Looking beyond Petroleum Industry Act of 2021

"The future of oil is fragile, and Nigeria must act now to avoid much worse hardship than the current adversity.”
Looking beyond Petroleum Industry Act of 2021

President of Nigeria, Major General Muhammadu Buhari (retd.)

The Punch, Olugbenga Jaiyesimi

The PUNCH editorial of November 29, 2021 stated, “Continuing to rely on oil revenues to run unproductive, dependent territories is no longer tenable. The future of oil is fragile, and Nigeria must act now to avoid much worse hardship than the current adversity.” Reading through the new Petroleum Industry Act can one reach the conclusion that the PIA adequately addressed the fears raised in the editorial opinion?

There was chest-thumping congratulatory poise of government officials after the President, Major General Muhammadu Buhari (retd.), signed the Petroleum Industry Bill. However, one can consider this celebratory position misplaced considering the dire circumstances the editorial highlighted for the nation. A major expectation of the Act is increasing Nigerian crude oil reserves to beyond 40 billion barrels and daily production will be increased from the current 3.0 million barrels per day to 4 million bpd. These in a world looking beyond liquid and gas fossil fuels to renewables.

Par adventure Nigeria achieves the 4 million bpd target I hope we will not have to literally drink’ our oil. Nigeria’s saving grace would be if the prediction about fossil fuels is off-target. Notwithstanding, Nigeria should by now be advanced in its preparation for life after oil and gas in the spirit of The PUNCH editorial. Unfortunately, the PIA seems to further entrench government dependency on oil and gas. Those who put together the signed bill seem to have revenues from crude oil, for distribution, in mind rather than government independence from oil. Our president more or less confirmed this, quoting him almost verbatim, he said “….oil discovery in the North will help balance politics of oil of the Niger Delta.” Buhari’s comments are instructive showing that the PIA is more about politics than economic transformation.

Let us take a deeper dive into some aspects of the Act and fathom what is the grand vision or objectives espoused in the document. Uncontested ownership of oil and gas resources is vested in the Federal Government of Nigerian. A claim being contested by the Pan Niger Delta Forum representing the South-South geopolitical zone of the country. Commendable efforts were made to cater for the communities that own the land where the oil or gas is drilled. Secondly, additional regulatory bodies with the introduction of Midstream Regulatory Agency. Meaning more regulations rather than less in a supposed deregulation agenda. One of the functions of this new agency is, ‘’implementing and regulating a pricing regime.” This input, in an era of pricing deregulation, I don’t understand.

Coming anachronism of oil: Can we ask ourselves why a PIA? We never had a Coal Bill or Tin Bill or Gold Bill. Why this special treatment for oil? Which other advancing nation have an oil bill? Brazil, Indonesia or Malaysia? Yes, they do and I pray someday an expert will compare our Act with Brazil’s to find out whether it will turn NNPC into a competitor of Petrobras or Petromas. How do we make sure this Act does not put limits to a Nigerian Elon Musk emerging to disrupt the energy industry. I suppose as Musk moved from South Africa to the USA, the Nigerian will emigrate as well and that is a real loss of real wealth.

The PIA has been 20 years in the making and by virtue of this, its usefulness as we move into an era of reduced fossil fuel use is in question. This is obvious from the recent pronouncements from COP26 where we were pleading that gas be a transitory fuel to zero carbon emissions. Are international investors who specialise in oil and gas listening and will they do our bidding. Valid information shows that as coal and liquid fuels usage declines, gas usage is not growing. Rather the replacement for liquid fossil fuels is being filled by renewables like solar and wind power. In the transport sector, internal combustion engine is being replaced by electric vehicles, not gas vehicles. It appears international energy investors are not viewing gas as separate from crude oil.

The mental damage the Act will bring on the polity: With the introduction of the 30% of NNPC profits for frontier basins exploration and 3% of previous year’s expenditures for host communities, states in the country will now focus their energies on how to benefit from either of these two new bragging statuses. Ogun State Governor, Dapo Abiodun, has joined the fray of how his state will be declared an oil-producing state.

Meaning rather than Nigerians moving away from the resource curse we will continue to embrace it. Let us pray that the Act doesn’t become a cog in the wheel of progress just as the power and electricity act or the Nigerian Rail acts of the 1960s have become. These are areas where similar acts have entrenched Federal Government monopoly that has stunted developments in these sectors. Our going this route can only be prevented if we have transformative presidents, with proactive oil ministers who appoint progressive operators to man the regulatory bodies set up by the Act. That is what made the difference with the Brazilian experience of Petrobas becoming world giants while NNPC remained perpetual underperformers.

However, this might turn out a blessing in disguise as a moribund petroleum sector might allow other sectors to thrive and, finally, we are rid of Dutch Disease that accompanies oil and gas. On the other hand, while oil might become outdated in years to come Nigeria can still attempt to draw out the last benefits from oil for domestic, regional and continental industrial use.

I have come hard on the PIA and this could be considered unfair since it’s a sectoral bill. Luckily this same year government has launched the Medium-Term National Development Plan 2020-2025 which, of course, should address the broader Nigerian economy. I hope to give a review of this next week.

Wishing everyone a prosperous 2022!

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