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Ellah: Beware! PIGB will strip Nigeria of oil, gas reserves

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Ellah

A former Group General Manager, Corporate Planning and Development Division, Nigeria National Petroleum Corporation (NNPC), Dr. Joseph Ellah, has cautioned President Muhammadu Buhari against signing the Petroleum Industry Governing Bill (PIGB) into law because it would not only strip the country of its oil and gas reserves, but will forever impoverish the country and enslave the Niger Delta. He told KELVIN EBIRI, that proponents of the PIGB merely want to capture the oil industry to the detriment of the entire nation.

What does the PIGB portend for Nigeria’s oil industry?
THE Petroleum Industry Governance Bill (PIGB) has a lot for Nigeria, but before one can appreciate the implication of it, one would need to know a bit of the background of the bill and its passage. The bill is expected to open up the oil industry and in a way, according to them, unbundle the NNPC and then make the place available for entrance for the private sector, but it has very grave implications.

In the first place, there is a group of people, who believe that the oil industry in Nigeria can only progress if it is totally in the hands of the private sector. The intention of the PIGB was to divest from the upstream, and sell off the oil and gas assets. The bill was reviewed in 2015 by the current government, hence the PIGB. The minister broke the PIB into five parts including the PIGB, which the Senate has approved. But if signed by the President the way it is, it will certainly enslave the Niger Delta, and it will impoverish Nigeria. If a nation strips itself of all its natural resources, it is worthless. I have problems with the PIGB because it intends to break the NNPC into two parts. The first being the National Petroleum Investment Management Company and the other to be called the National Petroleum Company. The Nigerian Petroleum Asset Management Company, which is a creation of this bill will be responsible for the assets currently held by the NNPC under the production sharing contract and backing right access; while the National Petroleum Company shall be responsible for management of all other assets held by the NNPC, except the production sharing contract assets currently held by the NNPC.

What is the implication of this? Two companies will be created. One will be asset management for which Nigeria did not contribute any money; those are the production sharing contracts, and all the other assets, which Nigeria has contributed to, plus all the developments that Nigeria has made in oil.

Let us look at this very carefully. What are the assets currently held by the NNPC other than production sharing assets? They include the following: all oil and gas reserves and assets in the joint venture, which we have with Shell, Agip, Total, Mobil etc; the four refineries; the Nigerian Gas Company; the Nigerian Petroleum Development Company, which controls all the crude oil produced by the NNPC, and this country right now has more shares than most of the other upstream companies, except perhaps Shell. Then it will be in charge of Integrated Data Services Limited; NETCO; all the NNPC mega stations and assets, all the pipelines in the country and all the NNPC marketing ventures. Most importantly, it will be in charge of the NNPC shareholding in NLNG.

fter creating the company under the Nigerian Petroleum Company, it would have been good to leave it that way because there are more national oil companies in the world than private oil companies. Of the 50 largest oil companies in the world, 31 of them are national oil companies. Having created these two companies, the next move in this same PIGB is to say that within five years of incorporation, the National Petroleum Company shall divest not less that 10 per cent of its shares and they say that within 10 years, it shall divest not less that 30 per cent of its shares to the public in a transparent manner.

Clearly, to say not less than 10 per cent mathematically and legally could imply 100 per cent and I think that the framers of this bill intended 100 per cent. When they said within five years, it could be one or three months. What I see in this bill is that they have tried to put all Nigeria’s oil related assets including, all the crude oil and gas, which they intend to sell to themselves into this National Oil Company and this is not good for Nigeria.  If you find out that selling off your assets is the only thing you can do, tell me why did you take the assets away from the original owners. That appears not a good thing to do for a nation to seize assets from some citizens, turn these assets to a national asset, and then turn around to sell to private individuals. The people who have emerged as billionaires without working, but by owning oil blocs have created an economic dilemma for the country. If the president signs this bill, it will be suicide bait, as the country would be committing suicide. No one knows the exact value of oil and gas under the ground.

