Bold plans to use the pretext of the COVID-19 pandemic and oil price collapse to restructure the economy — and particularly to rein in Nigerian National Petroleum Corporation (NNPC) finances — gained traction earlier this year and were drafted into a report on 25 March for review by the Presidency.
Some of the most radical changes were:
- ending the fuel subsidy system that privileges private importers
- ending the allocation of 445,000 b/d to the NNPC, either for processing in its largely moribund refineries or for trading on the open market and swapping for refined product
- permitting the NNPC to hold a maximum 50% of gross receipts for crude oil sales at any given time before remitting the funds to the government’s treasury account
- ending an arrangement under which IOCs pay their royalties and taxes to the NNPC in kind, providing the state company with crude oil cargoes that it can sell autonomously
- direct payment of IOC taxes and royalties to the Federal Inland Revenue Authority.
All the changes were drawn up by an ad hoc committee under the National Economic Council (NEC), which advises President Muhammadu Buhari. The proposal was meant to curb the leakage of petrodollars and the economic damage caused by the pandemic and the Saudi– Russian oil price war.
Known as the Ad-hoc Committee on COVID-19, its members included top policy makers and politicians meeting in Abuja:
- Vice President Yemi Osinbajo
- Finance, Budget, and National Planning Minister Zainab Ahmed
- Budget Minister Clement Agba
- Minister of State for Petroleum Resources Timipre Sylva
- NNPC managing director Mele Kyari
- Central Bank governor Godwin Emefiele
- Economic Advisory Council chair Adedoyin Salami
- Kaduna State governor Nasir el-Rufai
- Kebbi State governor Atiku Bagudu.
By late June, the radical changes had been blocked but no one in Abuja is keen to discuss why. Nonetheless, some insiders suggest the pressure for reform came from Osinbajo’s policy team, whose members initially seemed confident of winning Buhari’s support given the extreme economic position the country found itself in during March and April.
At that time, prices for Bonny Light had fallen below US$12 a barrel, compared to the average production cost of US$22 a barrel. Some banking analysts and economists in Lagos were gloomily prophesying zero revenue or close to it in 2020. Others suggested it would be the shape of things to come as Western economies and Nigeria’s other customers accelerated their energy transitions.
The most pessimistic forecasts give the country’s oil industry another two decades at something approaching current levels. That would be followed by rapid decline in international exports, with most of the crude being sold and refined within the region.
There is little confidence over the NNPC’s aim of ramping national production from about 2.2 million b/d to something close to double that figure over the next five to ten years. That is technically possible but would require a level of investment that isn’t available and won’t be for the foreseeable future.
This raises the question of why the NNPC reforms were shelved. Oil prices had snapped back in late June to much higher more than forecast in March, when the NNPC was struggling to sell its output even at heavy discounts. In late July, Brent crude was still trading a little above US$40 a barrel.
But the bigger issue is that Nigeria generated just 56% of forecast revenue from January to May. Prospects for the rest of this year and for 2021 are little better – even without a second wave of the pandemic.
It seems that vested interests inside the NNPC — protected by Petroleum Minister of State Timipre Sylva, and the Attorney General Abubakar Malami — have minimal interest in accountability and transparency. They reportedly pushed back against the NNPC reform plan, and all the proposed reforms have been junked except for the commitment to end the fuel subsidy.
Even that, however, is in jeopardy given the slow uptick of inflation and the contribution of higher transportation costs to consumer prices. On 24 June, the cabinet instead backed a ₦2.3 trillion (US$6 billion) stimulus plan developed by the Economic Sustainability Committee to promote domestic production. The plan is called ‘Bouncing Back’ and is meant to compensate for the crash in oil prices.
It is far less radical and prescriptive than the original plan, merely advising the NNPC to ‘safeguard oil revenues,’ That includes ensuring that the corporation remits 100% of the taxes and royalties paid in kind by oil majors, and that it pays ‘commercial value’ for crude. The fight over the original prescriptions had become a power play. State governors wanted the reforms because of their fears about revenues this year and next. So did Osinbajo and his team members, who seek funding for an effective stimulus plan. But their opponents — Malami and Sylva — persuaded Buhari otherwise. Following the death from COVID-19 of Buhari’s highly influential Chief of Staff, Abba Kyari — and of another leading member Buhari’s kitchen cabinet — Malami has become particularly important in Aso Rock. He is a presidential confidante and an enforcer who can take out his political enemies.
Sylva’s persistent promises to send the Petroleum Industry Bill (PIB) back to the National Assembly — which is supposedly now going to happen within the next few weeks — was reportedly key to his argument to Buhari: that there was no need for radical reform of the NNPC beyond the new legislation. On paper, that is plausible, but the PIB has been oscillating between executive and legislature for over a decade. And there is little sign yet that Sylva has the skills or the interest to break that pattern and get radical reforms passed into law.