How Next Govt Can Reposition Nigeria’s Oil Industry
Nigeria must take deliberate steps to re-engineer the nation’s oil industry to maximise its benefits going further, analysts have said.
From strengthening the regulatory functions of agencies to deciding who occupies the office of the minister of petroleum and harnessing local capacity, industry experts recommend far-reaching reforms that can ensure improved results.
The Petroleum Industry Act (PIA), which came into force last year, has laid out the structure for the new arrangement, but the provisions have to be enforced for the expected results to be realised. These steps must form part of the oil-industry policy framework of Nigeria’s next president, says Omowumi Iledare, a professor of Energy Economics. The new administration must also separate politics from professional expectations in the sector, he said in an interview with Daily Trust.
Prior to the enactment of the legislation, there was no clear-cut distinction regarding who performed these regulatory functions. The result was that even the former Nigerian National Petroleum Corporation was involved in regulatory functions. Now, with the new law that blurred line has been cleared. The regulators are clearly defined.
In the muddled waters of the previous system in the industry, the NNPC of old was just about everything: a player or participant, a policymaker and a regulator, playing these roles through its various units or subsidiaries. Not anymore, says Iledare. It can participate in policy development for the energy sector of Nigeria. It can have input, but it cannot participate in policy formulation, he declares.
The PIA provides for establishing two revolutionary regulatory organs in the Nigerian oil industry. The Nigerian Upstream Regulatory Commission (commonly called the Commission) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (the Authority) are given both technical and commercial regulatory powers. For clarity, the upstream sector of the oil industry refers to the exploratory and production activities. These summarise a whole complex of activities involved in the search for, location, assessment of quantities of hydrocarbon deposits, whether on land or offshore and the deployment of technology to harness the products. On its part, the midstream and downstream sector includes the processes involved in refining the crude oil to produce the various products that our economy depends on and the activities involved in moving the products to where they are utilised.
The commission’s objectives, according to the PIA, include implementing the government‘s policies for upstream petroleum activities “As directed by the minister of petroleum”. Its technical functions include enforcing, administering, and implementing laws, regulations, and policies relating to upstream petroleum operations. It is also empowered to “enforce compliance with applicable national and international petroleum industry policies, standards and practices for upstream petroleum industry”.
For the authority, its functions include regulating and monitoring technical and commercial midstream and downstream petroleum operations in the country. For a leading oil-producing country with recurring shortages of petroleum products, there is indeed work for this Authority to do, if this is to be eliminated.
Under the PIA Section 64, the NNPCL has been given distinct roles and its objectives include carrying out operations on a commercial basis comparable to private companies in Nigeria carrying out similar activities; it is also vested as the concessionaire of all product sharing contracts, profit sharing and risk service contract as the national oil company on behalf of the Federation.
It is also permitted to engage in the business of renewables and other energy investments. It is also permitted to promote the domestic use of natural gas.
Operating on a commercial basis means that NNPCL must have its eyes on profitability, just like any other commercial organisation, including even other national oil companies, like the Saudi Arabia’s Aramco, which made a profit of $39.5b in the first quarter of this year, representing an 80 per cent jump year-on-year.
“NNPCL cannot be a regulatory agency as well. NNPCL has to deal with anything that has to do with commercial operations. What does commercial operation refer to? It has to do with producing oil, selling oil, declaring profit and sharing the profit,” says Iledare.