Few years ago, they sold off five percent of NNPC shares with Shell to reduce it to 55 per cent for $500m to one of the companies. That company recovered the money within a few months. I cannot find reason why one should sell these assets to impoverish the people and enrich one or two persons.

Are there historical antecedents when it comes to attempting to strip Nigeria of her oil and gas assets?
In 1969, a law was passed called the Petroleum Act, which in fact, took away oil from the original owners and vested it on the Federal Government. So, in a sense oil was actually confiscated from those that owned it and the ownership right was now is vested on the Federal Government. But a few changes in ownership occurred during the regime of Ibrahim Babangida. The NNPC was formed in 1971 to take charge of the new oil regime. With that regime in place, NNPC formed joint ventures with different companies to exploit oil. This went on until Babangida introduced the Structural Adjustment Programme. Nigeria owed a lot of debts, and the World Bank and IMF came up with their propositions for countries that were suffering pains in terms of repayment of their debts to take to borrowing from the IMF so long as they structurally adjusted their budgets and programmes. Somehow, Nigeria fulfilled these terms, but didn’t borrow from IMF or World Bank. The country did not also go on a wholesale deregulation of the oil sector, but the government gave out some oil blocs to some private individuals. This was not done in a very transparent manner, as the government did not even know how to value the blocs it was selling. So few blocs were given out and a few years later, Nigerians realised that they had wasted their most previous assets, which is their crude oil reserves by giving out these blocs to these privates individuals who have now emerged billionaires because they knew the president.

As soon as Babangida left office and Abacha came in, Nigerians having seen that if they own oil blocs they could become very rich, tried to talk to Abacha’s government to see whether government could divest. So, they came up with the idea of divestment or contract management and leasing of public assets. This included major oil assets like the refineries and petrochemical. However, some people at the NNPC, including myself tried to convince the government that it was going to be an economically unproductive attempt to sell off your major assets. So, they disbanded it. After that, they started a major programme called Vision 2010. After 10 months, they agreed on divesting from the upstream, as their measure for economic development in the oil industry. What does divestment from the upstream means? It actually means to sell off your oil and gas reserves in the upstream to private people. Some people in the NNPC and the minister at the time convinced the presidential advisory committee of General Abacha that it was going to be absurd and economically illogical for anyone to attempt to do that. So, the Vision 2010 recommendation was rejected, and so no divestment took place.

Shortly after Abacha died, there was another attempt to continue with this programme through the Deep Offshore and Inland Basin Production Sharing Decree No 9 of 1999 under Abdulsalami Abubakar. When Abubakar accepted to sign the decree’s additional clause that NAPIMS was going to be a limited liability company, and all the oil and gas in Nigeria were going to be vested in NAPIMS was inserted. Meaning whoever found himself as chairman of the board that will run NAPIMS, will have more powers than the president of Nigeria.

At the moment, the oil and gas in Nigeria are not in NNPC’s book, they belong to the federation. NNPC oversees them for the federation, but if they are put in a limited liability company, then the board could sell them or do whatever it chooses. We found that this was a very risky move and so NNPC approached Abdulsalami’s government and explained the implication of this decree, which was signed on March 23, 1999, and repealed in May 1999 without that clause. That is why NAPIMS is not a limited liability company. Then came the Petroleum Industry Bill (PIB) in 2007-2008.

What happens to the oil producing states if oil is divested?
The people of oil-producing states will be like slaves because some other persons will own the oil, and they would only be paying minor taxes. If they do not pay, the people would stay dry. Revenue to the Federation Account will reduce. Even the 13 per cent derivation to the states will reduce. After that, the idea of restructuring Nigeria will be meaningless. If you sell to any individual, he may decide not to produce and Nigeria cannot do anything because it has no more control over the oil. Recall that recently states went to Abuja to share money but it was not enough because some companies had not paid their royalty. The Niger Delta will suffer greatly if there is divestment from our national oil assets and if the NLNG is sold.

