1. What would you describe as the defining issues and moments in 2012?
Some of the key events in the sector that stand out are:
The deregulation of PMS and related matters: removal of subsidy and the ensuing strike, subsidy related probes of importers and the suppliers of petroleum products, delayed payments in the legitimate downstream sector as they awaited clearances from the subsidy frauds probes and investigations that resulted in scarcities and hoarding of petroleum product and lastly the inadequate 2012 provisioning for subsidies, supplementary budget and the N971 billion budget provision for 2013.
Last year started off with the announcement by the federal government of the full deregulation of PMS, removing the gasoline fuel subsidy caused a strike and paralysis of all businesses nationwide for about two weeks, a compromise was reached to pacify the populace whereby the deregulation was partial. The deregulation plan came about from the prohibitive and poorly accounted for 1.7 trillion Naira spent on subsidy for the year 2011. In 2012 the budget allocation of N888 billion was provided for but was used up very quickly for just a fraction of the year with the Government still needing, this was provided for in the supplementary budget of N161.6 billion. The figure approved for subsidy for 2013 is N971 billion.
Interestingly some of the positives that have emerged from the subsidy scrutiny is the fact that we now have a clearer view of the volume of PMS consumed daily in the nation, the figure stands below 40 million liters per day as opposed to the figures purported by many to be as high as slightly less than 60 million liters per day. This has improved the estimate needed for subsidy for 2013.
The non passage of the PIB: The Petroleum Industry Bill has been in view since 2000, it was supposed to replace 16 laws, 12 years down the line and several visits to the Executive and legislative arms of government it has not yielded any agreement or bill to be passed.
This has automatically rolled into year 2013. Task forces and committees have been set up to look into various aspects of the bill, consultations with stakeholders have been organized yet it seems there is as usual, policy paralysis.
There were a few divestments of major assets by Shell, Total and ConocoPhillips in 2012. Many of the IoCs stated this was strategy and internal reorganization related and not a lack of confidence in the Nigerian oil and gas space. More indigenous players have used this as an opportunity to deepen their stake in the industry and also the Chinese have further entrenched their participation in exploration and production in Nigeria. We should look out in 2013 to see if this is the way forward for other multinationals and how indigenous players and new entrants will take positions and creatively raise the needed long term finance for such asset acquisitions.
The oil license rounds that were to take place in 2012 according the Honorable Minister of Petroleum Diezani Alison Madueke never did for both marginal fields and oil blocks that would have put Nigeria on the map of exploration and production activity lest it falls in the shadows of the activity of Angola, Ghana and east Africa. According to her interview with Reuter Joe Brock late 2012, there was still the hint that Nigeria will hold an oil exploration bidding round before the end of the year, her statement precisely was that “We expect within the next couple of months a marginal bid round will be announced. We hope a major bid round will follow before the end of the year”. The government had shelved its plans to conduct bid rounds in 2009 and 2010 due to the non-passage of the PIB. On the bid rounds there are allegations that several discretionary contracts have been given out however the rumors haven’t been validated but may affect the integrity of future bid processes. We need to manage expectations and follow through on the bid round even if it’s just the marginal bid rounds for now.
- What impacted businesses most in 2012?
Top on the agenda from 2012 is the downstream sector’s need for reforms that will solve petroleum products supplier’s problems. Our refining capacity has not been addressed. The return of fuel queues and petroleum products supply uncertainties plagued the interiors of Nigeria and to a less aggressive extent the major cities, the fact that we are still yet to address the refining capacity and thus the importation of supplementary products for the country’s consumption is shameful as the options for a way forward are clear. Some of the possible solutions could be:
- Sell off the refineries.
- Outsource the management of the refineries to a competent business group.
- Deregulate completely (PMS and Kerosene) and allow the market forces dictate supply and pricing, and the worst case scenario invest in green field refineries.
- What is your outlook for 2013?
In my opinion the outlook for the year 2013 in the oil and gas space is fairly gloomy unfortunately.
Since the government has made a budgetary appropriation for fuel subsidy it’s unlikely there will be further deregulation or removal of fuel subsidies, this in my opinion means things remain the same. There are no plans for additional refining capacity, no plans to weaning Nigerians off the subsidy that means we will continue to plunder our financial reserves in payment of not so clear supplies, exploitative contracts and the attending frauds that may ensue.
License renewal talks with Shell and Chevron over existing onshore fields have remained in their final stages for months we all look forward to a speedy outcome of this. Exxon Mobil signed 20-year oil license renewals on Nigerian onshore assets producing around 550,000 barrels per day in February with major high level government negotiations and considerations.
- What are the risks and threats to business in 2013?
Delay in passage of the PIB: some version of the PIB should be passed as quickly as possible and all the pressure needed should be applied to move forward as the lack of passage of the bill is claimed to be the cause of delays for the bid round, protection of subsidized fuels and liberalization of the downstream sector.
Delay in licensing rounds: may cause pressure on the government and ministry to start allocating discretionary oil or gas blocks and this will cause the government to further lose credibility in the eyes of serious potential players that can change the landscape of the exploration for assets. If we can get it right the revenue from the bid rounds could inject much needed capital into infrastructure development and even the SWF for generations yet to be born.
In response to the plethora of investigative bodies, reports aren’t receiving serious consideration nor are the recommendations being given much consideration. We seem to be struck by a policy paralysis in the oil sector over refining capacity improvement, transparency and accountability in revenues. The task forces looking at refining, the PIB, the governance reform issues, petroleum revenues and taxes accountability and transparency do not seem to have had their recommendations followed up. Nigeria and the oil world at large await the outcome.
Lack of a Refinery reform agenda: without drawing up a blue print to reach and surpass refining capacity we are drawing closer to full dependence on importation of petroleum products at even higher costs to the nation. A first step may be to shut down the refinery completely and redeploy the human assets there to international refineries to update their skills. This should be possible if we leverage the alliances Nigeria has with some refineries that have agreements with Nigeria for the supply of crude for products.