The Federal Government has earned $1.5 billion since 2005 in signature bonuses from the oil licensing bid rounds introduced by the administration of President Olusegun Obasanjo in 2000 to replace the discretionary allocation of oil blocks to companies operating in the petroleum sector.
Disclosing this yesterday, the Director, Department of Petroleum Resouces (DPR), Mr. Tony Chukwueke said the $1.5 billion generated from the open and competitive bid process is a huge departure from the less than $600 million earned when the blocks were allocated on a discretionary basis, prior to 1999.
In an exclusive interview with THISDAY on the 2007 bid round, Chukwueke allayed concerns that the tender process would not take place as scheduled, assuring that the auction will take place at the Sheraton Hotel and Towers in Abuja this Friday.
He said the DPR expects to generate $500 million from this year�s bid round in which 45 oil blocks have been put up for auction to bidders that have been prequalified to participate in the process.
Responding to critics of the government and in particluar an advertorial that was published last week in newspapers by unidentified stakeholders in the oil gas sector, Chukwueke stated that the process for the 2007 licensing round had commenced since last year and was taking its natural course.
He explained that prior to 1999, the allocation of oil blocks was carried out on a discretionary basis and behind closed doors without any input whatsoever from the public.
Furthermore, he disclosed that most of the oil blocks offered to bidders since 2005 were blocks that had been retrieved from oil majors, who had left them dormant for several years without development and contravened the regulations and conditions of the licensing terms.
�If no action had been taken to retrieve them, they would have earned no revenue for the State, but stayed in the hands of these operators at no value to the nation,� he said.
He maintained that for the first time, the government is taking steps to enforce regulations that have always been there in the laws of the country, but were not enforced for years.
Whilst acknowledging that the process of change and reforms in the oil and gas sector has not been an easy task, he stated that one of the major aspirations of the Federal Government is to refine 50 per cent of the nation�s crude oil production locally to meet domestic demand and for export, thereby eliminating the perennial shortage of petroleum products.
Butressing his point, the DPR head said due to the relatively low margins and larger investment commitments required for downstream projects such as refining compared to upstream, multinational oil firms in the country have been reluctant to invest in Nigeria�s downstream segment, preferring to remain solely upstream where there are much higher margins.
This, he revealed, meant that the benefits Nigeria enjoyed from high oil prices are mostly lost through the importation of petroleum products.
�As a result, the country has no options than to encourage investors upstream to also participate in the development of the downstream sector as a prerequisite for licensing�, he added.
The integration of the upstream with the downstream sector, he explained, was what gave rise to the Right of First Refusal (ROFR), and is practised in several developed countries including the UK, US as well as developing countries such as Brazil and Argentina.
He said the policy of integration led to the emergence of major conglomerates in these countries such as Exxonmobil, Shell, Sonatrach and Petrobras which are all fully integrated upstream and downstream providing the required material balance and controlling the markets in their countries for the benefit of their people.
He wondered why operators in the oil and gas sector in Nigeria would kick against the introduction of the same policy in Nigeria, stressing that the Niger Delta region is yearning for infrastructure and economic development.
Giving examples, Chu-kwueke pointed out that a 100,000 barrels per day refinery would employ up to 40,000 people directly and indirectly and generate millions of naira annually to the domestic economy, whereas the upstream sector generates very little for the domestic economy directly.
Added to this, he disclosed that the oil companies are migrating activities away from the Niger Delta towards the deep offshore basins because of the frontier fiscal terms that they enjoyed prior to the 2005 bid round which favoured them and from which they could extract maximum value.
The concept of ROFR, he continued, was introduced to encourage the necessary downstream investments, as it simply grants the preferred company the right to match the highest bid which has been determined through an open and competitive process.
�Should the company granted the right elect not to match the highest bid, the block naturally reverts to the highest bidder.�
Chukwueke said the company with the ROFR is expected to pay all of its pre-auction fees, including the madatory lease of the data for the block under consideration, which the open bidder may elect not to acquire.
According to him, �there is no subsidy implied since the company with the ROFR is equally required to pay the winning signature bonus in full and to deposit 50 per cent of it at the bidding conference.
May82007