Reforming the management and modus operandi of the energy sector was one of the major focus areas of the administration of President Muhammadu Buhari when it took office in 2015. The signing of the Petroleum Industry Act Bill into law, which unbundled the former state oil company, the diversification to cleaner energy initiative, among other laudable feats, are the high points of the administration. However, as one of its downsides, the administration is rounding off without any significant change in the parlous state of the country’s refineries as well as the unresolved conundrum of fuel subsidy. Assistant Editor MUYIWA LUCAS writes
In the eight years of President Muhammadu Buhari, the oil and gas sector has had its fair share of good policies aimed at repositioning the industry. The passage of the Petroleum Industry Act 2021, though not without some critical stakeholders kicking against some of its provisions, remains perhaps the biggest achievement of the administration in the industry. This Act led to the commercialisation of the Nigerian National Petroleum Corporation (NNPC), formerly government owned, to become a private entity – now known as Nigerian National Petroleum Company Limited (NNPCL).
The administration, in an apparent support for the global energy transition drive, equally initiated the “Decade of Gas” policy. The initiative is to harness opportunities in the gas subsector with a view to boosting revenue earnings, with Nigeria’s gas reserve currently standing at 206 trillion cubic feet (tcf). But the administration, notwithstanding huge revenue pressures, has continued to sustain a petrol subsidy regime that has weighed down government spending on other critical sectors. By the end of this administration’s tenure come May 29, a whooping N11 trillion would have been expended on sustaining fuel subsidy – a spending that stakeholders and international organisations like the International Monetary Fund (IMF) have warned to be unsustainable.
Fuel subsidy – an unsustainable corruption conduit
Stakeholders have been left in awe on the reluctance of the President Buhari administration to jettison the subsidy regime in the last eight years. This is because prior to the President’s assumption of office in 2015, he had been a strong antagonist of the subsidy regime, maintaining on several occasions that there is nothing like subsidy. He branded it as a fraud and scam used by government officials and their cronies to steal public funds. Still before his emergence as President in 2015, international crude oil prices dropped, prompting Buhari to make a charge to the sitting administration then to “stop stealing from Nigerians and allow them to enjoy the relief that has come to consumers of petroleum products globally arising from the oil price fall.”
It, therefore, comes as a surprise to many Nigerians that President Buhari, in his eight years in office, has been unable to jettison the subsidy regime, which he had passionately condemned in the past. Twice in the lifespan of the administration, attempts were made to jettison subsidy on petrol and twice the idea was jettisoned – the latest being the stepping down of the idea about a month ago, leaving the decision for the incoming government to decide. This decision, political strategists and stakeholders in the economy argued, is a show of lack of political will to take responsibility for policies.
Defending the President’s backtracking on subsidy removal, the Special Adviser to President Buhari on Media and Publicity, Mr Femi Adesina, argued that the administration did not remove fuel subsidy payments due to economic and social factors. “Each time there is an effort to fight the fraud in the subsidy regime, you have to contend with labour, you have to contend with the people. The government needed to weigh its options because of the social consequences,” Adesina said on a television programme.
Between 2015 and May 2023, representing the eight years of the President Buhari administration, about N11 trillion has been spent on payment for petrol subsidy. But the reality of the present day economy is said to be unable to support this trend. Data from the Nigerian National Petroleum Company Limited (NNPCL) and the Nigeria Extractive Industries Transparency Initiative (NEITI), in this period and as submitted last September by the latter to the to the House of Representatives ad hoc committee investigating the fuel subsidy regime from 2013 to 2022, indicated that in 2015, fuel subsidy gulped N316.7 billion; N99 billion in 2016; N141.63 billion in 2017; N722.3 billion in 2018; N578.07 billion in 2019 and N134 billion in 2020. In 2021, NNPCL said subsidy on petrol hit N1.43 trillion in 2021 and by end of 2022, it had hit over N6 trillion. In the Medium Term Expenditure Framework, the government proposed to spend N3.3 trillion on fuel subsidy between January and June 2023.
Until President Buhari buckled on subsidy removal, critical players in the economy, including unions, had thrown their weight behind the initiative. For instance, the Chief Executive Officer, Center for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said there is an urgent need for government to remove subsidy. This, he said, however, needs to be done with minimum shocks to the economy and the citizens. “Unlocking revenues from petrol subsidy would be a major step towards realisation of fiscal consolidation objective of the Federal Government. This would also reduce the current tendencies to impose additional burden of taxation on businesses and moderate macroeconomic headwinds,” Yusuf said in an interview with The Nation.
Warning that the Nigerian economy is heavily burdened and encumbered by the fuel subsidy regime, Yusuf said that huge sums of revenue can be unlocked from here if appropriate reforms are implemented. According to him, the plan by the federal government to discontinue petroleum subsidy will unlock a minimum of N6trillion revenue into the federation account annually. Additionally, he revealed, there would be an end to the several years of plundering of the nation’s resources through the subsidy regime.
