Agenda for the oil and gas sector


The euphoria of being declared the winner of the 2023 presidential election will soon be over. The inauguration will be over in a week’s time and Bola Tinubu is expected to settle down to business. The fiscal resources to implement electoral promises are not available. This discourse seeks to set an agenda for the new administration in the oil and gas industry to increase public revenue accruing from the sector.

In the 2023 federal budget, it is proposed that petrol subsidy will remain up to mid-2023 based on the 18-month extension announced early 2022. In this regard, only N3.36tn was provided for the PMS subsidy. If consumption and subsidy is sustained until the end of the year 2023, it will imply a subsidy figure of not less than N6.72tn. The Nigeria Extractive Industries Transparency Initiative reports that N13.7tn has been spent on fuel subsidy in the last 15 years. There are a plethora of reasons justifying fuel subsidy removal.  These include Nigeria’s unsustainable fiscal position as evidenced in the huge debt profile, perennial fiscal deficits and poor macroeconomic indicators. The subsidy is currently funded from borrowing. The letter, spirit and tenor of the Petroleum Industry Act does not permit continued subsidy and fiscal policy must be anchored on the rule of law and its due process – the PIA. Finally, removing fuel subsidy will lead to the eradication of the massive corruption in the sector. The inflated consumption numbers of 65million litres a day will be of no relevance in the new system.

To achieve this, it is recommended that the Federal Government engages organised labour, private sector and the public in good faith disclosure and negotiations with relevant information, and design a social intervention programme to cushion the hardship in critical sectors like transport, agriculture, food, etc. It should take steps to conclude the revitalisation of existing refineries and thereafter run them efficiently. In the alternative, concession or privatise the refineries after the repairs and turnaround maintenance. The proposed private sector participation should be done under a process that is transparent, guarantees value for money and ensures that the firm has technical, financial and managerial capacity to run the refineries. On no account shall a firm taking over the management of the refineries be allowed to engage in asset stripping. The Federal Government should grant more licences to firms to engage in local oil refining to avoid creating undue monopoly when the Dangote Refinery comes on stream.

NEITI disclosed in a December 2022 statement that about 619.7 million barrels of crude oil, valued at $46.16bn or N16.25tn, have been stolen in the last 12 years. This averages N1.354tn annually. This sum when brought into account in the books of NNPC Limited will increase its profit and the dividends to be paid to the government. According to data from the Nigerian Upstream Petroleum Regulatory Commission, Nigeria’s crude oil production dropped to 998,602 barrels per day in April 2023, from its March 2023 1.2mbpd.  Although there are other reasons that may have reduced oil production, this may be evidence that oil theft may have escalated beyond comprehension. This is against the background of the 2023 budget projection of 1.69million bpd.

The recommendations are to reduce oil theft and vandalisation to a minimum by holding accountable officers under whose watch industrial-scale oil theft occurs; demand value for money in the Tompolo Pipeline Protect Contract and similar contracts. Also, consider a certification and authentication system – pipeline integrity programme that traces Nigerian crude from the wells to refineries as a means of eradicating oil theft. Lessons can be drawn from the experience of “blood diamonds.”  Furthermore, activate the real-time online monitoring of pipelines and strategic oil and gas resources paid for in federal budgets between the years 2010–2014 and in recent years. If this facility is not available, hold to account individuals and institutions that drew down the appropriated votes without delivering any value.

In the last couple of years, Nigeria has been struggling to meet its Organisation of the Petroleum Exporting Countries quota and budget benchmark. Nigeria did not meet the 1.8mbpd benchmark of the 2022 federal budget and has not been able to meet the 2023 federal budget benchmark of 1.69mbpd. Nigeria’s current reserves stand at 36.9 billion barrels and the reserves are declining due to low exploration activities. Beyond oil theft, investments in the sector from oil majors have decreased over the years, as many of them have been divesting and selling off their assets to local investors. Nigeria’s total annual upstream capital expenditure decreased by 74 per cent from $27bn in 2014 to less than $6bn in 2022. Oil is a timebound energy source whose value will continue to diminish over time in the global march to carbon reduction.

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It is recommended that Nigeria should maximise investments to improve oil reserves and oil production and target not less than three million bpd in the medium term. NNPC Limited should drive fundraising for investments in the sector. Its preparation for an initial public offer should be accelerated. The management of NNPC Limited and other relevant agencies should be revamped to attract world/best in class managers to drive the reforms in the sector. Furthermore, the full implementation of the relevant sections of the PIA should be guaranteed.

Nigeria’s associated gas reserves is 102.32 trillion cubic feet, non-associated gas reserves stand at 106.51 trillion cubic feet, making the total of 208.83 trillion cubic feet of natural gas reserves. Again, this is an energy source that is time bound in the global march to carbon reduction. Nigerian needs to maximise investments in gas gathering processing, local use as well as export. There are gas fiscal incentives under the PIA – a maximum of 10-year gas tax holiday and benefits under S.39 of the Companies Income Tax Act, and investors in gas pipeline will be granted an additional tax-free period of five years at the expiration of the tax-free period granted in S.39 of the Companies Income Tax Act and S.302 (6) of the PIA. The Nigerian Morocco Gas Pipeline and other projects should be implemented for increased earnings from gas.

It is recommended that Nigeria should maximise investments to improve gas reserves and gas gathering, processing, local utilisation and export. NNPC Limited should drive fundraising for investments in the sector. Again, the management of the NNPC Limited and other relevant agencies should be revamped to attract world/best in class managers to drive the reforms in the sector. The full implementation of the Petroleum Industry Act in this regard is also imperative.

Nigeria’s large diaspora community is an asset waiting to be tapped as a source of investments for these and other projects. Diaspora remittances in 2020 were $17.21bn and rose by 11.2 per cent to $19.2bn in 2021. The bulk of the remittance is for welfare and to support families back home which is distinct from capital investments. Investments from Nigerians in Nigeria and in the Diaspora will definitely raise the needed resources provided there is utmost transparency and accountability.

The foregoing recommendations will deliver value in an environment of reduced insecurity, where corruption is fought to a standstill and the rule of law is enthroned in all public finance management and governance decisions.


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