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The vast glass and steel headquarters of the state-owned Nigerian National Petroleum Corporation in Abuja reflects the importance of an institution central to the fate of the nation.
Oil provides more than 90 per cent of export earnings and the country has the world’s seventh-largest reserves.
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The Niger delta, the principal oil-producing region, is now quiet, after a 2009 amnesty helped end a decade of low-level insurgency and militant activity.
Goodluck Jonathan is the first president to have come from the delta and has pledged to tackle long-standing grievances relating to resource control, revenue allocation and environmental damage.
But despite the confident, modern lines of the NNPC’s building, the corporation, a byword for waste and corruption, has underperformed for a generation.
In 2008 the cabinet approved a radical blueprint for reform. It is a sign of the complexity of the issues, and the influence of powerful vested interests, that it remains unclear when – or in what form – change will be adopted.
The case for renewal is overwhelming.
Most of Nigeria’s oil is produced onshore or in shallow water, from joint ventures with international oil companies, with NNPC having a majority stake. For many years, government has baulked at financing the industry needs.
There are also transparency issues. The minister of petroleum resources, Deziani Allison-Madueke, a former Shell executive, faced a poisonous campaign against her reappointment in June and now rarely talks even with the international media. The NNPC also presents an impenetrable image.
Levi Ajuonuma, the corporation’s head of communications, says Nigeria has a target to increase capacity from current levels of 3m barrels of oil a day (b/d) to 4m b/d by the end of the decade. “[To do that] we need an enabling environment, to get investment and open up to other parts of the world like Germany, China and India,” he says.
Mutiu Sunmonu, country chairman for Shell Nigeria, agrees that up to $40bn of investment is waiting for projects in deep water alone – such as expanding production at its huge Bonga field.
The same is true for other ultra deepwater investments including developing Total’s potential 1m b/d Akpo field and Chevron’s Agbami field.
The enabling environment requires clarity on the proposed Petroleum Industry Bill.
At more than 100 pages, it is a complex piece of legislation that was first introduced to the National Assembly in 2008 and has passed through several drafts. Simply put, foreign companies do not want to put their money into an industry with an unsure tax structure, vague local processing requirements and a yet-to-be defined role for the national parastatal.
Antony Goldman, a London-based Nigerian oil analyst, says: “The wait for the adoption of the PIB is very damaging. It’s why the big new investments have been put on hold. The impact becomes exponentially more problematic [because] if reserves don’t get replaced, there is the risk of production capacity in Nigeria dropping for the first time in 30 years.”
The PIB proposes the restructuring of the NNPC to make it operate less like an opaque department of government and instrument for the dispensation of political patronage.
“The key idea of the PIB is to eliminate cash-calls, so the NNPC can go to the capital markets and raise funds,” says Emmanuel Egbogah, former Special Adviser on oil to president Yar’Adua (2007-10) who helped compose the original PIB bill introduced in 2008.
But oil companies have opposed plans for the replacement of the existing, loose joint ventures.
Executives say they fear such measures might increase the space for political interference and further complicate governance.
The other problem the PIB purports to deal with is the delta region, where an insurgency, ended in 2009, cut oil production by 1m barrels a day at its nadir.
Based on a model used in the resource-rich US state of Alaska, the PIB would give an equity stake of up to 10 per cent to the host communities, who receive dividends.
“If oil production is disrupted, the locals forgo their dividend – it is meant to be an anchor of the amnesty programme,” says Mr Egbogah.
More contentious is a new fiscal regime that could see the government tax take increase by $10bn a year and reverse some of the generous terms to which multinationals have become accustomed.
While the industry waits, the NNPC is courting investment. According to Mr Ajuonuma, feasibility studies are being conducted on a $23bn deal with Chinese state-backed companies to build three refineries in Lagos, Bayelsa and Kogi states with a combined capacity of 750,000 barrels a day.
A new oil licensing round is touted for next year but it is unlikely companies will commit substantial funds until it is clear what environment they will be operating in.
“There is a lot of acreage interesting to investors, but they won’t come until the value of that is clearer,” says Mr Goldman.