Thursday, September 15, 2011

Nigeria losing huge opportunities in oil & gas sector’
Thursday, 15 September 2011 Olusola Bello Energy, Editor

For sometime now, it has been a major concern that after many decades, contractors and multinationals that have done business worth several millions of dollars in Nigeria do not have appreciable footprint in the country. Instead, the trend has been to look to foreign countries for procurement of equipment, spares and technology in support of their operations in Nigeria and the Gulf of Guinea region.

The major operators have not helped matters by their reliance on the importation of goods and services from abroad without making provisions to develop sustainable capabilities within Nigeria that would support life cycle operations in the country. Instead, more emphasis has been placed on speedy achievement of first oil, generation of revenue without paying attention to actions that add value to the economy.

The cumulative effect of operating this model for so long is an industry that currently spends an average sum of 20 billion USD per annum, less than 2 billion dollars is retained in the national economy and over 300 billion USD has been lost through capital fight in this way. Of more significance is the fact that, this persistent practice has actually resulted in the export of millions of employment opportunities; opportunities for training, knowledge and technology transfer, opportunities for investment in facilities and infrastructure to support industry operations within Nigeria and denied indigenes of Nigeria the Nigerian Content Act and Petroleum Industry Bill when it is finally passed into law by the National Assembly.

These government initiatives introduced changes of a magnitude never seen in the industry, therefore, it is in our enlightened self-interest to provide clarity of vision, a roadmap for implementation, policy predictability, continuity and more importantly, assurances on peace and stability. I could not be more confident that I am today in telling you that Nigeria is firmly on course to meet each and every one of those conditions.
By way of providing background, I will dwell a bit on an overview of the Nigerian oil and gas industry.

It is important to emphasise at this juncture that the Nigerian Content Act is not intended to indigenise the industry or nationalise assets of investors in the Nigerian economy. Rather, it sets out provisions that guarantee that investments made in facilities within the country will be fully utilised and we will ensure that the rights of every investor are protected under the laws.

In order to address another major aspiration of the government to unlock the enormous potential of the Nigerian domestic gas sector and attract investments even ahead of the PIB, the President directed a structured accelerated implementation of the Nigeria Gas masterplan.

In this regard, we have implemented the most aggressive reform of the commercial framework for gas in Nigeria to address the observed inadequacies in the erstwhile commercial terms that stunted investment.
A more stringent and bankable contractual framework has been introduced for the gas sub-sector through the establishment and development of world class gas supply and purchase agreements, gas transmission agreements and more recently, the gas transmission network code.

We also addressed a major area of vulnerability in the system, which is the risk of payment for gas consumed, particularly by government-owned power companies. Consequently, we implemented the World Bank partial risk guarantee, which provides a triple - A bank guarantee for suppliers against payment risks.

In addition to the above, we established the gas aggregation company of Nigeria to manage access to gas in Nigeria for potential investors.
Recently, we achieved another milestone in our implementation, which is the formal launch of the gas revolution - a critical aspect of the gas masterplan that brings gas and industrialisation together. The gas revolution is focused on an industrial rebirth of Nigeria through the stimulation of gas-based industries such as fertilizer, methanol and petrochemicals. These help diversify the gas sector and jumpstart industrialisation as well as the attendant job creation.

To this end, President Goodluck Jonathan, launched three major investment programmes as part of the event, namely the development of Africa’s largest petrochemical complex by NNPC and its partner, the Saudi Arabian conglomerate - Xenel. This will cost about $6billion and is planned to be in place by 2015. The President also launched the development of 1 billion cubic feet per day gas Central Processing Facility which is expected to be built by a consortium led by Agip in partnership with NNPC and Oando. Two other CPF’s (Eastern and Western) are also in the process of being developed.

All these major initiatives fall within the principles and concepts enshrined in the PIB.
With continued active collaboration between the National Assembly and the oil and gas industry, a petroleum bill that will meet the long-term aspiration of Nigerians and the economic interest of all investors will be passed into law. We believe that a bill that ensures transparency, full accountability, responsible environmental stewardship, good corporate responsibility and above all a fair reward for all stakeholders including the oil producing communities will be passed into law.
The full impact of the PIB will introduce a new culture of competition, transparency and openness in the management of the oil and gas industry.

The new order will open new opportunities for investments in exploration & production, refining capacity, gas infrastructure, research, development & innovation and petroleum products distribution assets. These investments will come through domestic savings and foreign direct investment.

Passage of the PIB will certainly unlock investments currently being held back by perceived uncertainties and there’s a major link between the PIB and NC Act implementation and the lessons we are learning from our current efforts will certainly come in handy in the development of the post PIB structures and models.

As a government, our desire is to ensure that substantial proportion of these investments is retained in Nigeria and that explains the unique provision for Nigerian Content Development in the PIB.

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