It appears President Buhari is reluctant to sign the PIGB?
If you study the bill properly, you will see that the bill not only intends to strip Nigeria of its oil and gas reserves, we will go back to where we were in 1967 and so on. You will not be able to control your oil.

That is why when they enacted the Petroleum Act, Nigeria also joined OPEC, which encourages you to control at least 51 per cent of your oil reserves. If you are not a member of OPEC, you will not be able to influence the oil market. If we divest and still remain in OPEC, we will be insignificant. If we sell our oil and gas reserves, which is the aim of the PIGB, Nigeria will be buying crude oil from the company we sold it to. The reason why the President might be reluctant to sign the bill is because the bill approved by the National Assembly is a little different from what was submitted. Certain institutions now, in that bill, were not submitted by the minister, including Equalisation Fund, Petroleum Liability Company, which will takeover the liabilities so that the person they want to sell it will not have any liabilities at all.

Secondly, the minister is stripped of every power completely. This National Petroleum Company, the Asset Management Company and even the regulation commission will not be reporting to the minister. If they don’t report to the minister, the minister will be irrelevant. So, will you sign a bill that will strip you of every power and you will be put in a straight jacket, and you now depend on a private man, who would only give a little portion of the taxes to feed yourself because without him you cannot survive? If the president signs the bill, he would sign off not only Nigeria’s assets, he would also be signing off control of Nigeria’s oil industry. He would not even be able to monitor taxes because the company will be too big for the tax agencies to monitor. In that case, what they call industry capture will take place. The argument made by proponents of the PIGB is that we have not been able to pay our cash calls, which is just the production cost. It is irresponsible for us to budget to spend revenue from oil, including the cost of producing the oil because that is what we do. We should set aside the money for producing the oil every year.
Just how insignificant would we become in OPEC if we divest our oil and gas?

If they allow us to stay there, we will be irrelevant because we don’t control our oil. At the moment, our relevance is just because we play a balancing role. The quantity we produce is relatively insignificant; say about two million barrels per day. Saudi Arabia, Iraq, Iran, Russia, United States and Canada are major producers. But this quantity that we produce can also make a lot of difference in the stabilisation of oil price because if you take off one million barrels from the market, it could be a shock. If you put in two million barrels it could be a shock. In other words, we will not be able to have any influence with our oil and we could destabilise the oil market. To sell any oil asset, you have to make projections, which no economist, no mathematician will be able to determine. I don’t see why anyone should contemplate selling these assets.

In other words, we will no longer be useful to OPEC because we will not be able to influence oil production in our country.

But the proponents of the PIGB have argued that it will usher in massive investments in the oil sector?
I don’t think there is any investment waiting anywhere to come. We are not losing money by the assets that we have; the joint venture partners will still remain the same and the buyers of those shares will not dislocate the joint venture partners and the operator will still be same to a great extent. If there are oil blocs you want to put up for sale, which are not part of the oil venture, Nigeria could still do that without selling off its assets. I am saying that Nigeria should not sell off what is in the joint venture assets because we are not doing badly with them. We can still invest more money. We only need to make our national oil company to be robust enough to invest. Saudi Arabia, Iran, Russia and others who own national oil companies are still working in a robust fashion, and there are no interferences from their governments. Let the NNPC work as a commercial company to produce money for the Nigerian government.

Take the downstream, Nigeria had 40 per cent interest through NNPC in National Oil, Unipetrol, AP, and it sold off part of those interests to some Nigerians and their agents. Now, tell me what value has Nigeria received from those sales? Few months ago, we had scarcity of products, did those companies import products? Should Nigeria no longer have investments? Any country without investments is hollow. If we sell off these assets, a time will come that thousands of Nigerians will be crossing the desert daily in search of greener pastures.  If you sell off the NLNG for instance, what input would the buyer make? I think we should be able to protect our investments in the upstream and make it robust. There is no money coming from anywhere. The money we are making from the upstream is okay. What could have been done better is if Nigeria sells off the crude to itself and refine all of it locally, it would have been able to optimise whatever it is getting from crude oil.


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