Following the serious defeat in Edo State’s gubernatorial election and widening schisms within the governing All Progressives Congress (APC), President Muhammadu Buhari’s government has stepped up several gears. It is: taking tough positions on fuel subsidies and electric power tariffs; and finally getting broad executive support behind a comprehensive oil and gas industry reform bill which has finally been sent to the Senate.
Four factors seemed to be driving this new approach:
- Nigeria is facing its deepest recession in 40 years, just as President Buhari had hoped to make a decisive shift to national production and diversify the economy from its chronic over-dependence on oil export revenues.
- Without radical action, Buhari runs the risk of both of his presidential terms being overshadowed by a commodity price slump recession — market supply and demand in the first term, and pandemic-driven fluctuations in the second — and deepening poverty.
- April’s death of Chief of Staff Abba Kyari and his replacement by Ambassador Ibrahim Gambari has opened the space for policymaking and dialogue between disparate groups in the government.
- After several difficult months at the start of Buhari’s second term, his relations with Vice President Yemi Osinbajo have significantly improved, as illustrated by the recent joint launch of several economic and political reform plans.
As Nigeria Focus went to press on 30 September it emerged that, after almost two decades of being batted between the executive and the legislature, the latest incarnation of the Petroleum Industry Bill, (PIB) — already sent to our subscribers — has finally been sent to the Senate. This followed a series of discussions attended by the Nigerian National Petroleum Corporation’s (NNPC) group managing director, Mele Kyari, and all the executive’s top policymakers.
This version of the bill includes a plan to privatise the NNPC but doesn’t specify a timeline. That status would make it easier for the company to raise funds but would also impose much heavier obligations of corporate disclosure on it. Until Kyari took the helm, the NNPC had not issued audited accounts for its core operations, much less its more than subsidiary companies. Under the new status, annual financial reporting would become compulsory.
When asked why the NNPC could not be fully privatised and shares issued to the general public, a senior figure in the Presidency replied, ‘That’s because its liabilities exceed its assets.’ If this version of the bill becomes law, the new corporate status doesn’t preclude such an evolution but also doesn’t compel it. An earlier proposal included the outright sale of all the NNPC’s oil assets bundled into a privatised national oil company, but policymakers differed over principles of valuation and regulation of the new entity. Above all, the chronic problems encountered in the privatisation of the state-owned National Electric Power Authority were raised as a warning flag.
An interim attempt to separate technical and structural reforms of the NNPC by pushing ahead with a Petroleum Industry Governance Bill has been dropped in favour of an industrywide bill backed by the executive, and using the APC’s comfortable majority in the Senate and House of Representatives to push it through the National Assembly.
Beyond a new legal structure for the NNPC, the other core components of the latest PIB focus on making fiscal terms in the sector more attractive to investors, and on reforming regulatory provisions.
The new bill partly rescinds the hike in royalties on deep offshore fields imposed last year: the new terms provide for the royalties to be cut to 7% from 10% for fields with an output of less than 15,000 b/d. The global oil price trigger for production royalties would kick in at over US$50 a barrel rather than the current US$35.
Regulatory provisions such as product pricing and licensing terms are to be simplified and grouped in a new commission, which some industry experts believe is an important step to separating the Department of Petroleum Resources (DPR) operational and regulatory functions. A few days before the revised PIB went to the Senate, Vice President Yemi Osinbajo told Nigeria Focus that he was confident it would be through the National Assembly within a matter of weeks because ‘there’s already a lot of agreement between the legislature and executive about the key issues and areas’ the bill covers.
The central aim now, he said, was to provide investors with more certainty.
His remark constitutes public recognition that Nigeria, like Angola, will have to do more to adjust its fiscal terms and regulatory provisions to heightened market volatility over the next five years or so – certainly for the duration of Buhari’s second term.