News - May 8, 2020

Credible marginal oil licensing round: What CSOs want Buhari to do

COMMUNIQUÉ ISSUED AT THE END OF A ONE-DAY WORKSHOP ON IMPROVING TRANSPARENCY IN THE OIL LICENSING PROCESS ORGANISED BY A COALITION OF CIVIL SOCIETY ORGANISATIONS AND THE MEDIA APRIL 30, 2020

Rationale 1. Concerned about the dire economic realities in Nigeria as a result of the ravaging impact of the novel Coronavirus Pandemic and their potential challenges posed on Nigerians, a coalition of Civil Society Organizations convened a one- day workshop to assess the key issues in the petroleum industry and identify the urgent reform options that will ensure the best value for Nigerians.

PARTICIPATION AND OBJECTIVES

2. Determined to come up with informed recommendations for presentation to the government, workshop participants were selected from leading Media and Civil Society Organizations representing a broad and diverse range of interests. The petroleum industry experts invited to facilitate the workshop discussed the critical challenges in Nigeria’s petroleum industry. Emphasis was on the need to improve transparency and accountability across entire spectrum of the industry as Nigeria can no longer afford the leakages in the light of the current economic realities.

3. Focused on the recent announcement by the Federal Government of Nigeria of its intention to conduct a fresh licensing bid round for Nigeria’s marginal oil fields, the thrust of discussions by workshop participants was on the significance of the proposed licensing bid round and how to achieve the following objectives: a. Increase revenues for the government. b. Increase Nigeria’s proven oil reserves to about 40 billion barrels. c. Increase Nigeria’s daily crude oil production to about 3 million barrels.

4. Presentations by subject experts at the workshop showed that previous marginal oil fields licensing rounds organized by the Nigerian government failed to realize any of the above objectives. Evidences abound in several industry data to show that Nigeria has not been able to collect more than $750 million in signature bonuses from the various bid rounds. Of the 175 marginal oil field licenses issued by the Nigerian government between 2000 and 2007, only one has been developed into commercial production. Nigeria’s daily oil production has consistently declined from about 2.3 million barrels per day in 2014 to 1.6 million barrels per day in 2019. The current impact of the Coronavirus on the global crude oil market hold a bleak future for Nigeria’s oil industry.

5. Previous bid rounds in Nigeria revealed a sharp decline in interest from serious investors, local and foreign, in the country’s marginal oil fields. In 2005, only 57 percent of the oil blocks offered for auction secured at least one bid. The number dropped to 40 percent by 2007. Many of the serious investors were concerned about the law regulating operations in the oil industry. They complained that the legal framework cedes too much powers to the Minister of Petroleum Resources to award or revoke licenses based on his or her discretion. Many of the serious investors opted out of the process as they felt the licensing bid rounds were mere cosmetic processes for government officials to reward their allies and associates with oil assets. As such, transparency in the oil bidding processes was sacrificed on the altar of political patronage. Yet, this is the major issue Nigerians crave for, especially with the recent Presidential approval to auction some marginal oilfields under the current administration.

6. During the workshop, participants identified the following as the challenges that characterized previous oil licensing bid rounds: a. Poor quality and unavailability of data, which lowered the asset value. b. Opaque processes for the award of the licenses, which encouraged political interference. c. High number and size of the marginal oil fields, which diminished the interest from oil majors. d. Proceeds from the sale of marginal oil fields not tied to any specific development objectives, rather used in propping up a bloated and inefficient public service.

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RECOMMENDATIONS

7. After due consideration of all the issues tabled for deliberation in consultation with petroleum industry experts, the Coalition of Civil Society Organizations proffered the following recommendations to help improve the chances of Nigeria delivering the next oil licensing bid round that will not only meet globally acceptable standards, but also realize set national objectives to increase oil revenues, boost proven national oil reserves, and raise the country’s daily oil production capacity.

a. That as a prerequisite, President Muhammadu Buhari should publicly declare that he would not invoke his discretionary powers as Minister of Petroleum Resources before, during and after the bid licensing process. This public declaration is critical to rebuilding the confidence of serious investors to participate in the bidding process trusting that whatever will be the outcome will not be subject to any boardroom intervention outside strict adherence to approved bid guidelines and rules.

b. Before the commencement of the bidding rounds, Nigerians should be presented with evidence of the following four key deliverables:

i. A comprehensive national economic development plan detailing how the expected signature bonuses would be utilized in implementing the plan to the benefit of overall industry development and growth; ii. A national data repository to be used as the single source of verified data open to all parties in the bid; iii. Widely published information on the value of assets to be included in the basket of assets to be put on offer, to eliminate arbitrage opportunities resulting from information asymmetry; iv. Terms governing the licensing round must be open, transparent, clear and easily understandable by all parties and Nigerians so that the government’s management of the process can be tracked by interested members of the public.

c. During the bidding process, Nigerians should be presented with evidence of the following:

i. Stringent selection criteria during the bidding process to limit the exclusive pool to only firms with the requisite financial and technical capabilities. ii. Comprehensive details of all prospective bidders on a medium easily accessible by members of the public. iii. Measures to effectively monitor the bid process to ensure successful firms pay their signature bonuses in full and into government designated accounts.

d. Post-Bid, the following provisions should be implemented:

i. Government should draw down on the performance bonds of any firm that fails to commence work on the oilfield within the period to be specified in the bid guidelines. ii. Government should enforce the drill-or-drop clause in the law and reclaim any license(s) from non-performing winning bidders. iii. Oversight of the processes should be provided by the National Assembly, auditing by the Nigeria Extractives Industry Transparency Initiative (NEITI), and continuous monitoring before, during and after the bid process by civil society organizations and the media.

8. Optimistic that these recommendations can support a credible reform actions if effectively implemented, we, the members of this Coalition of Civil Society Organizations, recommend same to the government. We hope their adoption and faithful implementation will result in the successful 2020 bidding round, ensure optimal benefits to Nigerians, while minimizing avenues for graft and political patronage.

Signed

Peter Egbule (Coalition of Civil Society Organisations)

Bassey Udo (Media Initiative on Transparency in Extractive Industries)

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