Local firms set to drill gains from oil reforms


The news that the new helmsman at the Nigerian National Petroleum Corporation, Dr. Emmanuel Kachikwu has taken the bull by the horns by signing on an international audit company to review the contracts between the NNPC, its subsidiaries and the oil companies, is a good omen for the nation’s troubled oil sector.

It falls in line with the pledge of President Muhammadu Buhari to clean the sector and give it a new direction so that it can serve the long term interests of the Nigerian people.

It is regrettable that despite huge crude oil and gas deposits, the country is yet to get on top of the management of this critical resource to address the challenges of power generation and industry. Clearly, the election of President Muhammadu Buhari, a former Petroleum Resources minister, has put in place a round peg in a round hole, a man historically and mentally fitted for the task of revamping the oil sector.

His first move was to bring Kachikwu, an internationally exposed and renowned top brass of the multinational oil company Mobil to work with him on the task of transforming the oil sector from a parasitic institution to an elixir that would breathe new life into the nation’s populous consumers.

When the refineries were built, the strategy was to reduce the reliance of Nigeria on the imports of petroleum products, develop local capacity and take advantage of the numerous by-products of crude oil. The hope of a vibrant petro-chemical industry that would be the foundation of the country’s industrial and agro-allied sectors was built on the expansion of the refineries and increase in value-added.

Unfortunately, the leadership of the country until May 29, 2015 could not rise to the challenge of implementation even when the vision seemed to be apparent and the urgency seemed so pressing. Forty-five years after the import substitution strategy was unveiled, it has taken a key operative of the generation of the 70s to lead us back to the Promised Land.

In recent interactions with indigenous oil companies, President Buhari declared that his administration would support them in the implementation of his reforms, re-kindling hope of the revival of the indigenisation culture that his generation spearheaded with the indigenisation laws that put many commercial sectors in the hands of Nigerians and gave the economy a truly Nigerian face.

According to the President: ““We have the manpower for a more effective participation in our oil industry. We will give you all possible encouragement. You certainly won’t be ignored under my leadership,”Industry sources believe the cleansing of the oil sector should position the indigenous oil companies to play greater role in determining how the oil sector would help in ending the years of misery of the millions of Nigerians who seek jobs and dream of setting up their own small scale industries.

The auditing of the Strategic Alliance Contracts, should aim at ensuring that there were no sacred cows and under the table deals in the contracts signed to date.

SAA, is by its definition, a distress call from the Nigerian Production Development Company to private companies for assistance. Under its terms, there is a clear admission that NPDC devised the SAA because it lacked the required funds to fund the petroleum operation costs and provide the technical and professional skills needed to produce oil and gas in contract areas.

A regular clause in the agreements states that the “government, in considering the huge capital outlay and other resources required for petroleum operations has approved NPDC to enter into strategic alliance for the provision of funding and technical expertise”. Considering the fact that many of the companies have paid entry fees running into millions of dollars, it is important that the on-going audit recognises the risk of time and value of the operations and the need to ensure that a level playing field is achieved in favour of indigenous companies.

It is therefore gladdening that very reliable sources at the NNPC have assured that the exercise is not meant to witch-hunt any company but to ascertain the state of the contractual agreements, fine-tune where necessary and ensure that there is value for money, performance and excellent benchmarking.

This also means partners in the SAA must be ready to meet their obligations and ensure that the country does not lose money due to lack of diligence in enforcing the contract terms.
Considering the challenges of benchmarking, it is obvious that many indigenous oil companies do not have the same years of experience as their foreign competitors and a bench mark that refuses to recognise this fact may work against the president’s obvious determination to grow the indigenous petroleum sector to international stature.

Similarly, the current crude oil price regime and the dynamics of the financial market indicate that the expectations which underscore the negotiations have headed dlownwards.This raises the possibility of reviewing the entry fee to suit the current climate of the market and ensure that crude oil and gas production service the refineries and the local industry.

As it walks on the tight rope of national economic stability and international investors’ confidence,the Buhariadministration must not be torn between a citizenry whose high expectations of a Messiah that has come to put the country in good shape and an international community watching silently and studiously the opportunities that the new reforms promise.

Both the local and foreign stakeholders must meet at a point where needs meet feeds and reforms call for cocktails.

The oil reforms are already registering visible impact. The responsive management of Dr. Emmanuel Kachikwu has been able to ensure that the Kaduna Refinery, which was comatose, has been repaired and now operates at 60 percent installed capacity.

Similarly, there is good news from the New Port Harcourt Refining Company. Despite the on-going Turn Around Maintenance to overhaul its Fluid Cracking Catalytic Unit, the refinery reported production of 39 million litres of petrol in July.

The return of the Warri Refining and Petochemical Company to full production following the conclusion of its TAM will increase its contribution to daily production from its current 30 million litres.

No doubt, for a country with estimated crude oil reserves of 35.3 billion barrels lying pretty in over 159 oil fields and 1,481 wells, and a daily production of 2.2 million barrels per day at the peak of its capacity, the Buhari administration has only stepped on to the throttle on a journey of economic stability.

The indigenous oil companies must respond positively to the pledge of Mr. President by investing in the vision of the administration to make the petroleum sector serve the citizenry.

In this regard, the utilization of our 187 trillion feet gas reserves not only for export but to be piped to gas stations so that more cars can run on Liquified Natural Gas must come under the Strategic Alliance Agreement model.

As it is said by philosophers, the past is a story told, the future of our petroleum sector can still be written in gold.

Ladapo Kolade, a public analyst, contributed this piece from Lagos.

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