NDDC, Niger Delta Ministry have failed — Odein Ajumogobia

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Mr Henry Odein Ajumogobia (SAN) was the Minister of State for Petroleum Resources (2009 to 2010) and Minister of Foreign Affairs (2010 to May 29, 2011). Ajumogobia, Senior Partner, Ajumogobia & Okeke, one of Nigeria’s leading corporate/commercial law firms, has served as Chairman of the Board of First Exploration & Petroleum Development Company Limited. He was also a member of the ICC International Court of Arbitration and ICC International Commission on Arbitration between 2001 and 2006. As Nigeria’s Minister of State for Petroleum, he pushed for the deregulation of the downstream sector of the oil industry. Presently, he is Chairman of the Expert Advisory Panel of the Nigerian National Resource Charter (NNRC), a tool to advise the government on best options for managing Nigeria’s natural resource wealth for the benefit of the people. In this interview with TheEconomy, Mr Ajumogobia speaks on the challenges facing Nigeria’s oil and gas industry, the Petroleum Industry Bill, among other issues. Excerpts:

How would you appraise efforts by the Nigerian government to transform the oil and gas sector?

The approval of a new national gas policy to move Nigeria from an oil-based to an oil and gas industrial economy is certainly a major step in the right direction of transforming the oil and gas sector and is a credit to the Minister of Petroleum Resources. The departure from the cash-call based-funding of the IOC-NNPC JV operations and the development of alternative funding mechanisms to grow the industry, in my view, counts as another. A recent innovative funding arrangement of a fast-growing independent petroleum industry reveals a forward-looking leadership of the NNPC that is focused on growth. On the retrogressive side, one might mention the NLNG (Nigeria Liquefied Natural Gas) Amendment Bill which is likely to adversely affect investment in the sector.

What is your take on the recent passage of the Petroleum Industry Bill (PIB) by the Senate?

It must be noted that what the Senate passed during its plenary session on 25 May 2017, was the Petroleum Industry Governance Bill (“PIGB” or “the Bill”), which is only a segment of the original Petroleum Industry Bill (PIB) that was sent to the National Assembly over 12 years ago.

The PIGB, as did previous incarnations of it, seeks to provide an efficient and effective governance and institutional framework for the Nigerian petroleum industry and create clear separation among the policy, regulatory and commercial institutions that will in a transparent and accountable manner, ensure value creation and addition as well as internationalization of the petroleum industry

While the passage of the PIGB by the Senate is thus most welcome, there is still a long way to go. The Petroleum Fiscal Framework Bill, arguably, the most important, does not in my view belong within a cumbersome legislative framework. A fiscal regime must be executed outside the legislation to enable flexibility. There is the Petroleum Host Community Bill and also the Petroleum Industry Revenue Management Framework Bill. All these areas covered by proposed legislation are crucial to the effective transformation of the industry. Caution and scepticism is thus bound to remain until the complete legislative process for new laws, which serve the industry well.

To what extent would the PIB open a new vista of opportunities and possibilities for transforming the sector?

In its entirety, the PIB is expected to usher in new operational and fiscal terms for revenue management and a world-class industry for the nation. But the extent to which this will be made manifest will certainly depend on a variety of crucial factors, which include professionalism and commitment (attitudinal changes), adherence to and enforcement of laws, and regulations in a transparent and accountable manner.

Do you think the ongoing reforms in the Nigerian National Petroleum Corporation (NNPC) would achieve the desired results of making it globally competitive and increase profitability?

One can only hope so. As I said previously, certain factors will determine the extent to which the ongoing reforms can achieve results. Of these, a clear legal framework and commitment to its implementation are the most important. This must be across all spheres within the industry and extend to all stakeholders.

You recently voiced your opposition to the Federal Government’s proposed sale of some of its oil and gas assets. Why?

On March 7, this year, the Federal Government unveiled its Economic Recovery Growth Plan to jump-start the economy by, among other things, selling stakes in Joint Venture Oil projects within the next four years.

It seems to me that the drastic decline in Federal Government revenues that resulted from the collapse of oil price and the country slipping into recession generated the robust debate about whether the government should or should not sell part of its substantial stake. I have a problem with that. In other words, if the oil price suddenly rebounded, would the government shelve this plan? My concern is about such divestment without a clear and transparent roadmap and that significant economic transformation is predicated on that sale.

Much of the inefficiency in the JVs is on account that partly derives from the undue length of the contracting process inflated costs. A comparison of the costs of operations globally makes what I have said apparent. We should focus on that, if that’s the problem.

The oil asset-sale plan starting this year through 2020 is to reduce the average 60% stake Nigeria holds in joint ventures with Royal Dutch Shell Plc, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA, which produce about 90 per cent of its crude.

 It is thus in essence, a fundraising strategy triggered by dire economic circumstances, rather than a policy-based initiative. The last time the federal government sold NNPC’s stake to a JV partner was in 1993, when the JV partners signed the sixth participation agreement that reduced NNPC’s stake in the SPDC JV from 60 per cent to 55 per cent, with the relinquished 5% going to Agip. There is thus a precedent for offloading such assets.

