Mr. Osten Olorunsola, once headed the Department of Petroleum Resources. But he now serves in the Expert Advisory Panel of the Nigeria Natural Resource Charter. He is also the Lead Consultant to the National Assembly on the Petroleum Industry Bills which has been separated into four parts for ease of passage. In this interview with Chineme Okafor, he advises President Muhammadu Buhari to assent to the Petroleum Industry Governance Bill to activate his Economic Recovery and Growth Plan. Excerpts:
In your last public presentation in a meeting of the Nigeria Natural Resource Charter (NNRC), you were very confident about President Buhari assenting to the PIGB before the 2019 elections. With what is happening in the political environment today, do you still believe this will happen?
Indeed I was, and even now still confident that President Muhammadu Buhari will assent to the PIGB. Let’s be clear; our country will for a very long time continue to rely on petro-dollar for economic development. Any laws or reforms that help to unleash the development of the sector and maximise revenues for Government to support diversification out of petroleum will always be welcome.
Moreover, we have seen and felt the effect of the opportunity cost of delaying the sector reforms for more than 18 years.
So in my view, in so far as the PIGB is aimed at fixing the cornerstone of Nigeria’s economy, it truly belongs to Nigeria, not any political party or individual. And I believe this resonates with Mr President’s wishes and aspirations for the country and Nigerians in general. A successful reform of the petroleum sector will always be about securing Nigeria’s energy and economic development, both of which luckily, neither belong to any tribes nor political parties!!
- How far are we to that signature, do you have an idea of the presidency’s thoughts?
Because the PIGB is not an executive bill, I am aware that Mr President has since sought the views of the key operatives in government as soon as it was transmitted by the National Assembly. I am also aware that the feedbacks so far from the MDAs are positive, more especially as the bill will help cure a lot of the wrangling and issues begging for solutions today.
I believe you know Mr President has in depth knowledge of the industry from his days as head of the PTF and he has expressed concerns about its poor state of health. He is very desirous in seeing good governance, sustained growth as well as the proposed diversification from oil. That is why it took no time to approve the policies which re-set directions for the industry since 2017. Mr President will therefore be quite excited to see that the much talked about legislative instruments are finally here.
I believe the overall process to facilitate Mr President’s assent will soon be concluded.
Let’s imagine the president fails to put his signature as expected, what would that mean, are there really damaging implications?
Foremost, I like to say God forbid to that!!
However, in the slightest chance that becomes the case, there are two key issues that will continue to plague the petroleum sector, and by extension the Nigerian economy should the reforms be delayed any further.
Firstly, the continued uncertainty for investors with respect to the legal framework will linger. Current estimates of direct investment losses is somewhere between US$15-20bn per annum. Although enough damage is already done, the earlier that trend is truncated, the better.
Secondly, the opportunity to plug loses due to inherent inadequacies and obsolescence of existing legal provisions and practices would again have been missed.
So the gross loses are quite huge, from missed investment opportunities to forfeited revenues simply because we have failed to manage our oil and gas resources in a responsible manner.
Besides, what about costs? The cumulative effort and amount spent so far to put the reforms together including consultations is quite huge. To go through the whole process again would amount to unnecessary repetition and waste of resources.
Ultimately, government can simply say bye bye to the Economic Recovery and Growth Plan (ERGP) 2017-2020.
Mr President is very much aware of this “road to Kinshasa”! Let us all pray and hope the reforms are concluded as quickly as possible, and implemented as designed.
There are three more bills left to be legislated on at this very tensed times – the NASS wouldn’t come back until September – do these bills have a chance at being passed and even assented to by Buhari, don’t you think this may end in futility?
When this administration came into power in 2015, the reforms of the petroleum sector was seen as a priority if only the country truly wants to catalyse and diversify the economy. Within a very short period, the Executive rolled out unprecedented policy reforms cutting across the value chain, in particular underpinning the ERGP. In parallel, the 8th NASS ensured the jinx of the industry reform was broken, and churned out the requisite bills to help put teeth in executive policies. So all the cylinders of government engines were firing in my view.
Accordingly, I do not think all this work will end in futility. Apart from the PIGB which is already being considered for assent by President Buhari, the remaining three bills (PIAB, PIFB and PHICB) which are necessary compliments of the first have all passed the stage of public hearing and now being prepared for 3rd Reading as soon as the NASS resumes for summer recess.
And because of the imperatives to our national survival, I want to believe that all hands will be on deck to ensure successful conclusion.
That said, as time is gradually running out, the risk of not concluding the legislative journeys for the various bills are getting higher, in particular, as the race to 2019 elections could become priority.
It was because of this risk that the omnibus bill was split into pieces, in addition to starting as early as 2016. A lot of hope is however being put on the PIGB which is now awaiting assent of Mr President. Should that scale through and become law, it will give a lot of momentum to the other three, and optically signal a new dawn to the Nigeria petroleum industry.
People talk about how much in terms of money Nigeria may have lost to the lack of a modern law in its oil industry, but rarely talk about value erosion to the industry, do you have an idea of how much value in terms of investment goodwill and others that the country has lost so far?
Well, several numbers have been tossed around as a way of capturing the gross total loss due to lack of modern laws. But let me try to clarify once more. The implications of failed reforms for over 18 years are far reaching. This includes general uncertainty to new investments, insufficient focus on maintenance and operations, declining production and reserves, comatose mid- and down-streams, lack of employment arising from reduced activities, rising illegal activities as a means to meet economic needs, loss of competitiveness, divestment of assets by majors with concomitant lay off of employees and termination of services.
