PIGB is asset stripping, not economically viable, says Ellah
What does the PIGB portend for Nigeria’s oil industry?
The Petroleum Industry Governance Bill 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 the passage of that bill.
The bill is expected to open up the oil industry and in a way, according to them, unbundle NNPC and then make the place available for entrance of the private sector. However, 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 Petroleum Industry Bill was to divest from the upstream, 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 impoverish Nigeria. If a nation strips itself of all its natural resources, it is worthless.
I have problem with the PIGB because it intends to break the NNPC into two parts. First is National Petroleum Investment Management Company and the other will 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 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 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 development that Nigeria has made in oil. Let us look at this very carefully. What are the assets currently held by 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, 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 Nigeria, all the NNPC marketing ventures, most importantly, it will be in charge of the NNPC share holding in NLNG.
After 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 ten 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 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 national assets and then turn around to sell to private individuals.
The people who have emerged as billionaires without working by owing oil blocs have created an economic dilemma for the country.
If the nation signs this bill, it will be suicide bait. The country will be committing suicide. No one knows the exact value of the oil and gas under the ground.
Few years ago, they sold off 5 percent of NNPC shares with Shell to reduce it to 55 percent for $500 million to one of the company in 1993, that company recovered the money within a few months.
I cannot find reason why one should sell its assets to impoverish the people and enrich one or two persons.
Are there historical antecedents to strip Nigeria of its oil and gas assets?
By 1969, a law called Petroleum Act was passed, which in fact, took away the oil from the original owners and vested it on the federal government.
So, in a sense the oil was actually confiscated from those that owned it and the ownership right was now 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 venture with different companies to exploit oil.
This went on until a time when Babangida introduced the structural adjustment programme.
Nigeria owed a lot and the World Bank and International Monetary Fund came up with their propositions for countries that were suffering pains in terms of repayment of their debt to take to borrowing from the IMF so long as they structurally adjusted their budget and programme.
Somehow, Nigeria fulfilled these terms but didn’t borrow from IMF or World Bank.
They didn’t 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 way. They didn’t even know how to value the blocs they were 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, they tried to talk to the 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 in NNPC, including myself tried to convince the government that it was going to 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 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 Abdulsalami accepted to sign the decree 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 book.
It belongs 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 they choose.
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 23 March 1999,and repelled 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 oil-producing people will be like slaves because some other persons will own the oil and will only be paying minor taxes.
If they do not pay, you 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 the President is reluctant to sign the PIGB?
If you read 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 51 percent 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 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 equalization 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 strait jacket, and you now depend on a private man who gives you some trickle taxes to feed yourself because without him you cannot survive.
If the President signs the bill, he signs off not only Nigerian assets, he signs off control over the oil industry in Nigeria.
You cannot even monitor your 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 call, 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.
If Nigeria’s oil and gas is diverted, will it still be relevant in OPEC?
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 stabilization 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 projection 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 investment 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 same.
The buyer of those shares will not dislocate the joint venture partners. The operator will still be same to a great extent.
If there are oil blocs you want to put for sales, which are not part of the oil venture, Nigeria could still do that without selling off their 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. No interference from the government.
Let the NNPC work as a commercial company to produce money for the Nigerian government.
Take the downstream, Nigeria had 40 percent interest through NNPC in national, Unipetrol, AP, it sold off part of those interest to some Nigerians and their agents, now, tell what value has Nigeria received from those sells?
Few months ago we had scarcity of products, did those companies import products?
Should Nigeria no longer have investments? Any country without investment is hollow.
If we sell off the assets, time will come that thousands of Nigerians will be crossing the desert daily in search of greener pasture.
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