Several attempts are being made by the Federal Government to promote and encourage investments in the Nigerian oil and gas industry. In this report, OLATUNDE DODONDAWA examines the sincerity of the Nigerian authorities to attract foreign investors amidst policy somersault.
Every country needs foreign investment in various capacities to improve its economy. This requires formulation of policies that will attract such investment and generate revenue and employment opportunities in the economy. However, some factors are hindering the much needed investment in the Nigerian oil and gas industry. Some issues that need government’s attention are discussed below.
Non-passage of PIB
One of the steps the Federal Government is expected to take to attract investors is passage of the petroleum industry bill (PIB), which was conceived over 10 years ago.
Nigeria loses several hundreds of billions of dollars in investment due to non passage of PIB.
Ghana passed its Petroleum Production and Exploration Bill into law on Thursday, August 4, 2016, to replace the Petroleum (Exploration and Production) Act 1984. Ghana’s Minister of Energy, Emmanuel Buah, said the new law would create an attractive environment for potential investors to participate in the sector by providing certainty and transparency in the ground rules for operations.
The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, recently said that the nation was losing over $15 billion annually to the non-passage of the PIB. In April, the Senate started the legislative procedure on a new draft of the PIB, named the Petroleum Industry Governance Bill, and it scaled first reading on April 13. The PIGB was harmonised by the Senate and House of Representatives following a prolonged silence by the Presidency on the PIB despite continued agitation for its passage by the citizenry.
Ghana introduced the bill to the parliament in 2012 and passed it into law in 2016.
Head of Energy Research, Ecobank Plc, Dolapo Oni, stated that investors are always interested in Nigeria. They want to bring their billions of dollars into the oil and gas sector and the economy at large. However, they are scared that there is no guarantee that they will be able to repatriate their investment. They are scared that due to lack of respect for rule of law, terms of contract may not be respected.
Executive Secretary, Major Oil Marketers Association of Nigeria (MIOMAN), Femi Olawore, stated that lack of laws that will govern the downstream sector is a bane to investment in the sector. According to him, “with my over 36 years in the downstream sector, Nigeria has no structure or legal framework that will govern the sector. What we have in Nigeria is ‘Directives’ by successive governments. That’s why such directives change as new government comes to power.
“Presently, we do not have a deregulated pump price of petrol. What we have is partial deregulation where the government fixed the cap of prices. Had the PIB been passed, it would have addressed the challenge of lack of investors’ confidence in the Nigerian oil sector.”
One of the challenges responsible for poor foreign investment attractions is insecurity. The abysmal failure of successive governments to address challenges of poverty, unemployment and inequitable distribution of wealth among ethnic nationalities, ultimately resulted in anger, agitation and violent crimes against the Nigerian state by some individuals and groups.
Such crimes include militancy, kidnapping, bombing, armed robbery and destruction of government properties, among others. The activities of various militia groups consequently resulted in low income for government from oil revenue, moderating the Gross Domestic Product (GDP) growth rate, low participation of local and foreign investors in economic development and insecurity of lives and properties of the citizens.
Risk of Policy Reversal
Inconsistency in policy formulation has resulted into many foreign investors either shunning Nigeria as an investment destination choice or absolute withdrawal from the economy. For instance, Iberia, Spanish Airline operators left the country recently due to inconsistency in foreign exchange policy. Hardly will a new government continue with economic policy of the preceding government because there is no economic structure that can guarantee investors’ confidence. This has resulted in many foreign investors finding it difficult to repatriate their money at will but always require special guarantee or approval by the ruling government. Former President Olusegun Obasanjo privatised the Nigeria’s four refineries at the twilight of his administration, but late President Umaru Musa Yar’Adua, reversed the sale.
Poor Corporate Governance
In his argument, Dolapo Oni opined that it is not about government at all times, but admonished indigenous operators to always promote good corporate governance. Corporate Governance is the system of rules, practices and processes by which a company is directed and controlled. Corporate Governance essentially involves balancing the interests of a company’s many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community.
He argued that companies must ensure their books are transparent so that foreign investors can study the performance trend of the firm and make decisive decision on whether to invest or not.
Cash calls deficit
The challenge of cash calls deficit over years has continued to be a source of worry for potential investors in the oil and gas sector. But the Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Dr. Baru Maikanti, stated that “We are indeed at a vantage position to address the challenges, by digging deep for collaborative ‘out of the box’ solution, not only surmount the challenges but create sustainable pathway for the industry’s development.
“Major challenges we have is how to secure the crude volume to a level that ensures we deliver the revenue target. We are fully aware of the fact that price is internationally determined and are therefore working assiduously to resolve the security issues so that we can guarantee volumes.
“We cannot deliver without adequate funding of the oil industry. With average of JV cash call requirement of about $600million a month, coupled with flat budget levels over the past years leading to underfunding of the industry, the underfunding has stymied production growth therefore managing this funding issues is our most immediate challenge and transparent innovative financing approaches are being reviewed to address these funding shortfalls.”
Despite being an economy that relies majorly on proceeds from crude oil exports, successive governments have been unsuccessful in putting in place adequate structure that will ensure policy stability and continuity in the economy. This must be the task ahead of the present government and it must ensure that these structures are put in place to attract the much needed investment into the economy.