The workings of the oil sector in Nigeria had been in need of a rethink long before the Obasanjo government decided to take action nearly a decade ago. Passed from government to government in the years since, we're barely any closer to the promised alignment and clarification of the regulatory framework and the industry is suffering as a result.
And now it's not just a point about policy; it's become an impediment to investment. In its latest bulletin, OPEC says that investor confidence in Nigeria's oil and gas industry is at an all-time low. Failures to reform are now holding up the entire sector, compacting an already downtrodden industry.
There is one piece of legislation that could change that, the now-infamous Petroleum Industries Bill (PIB). Stuck in Nigeria's legislative corridors for almost a decade, the PIB has now been restyled as the ‘Petroleum Industry Governance Bill' (PIGB), and the Buhari administration, with Vice President Osinbajo acting on his behalf, has pledged to finally pass it by the end of March this year. But we must hope that the new PIB has not been diluted as a quick fix to getting it passed.
Eight years is a long time in a country's development and the challenges within the oil sector have only been compounded by the failure of successive governments to bring the PIB into effect. The NNPC is not fit for purpose. The need to reform the national oil company is something which most politicians would, I believe, support. The vision of the oil minister Emmanuel Kachikwu, to break up the NNPC into several units, each with responsibility for separate divisions, makes a lot of sense. But the problem is not the quality of the proposed regulation; it is the political stalemate over implementing it.
Failure to pass the Bill has got investors spooked: the uncertainty over future regulation, particularly around Upstream taxation, means that investestor cannot plan with any confidence. Without confidence, the investment climate will continue to be stale and a the return of a roaring oil industry will continue to evage Nigiera.
If passed, Nigeria's fortunes and competitiveness on the world stage may at last be heading in the right direction. A more stable investment environment will improve prospects for foreign investment but will also encourage indigenous players to thrive and compete again. Qualified Nigerian companies have shown that if given an opportunity, as local content players, that they can deliver the same professional results as many of the globally recognised names.
The absence of investment and a thorough fiscal framework means that the government is not benefitting from the revenue streams it could be. But there is also a greater problem about Nigeria's long term growth. The lack of investment ultimately means a lack of job opportunities in the sector and a withering skills base. With the right level of investment, Nigeria could develop its own capacity to exploit and benefit from its own natural resources (not least in terms of jobs) at every stage of the supply chain: exploration, production, refining and marketing.
OPEC has recognised that a failure to convert the present challenge into an opportunity will see criticism targeted at the President Buhari administration. But the government must also be encouraged to ensure that the benefits of an improved investment environment are felt predominantly by domestic players. With Nigeria as a more attractive investment option on the world stage, there will be a temptation to invite foreign companies to snap up the most lucrative contracts. But we must not forget the benefits that the Nigerian Local Content Bill, Goodluck Jonathan's 2010 act, brought to Nigerian firms.
The law specified that Nigerian independent operators should be accorded “first consideration” in the award of oil and gas contracts and that Nigerian service companies should also be given “exclusive consideration” for contracts and services. President Buhari has an opportunity to build a renewed confidence in this local content act and renewed support which will help make Nigeria's local content players to increase capacity and take the country to the next professional level, globally.
Benedict Peters the CEO and Vice President of Aiteo Group, an integrated energy group involved in exploration, production, refining and supply.
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