On Monday, 4th of November, 2019, the President signed the amended deep offshore and inland basin Production Sharing Contract breaking years of multinational oil companies fleecing Nigeria.
The recent amendment moved our deepwater Production Sharing Contracts (PSCs)from the third quartile of global PSCs to the top of the second quartile. Our PSCs, in terms of return to government, is still not among the first quartile globally. This step has arguably reduced available profit to oil multinationals but it has not reduced profitability and viability of deepwater development. By signing the amendment, a win-win situation has been created for country and partners. Going forward, each development has to be taken on a case by case basis to the end that projects are well conceptualised and progressed to final investment decision (FID)based on the economics and the extant laws.
Perhaps it is time to remember the Petroleum Industry Bill (PIB) on which premise I wrote the piece below in 2013. Interestingly, I discussed the PSC contract in the article, explaining the folly as far back as 2013. It took up to six years for the government to get there!!!
Petroleum Industry Bill – Is Nigeria a Laughing Stock?
The Senate has refused to pass the Petroleum Industry Bill (PIB). The caricature of issues and counter-issues surrounding the accent of the Petroleum Industry Bill is nothing but incredulous. Corruption is a cankerworm that destroys. No country that celebrates and honour perpetrators of corruption will make meaningful progress. There is corruption everywhere in the world. Afterall, corruption is not a “Nigerian” word. It is very easy for the International Oil Companies (IOCs) or Multi-National Oil companies to influence decision making for bad in Nigeria once the decision makers are corrupt. But this need not be the case. What father wants good for his children and future generations yet unborn will not think of the whole picture before taking a decision? First and foremost, the mineral resource is in Nigeria. The interest of Nigeria and Nigerians should be first not those of the individual members of the elite society in Nigeria nor the so-called Investors or multi-national companies. Multi-National companies know very well that what they practise in Nigeria is unacceptable in their home countries.
Yet, they get away with illegal activities in Nigeria because of corruption. I spoke with a few of the “who is who” in the developed economies and they all agree that once their exists a Nigerian who could sell his country for money sake, the international community recognises that she would never become a threat to the socio-economic world order in place. This was the miscalculation with China. When China pretended in years that have past, the movers and shakers of the world did not pay attention to her and this allowed, albeit slowly but surreptitiously, the developments in China the world suddenly woke up to witness today. The attempt is now to use another misnomer “climate change” to curtail the rate of growth of China and other rapidly developing economies. Hence, every climate change summit depends on an agreement or perhaps I should say negotiation between China and the rest of the “Developed” economies. There is no other name to call anyone who makes money and comfort from oil but tries by all means to prevent another from enjoying the same. In another school of thought, the argument will be that the onus is on Nigeria to take corrective and decisive action. This is true.
It will not be easy to begin with, but the end will justify the means. This brings the very pertinent question. What do you, Nigeria, want? Do you want to look like other Developed economies with oil and gas? Do you want your cities and the prospects of your future generations to be like those of the countries with natural resources such as oil and gas? Then act like them in every good way possible. Some International oil companies want to hide behind indigenous companies to re-buy oil blocks. This sounds ludicrous. Where will they operate from? The people in charge must be able to ensure that such evaders of tax laws and royalties meant to benefit Nigeria and Nigerians are removed from the level playing field. Their indigenous partners too need to be banned for up to twenty years from participating in any activity in the energy related sector (oil, gas and power). I say this because all those who knowingly or unknowingly work against the Petroleum Industry Bill are asking Nigerians to remain in perpetual darkness. One aspect of the Bill is the opportunity for gas to be available to fire the Turbines that will produce electrical energy required to drive mechanically coupled Generators that will produce electricity and make the ailing power sector reform to achieve a measure of success.
These ones recognise that electricity is directly proportional to economic vibrancy and that millions of Nigerians in Diaspora who long to return to their home land to contribute their experience and knowledge towards development would not do so if there is no electricity to support their innovative ideas. So who hates you Nigeria? Look at the Bill from the eyes of the Power Sector Reform. Some have expressed fears that the international oil companies might leave Nigeria if the rules are made too tight. No one is making rules to be tight. I mean one is trying to get a fair share of the bargain. This happens to us all as individuals. Let’s face it, it is foolishness that makes anyone to believe that the Nigerians working in the oil Industry today, who have worked for many years with the so called less educated expatriates whom they themselves have trained, will not be able to run the industry, process plants and so on. I am very sure they can. I know it also. What may be lacking is proper Management. Take a hard look at the Nigerian Liquefied Natural Gas project in Bonny Island, River State. This is a classic example that Nigerian workers in the oil and gas industry, under well structured, trained and challenged Management, will do wonders. You cannot hold the Managers by the hand and expect them to perform wonders. Give them free hands, make them accountable and responsible and they will perform.
When you do this, what do you get? Initial reactions from everywhere! That is expected. It will settle down. Next will be negotiations. Those who threatened to take their flight off the business will now begin to beg for the same opportunity. Then it is time to act. The new rules will then become more stringent and more favourable to Nigeria and Nigerians.
But any action that must be taken should not stifle investment in the Industry. The fiscal package should be conducive enough to investors who wish to make reasonable profit but not milking others dry. Issues such as gas pricing, market structure and infrastructure should be addressed. The people to address this fine-tuning are the same top executives of Nigerian origin who work for the international oil companies. They know what to do.
What can be learnt from all of these? If you do not develop skills and manpower in-country in any area that bear direct relationship with economic prosperity, you will remain under the control of those with the technical know-how. My bias is in the Power Sector. With regards to the Power Sector, Nigeria must never degenerate to the level that investors will hold her to ransom as we now have it in the oil and gas Industry.
Another lesson that can be learnt from this episode is not putting a square peg in a round hole. The existing Production Sharing Contract (PSC) signed by the country in 1993 with Joint Venture Partners is flawed with lack of vision, mediocrity and poor judgement. One is happy that a knowledgeable member of the House of Representatives agrees with that. What may have led to this? The misnomer called “quota system”. If those who would negotiate the rules have to be selected on geo-political affiliations, this is the kind of regret you get 20 years down the line. 20 years is quite a time but it catches up with you soon enough when you exhibit idiocy. Let those who have practised in the oil industry within and outside the shores of the country participate in the negotiations and or stipulation of the rules of the game. They are familiar with what obtains in the industrialised nations as per Joint Ventures in the oil and gas industry and so they will be able to perform better if they do not succumb to bribery and corruption. The truth is that there are areas where the quota system can be useful, but definitely not in an area where sound knowledge of a subject matter is required.
Furthermore, the royalties and oil glut derived from the sale of Crude oil and products should be used to develop Agriculture in Nigeria. This is one business that no one will do and remain poor. Plant oil palms to a great degree. Get the expertise of the Nigerians at IITA in Ibadan and other similar outfits. Without adequate investment in Agriculture, Nigeria will be behind among the comity of Nations.
The key lies in education. I mean quality education. What then is required? Education! Education!! Education!!! You need to note my emphasis. It is quality education and wisdom that make a person see beyond the present and take a decision that will affect the future. It is quality education that makes a person think of not attacking a problem from the middle but from the root.