Restoring transparency in Nigeria’s oil sector

Reducing oil sector corruption and improving the quality of oil revenue expenditure remained great challenges in Nigeria’s petroleum industry.

Oil dominates the Nigerian economy and generates about 70 per cent of government’s revenues. At the same time, Nigeria is perceived as one of the world’s most corrupt countries, and significant levels of corruption are said to exist within its oil sector.

The complex and largely opaque operations of the oil industry make it difficult to establish exactly how, when and to what extent corruption takes place.

Operating and oil service companies are frequently confronted with costly delays and inefficiencies in their dealings with Nigerian state institutions, which make it difficult for the country to record significant progress in the sector.

To address the issue of transparency in the country’s oil and gas sector, stakeholders at the just concluded 40th Nigeria Annual International Conference & Exhibition (NAICE) of the Nigerian Society of Engineer (SPE), emphasized the need for government to ensure transparency in the sector.

The Chairman of SPE Nigeria Council, George Kalu, said the conference theme, ‘Transparency in the oil and gas business: An imperative for energy security and stability’, was timely given that oil prices were hovering around $43 per barrel in recent times with significant challenges to the Nigerian oil and gas business environment.

He said: “These challenges including funding constraints rising from cash call arrears, exchange rate differential in a cyclical oil price regime, high operational costs due to long contracting cycle time, and severely delayed payment to vendors, as well as high cost of borrowing are affecting the much-anticipated boom in the industry.

“One would think that with the low oil price, improved revenue will come for gas sales. However, the lack of gas gathering and supply infrastructure is hampering the country’s ability to maximise the benefits of the sale of gas in the domestic market, which is currently more attractive than the international market.”

Kalu said the recent challenge of vandalism and outright destruction of oil and gas facilities had further curtailed Nigeria’s oil and gas production, power generation ability, reduced the flow of revenue, escalated the cost of environmental remediation and provision of secondary health care facilities, as well as increased security surveillance and facility replacement costs.

He added that the delay in the passage of the Petroleum Industry Bill (PIB) had constrained further investment in the sector to the extent that exploration activities were at their lowest ebb.

The Managing Director, Seplat Petroleum Development Company Plc, Austin Avuru, said about 70 per cent of the nation’s production from the traditional terrain of onshore and shallow water had been locked in.

“A year ago, we were battling with zero production and zero revenue for upwards of five, six months. Some of us no longer check the oil price, it has become irrelevant. Oil price is only relevant when you produce,” Avuru stated.

He added that the oil and gas industry was undergoing a major transformation a couple of years ago aimed at moving it away from just being a primary revenue earner for the Federal Government to becoming an enabler of economic development.

Also, the Managing Director, Chief Executive Officer of First E&P, Development Company Limited, Ademola Adeyemi Bero, said that despite these challenges of low oil and prices and many uncertainties, Nigeria can produce crude oil at $10 to $20 a barrel, if internal factors are addressed.

Adeyemi-Bero said that oil producing countries with low cost of production will win market share in the volatile environment, adding that volatility is expected to continue into the future.

He also called on the Federal Government to tackle the challenges of militancy in the Niger Delta, which he said, has added to cost and jeopardising investment.

Adeyemi-Beru also lamented the county’s long contractual circle, which he said, iFtackled, would reduce the impact of low oil prices on the Nigeria’s economy.

He said: “Nigeria’s competitive response should focus on cost robustness and creating enabling environment for investments and investors.

He also called the attention of the government to the importance of putting in place policy or to directly intervene in production of gas to power as well as the need to develop capacity.