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One year after PIA, oil sector remains unhealthy

By Kingsley Jeremiah, Abuja
23 October 2022   |   4:22 am
A little over a year after the passage of the Petroleum Industry Act (PIA), the sector has remained in crutches, yoking under the weight of gross inefficiencies that have plagued it for several years...

[FILES] Nigeria’s Minister of State for Petroleum Resources Timipre Marlin Sylva.<br />twitter/HETimipreSylva

NUPRC, NMDPRA Unsettled As Powerful Forces Cripple NNPC
• Critical Industry Decisions, PIA Implementation Hijacked
• ‘Nigeria Facing Record Oil Production Drop’
• Report Indicts NNPC, NMDPRA, Puts Petrol Consumption Below 40m Litres/Day 

A little over a year after the passage of the Petroleum Industry Act (PIA), the sector has remained in crutches, yoking under the weight of gross inefficiencies that have plagued it for several years.

  
Rather than the nation’s major source of revenue improving with the passage of the PIA as envisaged by stakeholders, the industry still lags behind other sectors in terms of GDP contribution and appears to be worsening and heading for total collapse. 
   
The PIA 2021 signed into law in August last year, is one of the most audacious attempts to overhaul the petroleum sector.

If implemented diligently, it can facilitate the country’s economic rejuvenation, by attracting and creating investment opportunities for local and international investors.
  
Conversely, since its passage, President Muhammadu Buhari, managers and handlers of the Nigerian National Petroleum Company (NNPC), Nigerian Upstream Petroleum Regulatory Commission (NUPRC), and the Nigerian Midstream Downstream Petroleum Regulatory Authority (NMDPRA) have been involved in a game of wits.

  
In the face of mounting inefficiency in the industry, a chain of recent events, among which are oil bunkering and theft, have also seen the nation’s crude oil production now heading towards its record lowest of 675 barrels per day recorded sometime in February 1983.  
  
Consequently, revenue from the sector keeps plummeting and is no longer enough to cater to the nation’s multifarious expenditure, including the scandalous product subsidy, which, for political reasons, was reinstated by President Buhari, in total violation of the PIA, which he assented to in 2021.
   
This is happening at a time when countries like Angola, with the windfall from oil price increase this month, were able to reduce public debt to 56.5 per cent of GDP, down from 79.7 per cent in 2021, and 123.8 per cent in 2020. 
  
The country made $2.1 billion from crude sales in May this year alone, while Nigeria’s oil sector keeps reeling in confusion and debts.
  
Amid the confusion, not a few stakeholders have said that despite the PIA introduction, the situation in the sector has worsened, with professionals who dare to complain about the prevailing order being “axed, or denied projects.” 
  
A couple of stakeholders contacted by The Guardian on how the sector has fared since the PIA Act was signed said they had “given up” and won’t comment because “the handlers won’t change their script.” Others simply expressed fears over the consequences of speaking out on the state of the sector. 
  
The Guardian gathered that critical decisions on the industry and even the PIA have since been hijacked, as the PIA was hijacked, sidelining people from certain parts of the country, including the Minister of State for Petroleum Resources, Timipre Sylvia, who was removed from the NNPC board while out of the country, and now hears most developments in the news.

THE figure for crude oil and condensate production for September 2022 released last Monday by the NUPRC showed that the country’s crude oil production decreased to an average of 937, 766 barrels per day (bpd) in September. The production figure is 3.56 per cent or 34, 628 bpd lower compared to the August 2022 output at 972,394 BPD.

  
According to reports by the Organisation of Petroleum Exporting Countries (OPEC), Nigeria is facing a record reduction in oil production and has dropped from being the largest producer in Africa to the fourth, behind Angola, Algeria, and Libya. 
   
OPEC’s monthly oil market report for August indicated that Nigeria’s production stood at 980, 000 barrels a day, a decline of more than 100,000 barrels per day compared to July. These were not part of the promises when the PIA was passed. 
  
Buhari, who is the Minister of Petroleum, the Group Chief Executive of NNPC, Mele Kyari, and the Chief Executive of NUPRC, which regulates the industry, had promised to increase production to about two million barrels per day while increasing reserves to at least 40 billion barrels. 
  
It would be recalled that the new NNPC has, in the past eight months or more, existed only to pump crude oil and use the proceeds to buy petroleum products after successfully failing to remit to the Federation Account for eight consecutive months, even as the Minister of Finance, Budget and National Planning, Zainab Ahmed, disclosed earlier that the cost of servicing debt surpassed the Federal Government’s retained revenue by N310 billion in the first four months of 2022.

Meanwhile, The Guardian’s investigation also showed that some NNPC and NMDPRA officials may have questions to answer over the addition of over 35 million litres of PMS being smuggled out of the country daily.
  