In similar vein, the National Operations Controller, Independent Petroleum Marketers Association of Nigeria (IPMAN) Mr. Mike Osatuyi, said marketers are in full support of the government’s plan to embark on full deregulation of the downstream sector. Osatuyi also urged the government to channel savings from subsidy provisions to provide palliatives to the masses.
Petroleum Industry Act 2021
The Petroleum Industry Act 2021 (PIA) was signed into law by President Buhari on August on August 16, 2022. The new statute indicates that the property and ownership of petroleum within Nigeria and its territorial waters, continental shelf, and exclusive economic zone is vested in the Government of Nigeria. “The provision of PIA 2021 has given the Nigerian petroleum industry a new impetus with the improved fiscal framework, transparent governance, enhanced regulation and the creation of a commercially-driven and independent national oil company that will operate without relying on government funding and free from institutional regulations such as the treasury single account (TSA), public requirement and fiscal responsibility act (FRA),” President Buhari noted.
The fiscal objective of the Act is aimed at providing a framework that will attract investors to the petroleum industry and generate revenue for the government while ensuring that investors get their money’s worth. These are generally in Part IV, which deals with the administration of midstream and downstream gas operations. The Act made provision for good governance and accountability in the industry, including creation of a commercially-oriented national petroleum company, and fostering a conducive business environment for petroleum operations.
The PIA also provides legal, governance, regulatory and fiscal framework for the Nigerian petroleum industry and development of host communities. It contains five chapters, 319 sections and eight schedules dealing with Rights of Pre-emption; Incorporated Joint Ventures; Domestic Base Price and Pricing Framework; Pricing Formula for Gas Price for the Gas Based Industries; Capital Allowances; Production Allowances and Cost Price Ratio Limit; Petroleum Fees, Rents and Royalty; and Creation of the Ministry of Petroleum Incorporated. The Act also ensured the unbundling of the industry, leading to the creation of the Nigerian Upstream Regulatory Commission responsible for the technical and commercial regulation of the upstream petroleum operations and the Nigerian Midstream and Downstream Petroleum Regulatory Authority, which is responsible for the technical and commercial regulation of the midstream and downstream operations in the country.
The PIA also provided for the imposition of up to one per cent levy on the wholesale price of petroleum products sold in the country (0.5 per cent each for the Authority Fund and Midstream Gas Infrastructure Fund). Importantly, PIA made room for the incorporation of a commercial and profit-focused NNPC Limited under CAMA within six months from commencement of the new law with ownership vested in the Ministry of Finance Incorporated (and Ministry of Petroleum Incorporated) on behalf of the federation to take over assets, interests and liabilities of NNPC. NNPCL is also to earn 10 per cent of proceeds of the sale of profit oil and profit gas as management fee; while 30 per cent will be remitted to Frontier Exploration Fund for the development of frontier acreages in addition to 10 per cent of rents on petroleum prospecting licences and mining leases.
Unbundling of NNPC
On July 1, 2022, NNPC Limited legally transformed into a company whose operations and activities are regulated by the Companies and Allied Matters Act (CAMA), following the Petroleum Industry Act (PIA) 2021, thereby transitioning from the Nigerian National Petroleum Corporation (NNPC) after 45 years of being a public oil firm. The President subsequently, on July 19, 2022, unveiled the Nigerian National Petroleum Company Limited (NNPC Limited). He noted at the event that, “This is a landmark event for the Nigerian oil industry. Our country places a high premium on creating the right atmosphere that supports investment and growth to boost our economy and continues to play an important role in sustaining global energy requirements. We are transforming our petroleum industry to strengthen its capacity and market relevance for the present and future global energy priorities.
“By chance of history, I was privileged to lead the creation of the Nigeria National Petroleum Corporation on July 1, 1977. 44 years later, I was again privileged to sign the Petroleum Industry ACT (PIA) in 2021, heralding the long-awaited reform of our petroleum sector. It is, therefore, my singular honour and privilege on this historic day of 19th July 2022 to unveil the NNPC Limited, with focus on becoming a dynamic global energy company of choice to deliver energy for today, for tomorrow, for the day and days after tomorrow.”
Following the transition, the NNPC thus ceased to make remittances to FAAC but will pay all taxes, royalties and declare dividends. The projection was that on a monthly basis, beginning from last year, the NNPCL will remit N122.7 billion to FAAC from its trade. The transition is also expected to drive bigger and better investment into the oil sector. According to a KPMG report, between 2015 and 2019, only four per cent of the $70 billion investment inflows into Africa’s oil and gas industry came to Nigeria even though the country is the continent’s biggest producer and the largest reserve.
Petrol scarcity/price hike
Two major petrol scarcities rocked the Buhari administration in his eight years in charge – both coming between last quarter of 2021 and last quarter of 2022. In the last five months, Nigerians have had to contend with what may perhaps have been the longest span of petrol scarcity – at least, in recent times. Twice, last year, queues surfaced at the pumps, with the second fuel scarcity crisis spilling over till the early months of this year in some places. On each occasion, the effect is that the pump price of the commodity skyrockets, though unofficially.
