The legislation, which has been in the pipeline for 20 years, is aimed at providing clarity and encouraging investment in the oil and gas sector, on which the government relies for about 90% of its foreign exchange earnings and 60% of total income.
It includes provisions to restructure the Nigerian National Petroleum Corporation (NNPC) into a limited liability entity capable of attracting private capital. The legislation also separates regulatory powers from the state oil corporation and establishes distinct regulatory agencies for the upstream, midstream and downstream sectors.
Previous attempts to pass a bill failed in 2009, 2012 and 2018. The legislation won’t make up for lost time and investment. According to KPMG, only 4% of the $70b investment made in Africa’s oil and gas industry between 2015 and 2019 went to Nigeria, despite the fact that it is the continent’s biggest producer with the largest reserves. As yet, there is no timing on when it will be sent to President Muhammadu Buhari to be signed into law.
Given delayed passage and the changes that have occurred in the global oil and gas industry, the legislation is “only an attempt to bring the country up to speed with global trends,” FBN Quest Capital analysts wrote in a note.
The danger is that Nigeria is getting its act together on oil too late as the world seeks renewable energy sources. Failure to address concerns such as energy diversification and the transition to low-carbon energy sources has drawn criticism from industry players.
- Under the legislation, the NNPC will transfer 30% of the profit from oil and gas to an escrow account to be used for exploration and development in frontier areas.
- This is despite Buhari’s stated intention to deliver a diversified economy that does not rely on oil and gas.
If the legislation is ratified, there will need to be “significant oversight” over the fund to avoid it turning into a “contract-awarding bazaar,” says Joachim MacEbong, senior analyst at SBM Intelligence in Lagos.
- To date, there has been no record of commercial quantities of oil and gas being found outside the Niger Delta and it is unlikely that there will be in future, he adds.
- The ‘Frontier Basin Development Commission’ will employ people and incur overheads, and it’s “doubtful the country needs this at a time when cost of government is already sky-high,” MacEbong says.
There’s also the issue of the global move toward low-carbon energy sources.
- “In the unlikely event of any significant crude oil finds, it is again doubtful whether the amount realised will be worth the initial investment,” he argues.
- “Rather than putting money aside to search for oil, the discovery of which is doubtful and the value of which may not even be worth the investment even if found, every spare kobo should be put back into the Sovereign Wealth Fund, especially the government’s share of revenues,” MacEbong said.
Nigeria has more urgent needs than awarding contracts for speculative frontier oil exploration.
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