The Ministry of Petroleum Resources had, last Thursday invited journalists only for the meeting to be called off while journalists were already seated in the boardroom.   
  
The Guardian gathered that the meeting would have discussed the report, which indicted both the NNPC and NMDPRA over the doctored figure of daily petrol consumption. Both the NMDPRA and NNPC did not show up at the meeting.
   
It would also be recalled that the former Central Bank Governor, Sanusi Lamido Sanusi, had queried the NNPC’s claims that the nation consumes 66 million litres per day and the suggestion that Nigeria was consuming more fuel than Indonesia, Pakistan, Egypt, Cote d’Ivoire, and Kenya.

  
One year after the PIA Act took effect, The Guardian also learnt that the NMDPRA and the NUPRC are at loggerheads over overlapping roles, a development, which is creating more pains for operators amidst other government-induced harsh business practices. 
 
Most operators, it was learnt, are now being compelled to get double permits due to the dual regulatory system, as most departments across the two agencies are reportedly unsettled due to promotional issues, which The Guardian gathered places tribalism and ethnicity above competency. 
  
Ordinarily, the upstream segment of the sector should deal with exploration, production, and evaluation. But the area of contention for the two regulators has been in evacuation.
  
This is because oil theft has forced some operators, especially smaller entities to resort to barges and trucks in the evacuation of crude oil as oil theft and vandalism threaten to bring the sector to its knees. The NMDPRA is allegedly claiming that it must oversee the process even though the activities are happening upstream. 
  
A source that pleaded anonymity, said: “The implications are that you now have to get two permits for the same process. Second, they already are suffering from revenue losses due to theft, a situation where you inject 100 per cent only to get less than five per cent in return, making a whopping loss of 95 per cent.
  
“Trucking the products alone is a rather expensive process, which will add to their cost per barrel. This is an expensive process of evacuating when they could have done it cheaply, faster, and pushed more volume through the pipelines.”
  
A scholar and renowned energy expert, Prof. Wunmi Iledare, said that the three institutions overseeing the implementation of PIA – NNPC, NUPRC, and NMDPRA have a structural misalignment with the independence of the bodies compromised. 
  
“The business-as-usual implementation approach is not good enough,” Iledare said, adding, “the way the board and the management teams are constituted makes it plausible to suggest the operationality of the PIA by these institutions as new wine in old bottles.”
  
Iledare believes that the PIA has prospects, but unfortunately is being handled wrongly, stressing that its effectiveness depends on apolitical engagements of professionals and not politicians to guide PIA implementation. 
  
He insisted that there wouldn’t be any meaningful changes unless the PIA is implemented to the letter, adding that the incoming administration must not be tempted to hold on to the petroleum minister’s Portfolio without an apolitical special adviser.
  
“The Ministry of Petroleum must be restructured in line with PIA provisions on its responsibilities. At the moment, it cannot deliver as per PIA provisions. Certainly, a leopard cannot change its skin without a surgical operation. Here is why the NMDPRA and NUPRC must stop thinking of themselves as PPPRA and DPR, respectively. And NNPC Limited must stay away from the agency role responsibilities,” he stated.
  
A former technical adviser at the Nigerian Extractive Industries Transparency Initiative (NEITI), Garuba Dauda, stated that the challenges and issues in the nation’s oil sector are man-made and self-inflicted.
  
Dauda, who noted that it might be too early to conclude on PIA, said with the necessary measures in place to address them and the negative impacts that they exude, the goal of the reforms being pushed by the PIA 2021 could still be achieved and the sky could still be bright.  
  
“The only thing we possibly need is to be mindful of, is the ongoing development of the energy transition. It will happen as it has been with earlier transitions before fossil fuels, except that we need to exercise caution and balance our responses. It is gratifying that Nigeria is cautious about this already, and has launched an energy transition plan to respond to it. We can have a conversation and (dis)agree about the details of the plan,” Dauda said.

The Managing Partner, The Chancery Associates, Emeka Okwuosa, stated that PIA is yet to be fully operational, noting that the legislation is still struggling with bureaucracy and implementational or operational issues.
  
“The government has to tackle those issues head-on proactively and aggressively. The future looks rosy, but we need to give it more time. We are on the right trajectory but accountability and transparency is key. I hope we achieve those milestones in the near future,” he stated. 
  
The Executive Director at Centre for Transparency Advocacy, (CTA), Faith Nwadishi, said that the legislation has not lived up to expectations, adding that there was a need for an implementation committee to release its report. 
  
With energy transition now becoming a serious issue, Nwadishi said that Nigeria must take advantage of available opportunities to explore.