that all forms of corruption and abuse within the subsidy regime are root out.

"To deepen my reforms and ensure that we root out all forms of corruption and abuse within the subsidy regime, I have sought and obtained the approval of President Goodluck Jonathan to formally invite the EFCC to immediately review and investigate all payments made in respect of subsidies checked against actual importations and to take all necessary steps to prosecute any person(s) involved in any incidence of malfeasance, fraud, overpayment and related illegalities.”

 While admitting that over the years, subsidy bill has grown exponentially to unsustainable levels, she stated that “As petroleum minister, I have become extremely concerned with these figures and following the recent transfer of Petroleum Product Pricing Regulatory Agency (PPPRA) to my ministry last year, I have moved quickly to change management and inaugurate a comprehensive reform process which includes review of payments and procedures.”

Currently, ongoing probe into the activities of Nigeria’s Petroleum Product Pricing Regulatory Agency (PPPRA) and Nigerian National Petroleum Corporation (NNPC) reveal that both corporations lacked transparency in its documentations during years of fuel subsidy regime.

The probe is coming on the heels of calls by some Nigerians and coalition of civil society organizations and organized labour to investigate the existence of cabals that looted about 3.665 trillion naira in the sector.

Earlier, the Senate revealed the names of some alleged beneficiaries of the subsidy which include Integrated Oil and Gas Plc- N30billion, MRS-N224.818 billion, ConOil- N37.96billion, Enak Oil & Gas- N19.684billion, Bovas & Co. Nig Ltd, N5.685billion, Obat- N85billion, AP- N104.5billion, Folawiyo Oil- N113.3b, IPMAN Investment Limited- N10.9billion, ACON- N24.1billion, to name but a few.

Meanwhile, the hearing which is headed by Farouk Lawan, a member of Nigeria's House of Representatives, is part of the Senate’s decision to sanitize the petroleum industry and ensure transparency in its activities. However, the Farouk Lawan-led committee has continued its investigation as regards the administration of subsidy funds in the country.

In his submission, Lawan stated that “Per day discharge is 59 million barrels and the consumption stands at an average of 35 million barrels per day. What that means is that the gap of 14 million barrel is paid for by Nigerians, a subsidy, but which is not utilized in Nigeria.”

Moreover, Asobie Asisi, Deputy Controller General of the Nigerian custom services and chairman, Nigeria Extractive Industries, during their presentations to the house agreed that the records from proceeds of NNPC and PPPRA lacked transparency and due process.

“As we speak, most of the imports of PMS have no documentation in terms of SGD, the level of documentation we have is only by the private marketers. NNPC till date is not making any declarations to customs. Our auditors found out that subsidy payment should normally be made from the Central Bank of Nigeria to petroleum support fund and payment should be made only from the Accountant General of the Federation based on claims approved by PPPRA and what our auditors are saying is that the procedure was not followed,” chairman of the probe committee added.

In response to these accusations, Austin Oniwon, Group Managing Director of NNPC, suggested a total control of the nation’s border to prevent illegal diversion of petroleum resources.

For Julius Nwogu, Deputy Comptroller-General (Accounts and Tariffs), Nigeria Customs Service, (NCS) who represented the service before the Farouk Lawan-led committee on administration of fuel subsidy, disclosed that the practice over the years was that “Mother Vessels” berthed off-shore to discharge products instead of going to designated ports.

While on the high seas, Nwogu revealed that the vessels discharged the products into “smaller vessels” for onward delivery to the ports. He told the committee that the manifest accompanying the smaller vessels usually indicated that the product came from either “offshore Cotonu” or “offshore Lome” as the case might be.

Nwogu went further to explain that since customs personnel were barred from examining offshore vessels, they could not determine the exact quantity of products the vessels brought into the country. According to him, efforts by the NCS to engage NNPC over the “illegal operations” yielded no results because the corporation had the backing of the Federal Ministry of Finance.

“The Customs and Excise Management Act provides that vessels from foreign countries must berth at the ports of destination, not at unapproved locations. So, what the NNPC does are illegal operations. NNPC argued that there would be scarcity of products if the process is delayed and the vessels are not allowed to discharge at private jetties.

“Most of the time, no documents are attached to the vessels. Most of the petrol consignments imported by the NNPC have no documents attached to them; only the private marketers make declaration to Customs. The NNPC, till date, does not make any declaration to Customs and no LGDs are made,” he stated.

Nwogu stated that the agency gave up the fight after the Ministry of Finance wrote a letter asking it to hands off the issue of documentation and compliance with due process. The Deputy Comprtroller General also revealed that despite being a member of the board of the PPPRA, the Customs was not involved in the “process of verification for payment of subsidies.”

“They told us that insisting on the rules will cause crisis in the supply of products. The NCS is not involved in the verification, vis-à-vis payment of subsidies. We don’t know the documents used to make the claims,” he informed the committee members.

On its part, coalition of civil society organization has called on the management of both agencies to embark on compulsory leave while investigations are on to ensure that the culprits are probed without interference. This is one of many probes into issues of national interest in the country, though some Nigerians are in doubt over how effective it will be in identifying and prosecuting the culprits.

Heads to roll?

Allison-Madueke told a hearing of a parliamentary committee last week Tuesday that there had been some malpractice in the fuel subsidy but steps were being taken to root out fraud. The Minister however pledged to review such reports, but some analysts her questioned her ministry's good faith in doing so now.

"Yes, there have been some manipulations in the sector; there is no doubt about it," she said.

Until now, the nation’s oil sector has been under fire for lacking transparency and for mismanagement, including in a report compiled by international accounting firm KPMG. Similarly, few Nigerians are hopeful that the Economic and Financial Crimes Commission (EFCC) will deliver up top officials for prosecution after its latest investigation.

The watchdog has been perceived as ineffective over the years, arresting senior political figures, including former state governors, but the cases often fail to go anywhere