It has become clear from all indications emerging from the rumblings in Nigerian National Petroleum Corporation (NNPC) that government is resolved to ignore the legislative bottlenecks that stalled the passage of the Petroleum Industry Bill (PIB) and press ahead with fiscal reforms in the industry. The reforms, according to the new Group Managing Director of NNPC, Dr. Emmanuel Kachikwu, would entail review of operating contracts and agreements with oil companies with a view of squeezing out more revenue from the industry.
It is not clear the particular business model to be affected in the new measures expected to take effect in coming months but there are hints all existing Production Sharing Agreements and Contracts with big oil companies in the industry will be affected. The measure is seen as circumventing the legislative impasse on the PIB at the National Assembly where the bill which recommended fiscal changes in the industry has stalled in a huge controversy after it was introduced for over a decade ago.
The review of the operating terms would be the concluding stage of the immediate mandates of Dr. Kachikwu who was appointed by President Mohamed Buhari to cleanse the NNPC of corrupt reputation to rekindle the confidence of the people in his administration. Dr. Kachikwu told newsmen in Abuja that review of fiscal terms would follow the ongoing restaffing of management structure at NNPC which has seen mass dismissal of top executives inherited by the new government.
In the final stage, the NNPC will review all existing contracts, including production sharing contracts with independent oil companies, and analyse the plunge in crude oil prices to improve revenue for the government. “There’s a people aspect which we are dealing with now,” he said after a meeting with Buhari. “After the people at the right places, we are going to get a forensic audit done … that will cover us all the way to 2014, 2015,” the new oil boss told reporters. “Over the next five-six months, you will begin (to) see emerging a new NNPC,” he said. “The reality is that to run an oil company, you’ve got to have funds to do it.
If you don’t, you close down the corporation and the production system will close down,” he told reporters. By its actions, analysts see the new government as implementing parts of the recommendationsof the PIB without the supporting legal basis possibly to evade the legislative trapdoors suffered by the preceding government of Goodluck Jinathan which pressed for the passage of the PIB for throughout its tenure without success. The bill recommends the restructuring of NNPC into a more effective and transparent national oil company that would be accountable and driven by sound business models.
The PIB also recommended review of existing fiscal regime in the industry to raise government’s revenue by blocking loopholes and leakages in the system through which oil multinationals are said to short-change the government. Key investors in the industry comprising major multinational oil corporations that have sunk huge investments in the country had opposed the bill as having a faulty basis for tax and royalty calculation, arguing that the bill would kill incentives for further investments and force players to seek better fiscal environments as new plays open up across the world. Uncertainty over the PIB account for the prevailing freeze of investments and associated activity lull in the industry.
Manging Director of Seplat Petroleum, Mr. Austin Avuru, said the cause of the current investment impasse in the sector is not necessarily the PIB and its contents but the uncertainty surrounding the outcome of the disputes associated with the bill. According to Mr. Avuru, “there are too many contending issues that are lumped into one piece of legislation including issues that were never in dispute; including issues that we didn’t need to revisit. And in the process they have thrown the industry into an impasse; you can’t move forward because everybody, especially the multinationals operating in the deep offshore and who have to make multibillion dollar investments, is in an uncertain business climate. Clearly they have pulled back their pen and they are not taking FID.
“What is stopping the industry from moving forward is the uncertainty created by the possibility of a new legislation that is not clearly understood. And therefore you can’t take the risk of making heavy investments because you can’t be certain until that piece of legislation becomes law. And so, as long as there is suspense, there will be lull. The entire industry is in suspense. Every month, you hear about dwindling revenue into the federation account. Yes, it will continue,” he pointed out. American multinational oil major, ExxonMobil, is part of the investors group that opposed the PIB, saying that cost templates that formed the basis of fiscal calculations did not secure pan-industry agreement before it was used to shape the new fiscal structure.
Now, with complete alteration in the industry cost structure as oil prices plummet, the PIB might have lost any tenable fiscal proposal for the government. And appointment of Dr. Kachikwu from ExxonMobil (industry appointees by previous governments traditionally came from Shell) has also marked a shift from shrewd European business model to more transparent American model. The former Exxon Mobil executive has already dismissed all of the company’s executive directors and other top layers of management. Thus Dr. Kachikwu’s personnel cleansing at NNPC could be interpreted as introduction of complete shift in business strategy for the corporation which suffers the traditional reputation of poor performance.
– Sopuruchi Onwuka