At the time the last scarcity entered its fourth month, pump prices of petrol increased from N175 per litre to between N185 and N195 per litre. This price though applies to only retail outlets owned by the NNPCL retail outlets (filling stations) and major oil marketers. The issue of price remains a major source of concern. With the local currency, the naira, hitting an all-time low against other international currencies, the cost of doing business has risen astronomically. This has affected the operational cost of running depots and other ancillary services associated in the value chain line of petrol supply and distribution, including its storage. The cost of fuel pump increased from N87 per litre as of December 2015 to N165.77 by December 2021, which is an increase of 90.54 per cent, according to the Fuel Pump Price Per Litre – Average (PMS) data from the Central Bank of Nigeria (CBN).
Toxic fuel importation saga – an avoidable crisis
Perhaps another low point for the President Buhari administration was the influx of over 100 million litres of “toxic” fuel into the country in late 2021. The incident led to acute fuel shortage across the country, damaging several vehicles in the process. In February 2022, a large consignment of imported petrol had to be withdrawn from the market, after it was found to have excessive levels of methanol, which was causing engine damage in vehicles including environmental pollution.
The Nigerian National Petroleum Company (NNPCL), as sole importer of petrol into the country, however claimed the importation of toxic petrol was not deliberate, insisting that it was impossible for importers to have known that the petrol contained methanol, as checking for the substance was not a primary requirement for the relevant bodies.
NNPCL Group Managing Director (GMD), Kyari, at an interaction with the House of Representatives ad-hoc committee investigating the circumstances that led to the incident had said: “No one out there will bring this product into this country deliberately. There is no way we would have seen this methanol except your supplier decides to disclose to you because it is not part of their requirements to look for this.” This position, stakeholders argued, raised serious concerns over the regulation of fuel standards in the country.
With stakeholders and vehicle owners whose automobile engines were damaged from the usage of this product, calls for compensation rented the air. For instance, at the peak f the incident, the National Coordinator of the Human Rights Writers Association of Nigeria (HURIWA), Emmanuel Onwubiko, had insisted that the oil importers ought to have entered into “constructive dialogues with government and the victims of their bad fuel on issues of compensations to stave off huge legal damages that may come up if the victims are forced to go to court.”
He called on the Federal Government to, as a matter of importance, work out and enforce systematic compensations of damages currently resulting from the use of the toxic fuel by Nigerians, adding that “the defaulting companies should be dragged to court by the government if they fail to compensate their victims.” While President Buhari had taken a tough stance on the incident, unfortunately, it has only turned out to be a mere verbal toughness as no punishment has been meted out to the culprits till date.
Decade of Gas/AKK project
On March 29, 2021, President Buhari launched the country’s “Decade of Gas” initiative aimed at harnessing the country’s vast gas reserves to drive economic growth and development and to position the country towards taking advantage of the global energy transition. Aside this, it was aimed at positioning the country for the global transition to cleaner fuels. The initiative is also targeted at the country’s largely untapped natural gas resources, estimated in excess of 206 trillion cubic feet (TCF), with a potential to grow to 600 trillion cubic feet (TCF). If well harnessed, many experts believe that gas is a veritable means for the country to fund its economy.
In line with the Decade of Gas initiative, President Buhari also initiated the Ajaokuta–Kaduna–Kano (AKK) Natural Gas Pipeline, which is due for completion this year. The AKK project, being funded by China’s Belt and Road Initiative, is also aimed at connecting the country’s gas supply to other planned trans-regional and intercontinental pipelines, such as the Trans-Saharan Gas Pipeline. This, upon completion, will open up the European market for the country to sell its gas, earning more revenue in the process. Still, the administration, in 2016, entered into a pact on a gas pipeline project linking Nigeria to Morocco, which will also supply West Africa and Europe. The memorandum on the Nigeria-Morocco gas pipeline project (NMGP) was initiated by the leaders of the National Nigerian Petroleum Company Limited (NNPC), the Moroccan Office of Hydrocarbons and Mines (ONHYM) and a senior official of the Economic Community of West African States (ECOWAS) in charge of energy.
The 6,000 km Nigeria-Morocco project will cross 13 African countries along the Atlantic coast and supply the landlocked states of Niger, Burkina Faso and Mali. It is expected to bring more than 5,000 billion cubic metres of natural gas to Morocco, and from there, it will be connected directly to the Maghreb Europe Gas Pipeline (GME) and the European gas network. The NNPCL is also staking $12.5 billion to secure a 50 per cent equity stake in the $25 billion Nigeria-Morocco Gas Pipeline project. NNPCL and the National Office of Hydrocarbon and Mines (ONHYM), a Moroccan hydrocarbons firm, are jointly funding the project on an equal basis.
Group Chief Executive Officer, Nigerian National Petroleum Company Limited (NNPCL), Mallam Mele Kyari, disclosed that the project is already at FEED Phase II, undergoing Environmental Impact Assessment and Right of Way Surveys. He said NNPC is taking advantage of Nigeria’s huge natural gas reserves as more investment is expected due to the recent resolution of the production sharing contract disputes with partners. He said Nigeria’s domestic gas infrastructure network has an existing capacity to transport about 6.9 billion standard cubic feet (BCF) of gas to support power generation.
