• Fri. Sep 29th, 2023

New petroleum industry law will drive NNPC, subsidiaries into profitability – Kyari

ByBassey Udo

Aug 26, 2021
Mele Kyari, \new NNPC GMD


Reaction to Petroleum Industry Act (PIA)
We are happy to have a petroleum industry that is today not governed by laws and regulations enacted in 1969, which were very stale, and did not move with the times, or recognized the fact that the oil industry has changed monumentally.
The effort to bring in a new legislation started over 21 years ago in 2000 when the Nigerian Oil and Gas Industry Committee (NOGIC) initiated the process to bring a new legislation into place to remove the uncertainty in the industry. The country was unable to bring a new law until this moment today.
The enactment of the PIA is also providence. It’s unimaginable that with the best of efforts since 2008, when the Petroleum Industry Bill (PIB) was introduced to the National Assembly, it was impossible to put it into law. What providence has brought is the marriage of a clement legislative environment, with a purposeful leadership in the National Assembly (both in the House of Representatives and the Senate) in alignment with the Executive arm of the government, with the strong leadership of President Muhammadu Buhari. That combination made it possible to take the law where it has been today.
Therefore, it is a law that was long awaited by the industry, not just in Nigeria, but all over the world. Everybody believes that without the new law, we cannot have the right investment environment in the Nigerian oil and gas industry. And there are very practical evidences to show for this.
We are aware that over $57billion of new investments in the oil and gas industry came into sub-Saharan region in the last five years. Out of that, only $3billion came into Nigeria, because of the fiscal uncertainty in our industry, apart from the fact that our environment is not competitive, as people are not sure what would happen if they bring in their money to invest here.
With the passage of the PIA, history is made, bringing an end to a very bad situation we found ourselves.

Transition of NNPC into a CAMA company and its subsidiaries
Today, with PIA in place, NNPC is governed by the NNPC Act as a corporation regulated under the Companies and Allied Matters Act (CAMA). That means we are going to have a CAMA company (NNPC Limited), along with its subsidiaries, which are individually registered also as CAMA companies with some requirements.
These requirements include that every CAMA company must make profit for its shareholders. Without that, within a certain period of time as established under the CAMA regulations, the company can be liquidated.
Therefore, it is extremely a new opportunity for NNPC and its subsidiaries, because henceforth they have to justify their existence, as there will not be any patronage from the government, or access to the resources of the State to make them hold, and the benefit of those liquidity they used to have as a corporation under the State.
The PIA is a new challenge for the NNPC and its subsidiaries. Some of the companies are doing well today. But they can do better.

Controversy and debate on 30% allocation for frontier exploration and the race to find more oil
We must understand that the whole world is transiting to cleaner fuel. Nigeria is not an exception. Nigeria is signatory to all the protocols that establish a net carbon zero situation globally.
The meaning of this is that we must change the utilization of crude oil resources to a much cleaner fuel. But it does not mean that we are eliminating crude oil completely for gas. What it means is that we are going to make use of gas in a way that the effect on the environment would become net zero.
Net zero does not mean there is no carbon emission. It means other things or projects are being done that would make the carbon effects on the environment be reduced close to zero.
For the NNPC and Nigeria, what this means is that as a gas country, with enormous gas resources, we must have a transition fuel. Every estimate we are aware of shows that gas utilization will peak in say another 20 years’ time.
What that means is that gas will continue to be relevant in the scheme of things in the global energy mix. It does not also eliminate crude oil, which will also be relevant. There is a forecast that even in the year 2050, we could still have over 100 million barrels per day of oil consumption globally, from about 94 million barrels we have today.
So, it means there will be marginal increase. It would not be eliminated, despite the increase in population and economies, we will still have need for oil. So, oil is not going to go away. Companies, countries and jurisdictions that would remain in business are just those that are effective and efficient in producing oil at the least cost and with minimum distraction for investors.
This is what the PIA is trying to do – to make Nigeria a much more attractive and clement business environment for people to put their monies into, while focusing on the development of gas in the domestic and the spot markets.
This is working. We have seen significant increase in the demand in gas utilization in Nigeria. There are a number of ongoing gas projects in the country that the PIA will be an incentive to more gas utilization.
For NNPC and Nigeria, the PIA is a threshold of opportunity to become more competitive as every company in the business around the world is looking forward to coming to Nigeria.
This ties into the effort to look for more oil. Why would we look for more oil, when the country has more than 37 billion barrels of proven reserves of crude oil and over 203 trillion standard cubic feet of gas reserves?
The truth is that every country is looking forward to expand its energy resources understanding that oil will not go away just yet. The more oil a country has, the more opportunities the country has. Location matters a lot in this business. For Nigeria, as long we are one of the largest countries in the world with such potentials. we have a lot of opportunities.
That is why the PIA established the Frontier Exploration Fund to help look for more oil, by financing oil exploration with 30 percent of NNPC’s profit, which is a good thing we see coming.

Controversies surrounding 3% allocation to the host oil communities’ fund
Clearly, the government under communicated to the people over the issue. I am not sure what we have today in the PIA happened at any other time other than under the leadership of this administration.
The proposal itself about the 3 percent allocation to the host oil communities was by the Executive arm of the present government. It was not introduced by anybody else, except this administration, which realized that every intervention before now in the oil producing areas in the Niger Delta region did not cater directly for the interest of the oil communities.
The 13 percent derivation paid to the oil producing states, the Niger Delta Development Commission (NDDC) and many other interventions designed to ensure that the Niger Delta region in general were catered for. None benefited the exact communities where oil was found.
Of course, most of these initiatives failed to deliver on their mandates. It is not just lack of commitment, but the mere fact that communities are not properly engaged.
What the government has done is to create a fund based on 3 percent of the operating expenditure of all the oil companies in the Niger Delta region for the development of the host oil communities.
It might interest us to know that in fiscal year 2020, the industry spent about $16billion on its operations. When 3 percent of that amount is taken, it gives over $500million, which is bigger than the allocation for NDDC for the year.
The most important issue is that under the new intervention, the communities are brought directly into the equation. They will be in charge of the management of the funds. They will be responsible for establishing the projects they want for their area. They will decide what works for their communities. That is what is fundamentally different from other interventions in the past.

NNPC and Dangote Refinery shares
What I see is that there are a lot of misunderstanding around the NNPC proposed acquisition of 20 percent of equity in Dangote Refinery. What is not obvious is that, first, the Dangote Group does not want the NNPC to take this equity.
But the NNPC is not just jumping in to take this equity. Again, no resource-dependent country like Nigeria will agree to allow such monumental project, with energy security implications, which has connection with fiscal security, and the government will not have a sit on its Board.
Refinery is a very lucrative business. The government believes it can recoup its money within three years. Nobody is going to take government money to put into this project if not that it will benefit the people.

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