My concern is that there is no convincing prospect that proceeds from the oil asset sale will, in fact, go towards solving the structural problems. Once sold along with the requisite reserves, we would have lost that tenable prospect for a more transparent and accountable milieus if the proceeds are frittered away as the proceeds of past privatisations have been.

My worry also stems from Constitutional restriction on monies paid into the Federation Account, which the sale proceeds would accrue to, in the same way as the proceeds of the sale of the crude oil. This is I would presume to be shared amongst the three tiers of government.

Further, the core of the argument in favour of the sale of equity to raise up to $20 billion by a reduction of government shares to 40% from 60% is that the greater efficiency and the larger financial and operational control that IOC majority stake would give them in the JVs would translate to higher government take through the reduction in costs and funding challenges. In response, I think costs can, and ought to be, benchmarked internationally and can thereby be considerably reduced. I do not accept the current $20 – $30 per barrel cost regime that is unduly predicated on security and JV funding issues.

There is also the threshold question of whether the IOCs would now put increased resources into land and shallow water assets with their current focus on deepwater. On this issue, I therefore, venture to lend my voice to the skeptics, who are particularly concerned about the likely dissipation of the proceeds, especially on account of our existing Federation Account revenue sharing structure. I, however, support the sale of non-performing assets such as the refineries rather than the crown jewel like government’s stake in NLNG.

Are you satisfied with government’s intervention in environmental remediation in parts of Niger Delta, especially the clean-up of Ogoniland and other oil-spill affected communities?

The intervention, so far, has been more rhetorical than concrete. However, I would say that compared to what the order of the day was in the past, one can see that the government clearly acknowledges the obligation and appears committed to bringing about a paradigm shift in the attitude to environmental remediation. This is clearly still work in progress, but without implementation of remediation efforts, one cannot really speak of satisfaction. Levels of pollution have not been reduced in any noticeable way and there has been zero remediation so far.

So much has been said about the rate of poverty and underdevelopment in the country, especially the oil-bearing Niger Delta. How best can ordinary people benefit from the nation’s oil wealth?

There is a Niger Delta Master Plan. The ordinary people would have derived some benefit from oil resources if that plan had been half implemented. The institutions such as OMPADEC (1996), NDDC (2000) and the Niger Delta Ministry (2008) set up as intervention vehicles have failed to make any real impact on the lives of ordinary people in the region due to a combination of corruption and lack of coordination.

Therefore, I wish to posit that one way the ordinary people can benefit from the nation’s oil wealth is to strengthen good governance and transparency particularly around financial and natural resource management. This is well-documented in the 12 precepts (particularly precepts 1, 2, 5, 7 and 11) of the Nigeria Natural Resource Charter.

Do you consider the recent decision of the Federal Government to negotiate with the Niger Delta militants the panacea to the issues fuelling tension in the region?

Negotiation and dialogue has been a recurring decimal in our national history since independence. Negotiation and dialogue is a viable and time-tested approach to resolve crisis and is a sure way to end the region’s crisis and it is appropriate for a democratic government to adopt this approach. Nigeria and Nigerians have come a long way together since 1914 and we must have the patience to talk and listen to one another.

However, the focus in this instance, must be on sincerity and commitment on the part of the government and the leadership in the Niger Delta to holistically address the issues that are well documented.

How best can Nigeria take advantage of its Liquefied Natural Gas resources for sustainable development?

I think the focus on LNG is misplaced. There is no question that NLNG has been a huge success, but we do not, as an economy, derive the most value from our gas resources by processing it into and exporting LNG. Natural gas is fast evolving as the fuel of choice for sustainable development in view of its impressive sustainability for environmental protection and lower cost of supply in comparison with fossil fuels.

Nigeria currently has a proven gas reserve of about 188 trillion cubic feet, with an actual gas potential in excess of 600 trillion cubic feet. With this great potential, it is only trite that we take appropriate steps to turn this abundant gas resource into a verifiable catalyst for development.

The starting point must focus on policies articulated for the medium – to – long-term and the seriousness with which they are implemented. This must include formulating sustainable pricing mechanisms that will guarantee fair and reasonable prices for producers and consumers, especially in the domestic market. As we do this, we must simultaneously consolidate on our asserted regional prominence by becoming the hub for natural gas supply in West Africa.

How would you assess Nigeria’s foreign policy direction under this administration?

It is not clear to me what the focus or thrust of our foreign policy under this current administration is beyond symbolism. Nonetheless, “Trade still follows the flag”! Our Embassies should play a leading role in helping to secure much-needed investment, export promotion, broadening access to foreign markets for goods and services, and an overriding function in managing relations between states, and coordinating relationships between states and other foreign actors in addition to the “welfare, support and protection of one’s citizens travelling through or living in the foreign country”

Happily, our new foreign affairs minister, His Excellency Geoffrey Onyeama, has articulated this very vision in announcing that his focus is to turn our Embassies “into hubs for our economic development programme”.

But without the appointment and deployment of envoys in our 105 diplomatic missions across the globe, it is difficult to fathom how any adopted policy thrust can be implemented. With the recent appointments, our policy focus may become clearer.

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