Within this period, there had been many failed country entries by a few medium and major companies who just could not start up. Worst still, there were a few others who managed to start but had to exit prematurely due to one reason or the other, the main being inconclusive reforms.
Our country has not been able to attract material investments in the sector for about 10 years despite huge opportunities begging for project sanctions including upstream field developments like Zabazaba deep offshore, Bonga South West, Uge, Nsiko and Owowo. There are also large scale midstream and downstream opportunities which were only conceived but never started at all.
The overall direct impact of all these is what is being estimated to be $15-20bn per annum. That excludes other indirect opportunity losses due to insufficient gas supply to power, in-country value extraction in particular the mid and down stream sectors.
I understand there is a fifth bill of the PIB that is in the offing, and which will deal with issues of oil revenue management, could you provide some insights on this, will it address the perennial conflict associated with sharing oil revenue in the FAAC?
Indeed, the technical team together with the National Assembly sponsors did consider a fifth bill meant to address issues around revenue management for sustainability and responsible management of petroleum resources. Unfortunately, the effort had to be put on hold because of constitutional provisions around petroleum revenue sharing and allocation in Nigeria.
Suffice it to say that this bill will still need to be worked on at the appropriate time in order to assure a comprehensive legal framework for managing our petroleum resources.
The existing bills, in particular the PIGB already address some of the issues associated with sharing petroleum revenues. This includes basic understanding of measurement and movement of volumes (crude as well as products), pricing, cost assessments, and ensuring accountable remittance of taxes and royalties. This is one major puzzle in the revenue sharing mechanism. The second aspect which the Petroleum Revenue Management Bill will unravel is in the area of who gets what, how do we ensure allocations reach the target audiences, how valuable are there funds deployed, how do we cater for host communities, country stabilization as well as future generations. These are the dimensions the fifth bill will be focusing on as soon as the constitutional issues are off the table.
You’ve been in this industry for ages now sir, headed the DPR and understands how Nigeria’s downstream sector operates, today that sector looks inefficient and the NNPC imports almost all the petrol Nigeria uses, but that has come with a lot of controversies relating to national consumption volumes, subsidy claims and huge under-recoveries. Does it make sense that Nigeria has no idea of how much petrol it consumes daily, should it a difficult task to determine?
It is unfortunate that there is neither a common understanding nor consensus on the volumes of products consumed in Nigeria. It is even worse because of the poorly governed nature of accounting for under-recovery by the NNPC, the sole importer of petrol. The absence of a simple check and balance is what causes the suspicion of Nigerians generally as well as the frequent wrangling as monthly FAAC meetings.
Ordinarily it should not be that difficult knowing and tracking the numbers if only the requisite institutions are allowed to work as designed, ensuring adequate checks and balances. Besides, tracking can even be optimised by hardwiring smart performance indices and accountability across the various institutions responsible across the value chain.
Ultimately, a greater part of this issue will go away as soon as the sector is completely deregulated and liberalised.
The NLNG recently indicated its readiness to go on with its Train-7 project which would increase its capacity to 30mtpa. What does this mean for the country’s gas industry?
It is heart-warming to see that finally, there is credible progress on this. By the way, this too has already suffered some 15years delay due to various reasons. At some point, Nigeria was going neck to neck with Qatar in terms of NLNG growth. Today Qatar is well over 77 mtpa.
So even though we see this as progress, we are far behind par, in particular if you understand the closed nature and dynamics of global LNG market.
No doubt, being a simple expansion, this growth will come with activities leading to direct and indirect employment, improvement on the dividends to the country when completed, and once again putting Nigeria firmly back on the LNG market play.
It will also help to catalyse growth in the domestic gas development.
There are equally the OKLNG and BrassLNG projects still pending, do these projects still retain relevance, can the PIGB impact on them positively.
Although the PIGB would not have direct impact on the PKLNG and Brass LNG projects, clarity on governance and refocused commercial paradigm will come in handy for the new institutions going forward.
In particular, the new National Petroleum Company will be in a position to optimize its portfolio and pursue only projects that are commercially viable and profitable to the ventures.
Let’s talk about the oil industry post-PIB, what would it look like, are there going to be radical changes like subsidy going away; NNPC becoming a lot more committed to business ethics and less about bad business choices, and will there be a transition phase or period?
Indeed, it is all of the above!!
As already mentioned, an unfortunate uncertainty was introduced to the Nigeria petroleum industry some 18 years ago when we announced that there will be reforms. Since then the train actually left the station, but has never arrived anywhere.
In the meantime, even confidence in existing laws was no longer there, many of the the provisions were already obsolete and out-dated.
It is these two pronged malaise – uncertainty and obsolescence – that we have been struggling to overcome for over a decade. And rather than treat it as an emergency which it ought to be given its role in Nigeria’s economy, we allowed politics to unfortunately drive it.
I see a dramatic change in the industry and country as soon as these new laws and successful reforms take shape.
New development activities will spring up, followed by growth in production and reserves. The frequent declaration of losses by the national company will no longer be the case. Portfolios will be optimised for value and growth. More people will be employed, directly and indirectly, and the much talked about economic diversification will begin to take shape because of better management of our petroleum resources.