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‘Why Nigerians must insist on transparent oil licensing process’

By Kingsley Jeremiah
12 September 2018   |   3:41 am
Nigeria has remained in the eye of the storm since the award of Oil Prospecting Licence (OPL) 245 to Malabu Oil & Gas Limited, exposed the level of corruption that takes place in the award of oil blocks. As Nigeria makes efforts towards addressing the obscurity in the oil and gas sector, there is the…

Oil rig

Nigeria has remained in the eye of the storm since the award of Oil Prospecting Licence (OPL) 245 to Malabu Oil & Gas Limited, exposed the level of corruption that takes place in the award of oil blocks. As Nigeria makes efforts towards addressing the obscurity in the oil and gas sector, there is the urgent need for Nigerians to insist on an improved oil licensing process. KINGSLEY JEREMIAH writes

A report conducted by the Natural Resource Governance Institute (NRGI) in 2017, has noted that the weakest link in the nation’s oil and gas industry, especially in terms of value addition, is in the area of licensing.

According to the report, only 30 per cent of the previously allocated oilfields (oil blocks) have reached commercial production.

The oilfields are performing below expectations because the awards are caught up in several court cases that question the objectivity of the licence award process.

Regarded as Africa’s richest oilfield, OPL 245 and some other licences, to many experts, remained in controversy because personal interests were regularly prioritised above the nation’s economic growth anytime oil licences are awarded.

With such development, the wrong people are left in control of the nation’s key revenue sources even when they are without the needed technical and financial capacities.

From the Petroleum Act of 1969, to the Petroleum Industry Governance Bill (PIGB), awaiting President Muhammadu Buhari’s assent, there have been different practices for the award of licences for oil exploration.

These put Nigeria on a steep learning curve with limited experience on commercial competitive auction systems and limitations in the allocation of licences for oil block, a report by Nextier Advisory, and JALZ Energy Limited, seeking open oil licensing said

While recent discussions around the need for licensing rounds have not yielded meaningful results, stakeholders insisted that given the importance of the oil and gas sector to the nation’s economy, there must be deliberate effort to improve bid rounds in terms of legislation and processes.

An industry stakeholder, who heads Nextier Advisory, Patrick Okigbo, believes that while the stated objectives of upcoming bid round are to raise capital to finance infrastructure projects, deepen oil reserves, and utilise dormant oil mining leases, there are indications that discretionary powers would be exercised in the upcoming bidding rounds.

“There are already indications that some marginal fields will be excluded from the bidding rounds and set aside for discretionary awards.

The reason for the exclusion is to pave a path for ownership of oil assets by indigenous Niger Delta companies.

As laudable as this idea may be, there is a high probability that the lack of transparency will mire the awards in public controversy,” he said.

Nigeria’s Licensing Process

The process begins with pre-bid surveys, which provide necessary data for the oilfields that are to be offered, road shows were conducted and advertisements were published demanding for tenders.

From the last licensing process conducted by the Department of Petroleum Resources (DPR), interested companies paid for application fee ($10,000) as well as another fee for processing ($10,000).

Submitted forms are expected to have a list of oil blocks applied for (usually three) in the order of preference.

The form is also expected to be submitted with company’s registration information issued by the Corporate Affairs Commission (CAC), Form CAC1, list of directors, and CAC2, list of shareholders; profile of the company’s technical experiences and financial capacity.

After the process, DPR will evaluate the applications, and email the prequalified applicants after which payment for data prying fees of $25,000 would be paid.

The companies are thereafter invited to the National Data Repository (NDR) centre, where data would be processed and interpreted.

The next step is usually the submission of a Technical Report (FDP) on selected block (oil field) by prequalified companies will be conducted then DPR will conduct a technical evolution announce selected companies.

Thereafter, are the announcement of the successful companies at the bid conference; payment of signature bonus; issuance of a letter of award by DPR; negotiations of petroleum arrangements and fiscal terms; execution of petroleum arrangements then the companies commence operation.

During the last licensing round, offers were screened and the selected companies reportedly made available their submitted commercial offers, which were published and posted at the event, indicating a level of transparency to the people at the bidding conference.

Challenges with licensing process

Although some industry stakeholders, including Okigbo; Principal Consultant, DRNL Consult Ltd., Ronke Onadek; and Partner, Odujinrin & Adefulu, Adeoye Adefulu, believe that the Petroleum Industry Bill (PIB), would improve the licensing process.

They equally argued that even if the bill was passed and the power of discretionary award is removed, the process could still be compromised, especially without adequate training of personnel at DPR, by creating a situation for bidders to cut corners.

For instance, the Chairman/Chief Executive Officer of International Energy Services Limited, Dr. Diran Fawibe, expressed shock that some “moneybags” with political influence still get oil blocks, even when they are not basically interested in investing for long term.

Just as Adefulu noted that “It is people that will implement the law.

The PIB cannot be an end to itself in ensuring improved licensing process.

If you don’t have the right people, who are trained then there would a challenge.”

To them, adopting a system that would allow the use of simple simultaneous sealed-enveloped bid strategy, as opposed to a complex bid round that may provide a marginal rent gain increase, remains a better option for Nigeria.

Apparently, the sealed bid is expected to provide better rent captures, as it has less tendency towards information asymmetry and collusion tactics, especially for a first-price sealed bid auction strategy.