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TIME FOR CHANGE: New opportunities, partnerships and our energy future

NEW Opportunities, new partnerships and new structures will shape Nigeria’s future as an energy giant: When you change something that has been around for 50 years, however much it needs changing, chances are that this change will not be universally popular.

So it is with Nigeria’s gas and petroleum industries. For the best part of 50 years they have rumbled on, in many ways making a hugely important contribution to our nation’s prosperity. But I don’t think anyone would claim that the arrangements under which they have operated were perfect. And as time goes by, these imperfections have become increasingly difficult to deny.


Things need to change. The signs are quite clear. If you look at the key performance indicators, most of them are moving the wrong way. For example, the rate of exploration drilling is dropping, even as production rates and national reserves decline.

The effect of all this is not hard to imagine. Nigeria’s earnings from oil and gas are actually declining, and there’s a growing danger that if our production levels and reserves continue to drop, our position at the Organisation of the Petroleum Exporting Countries (OPEC) high table could be put in jeopardy.

Current arrangement

Of course, 50 years ago when most of the current arrangements were put in place, the world was a very different place. The great oil shocks of the Seventies had not yet hit, and very few of the oil-rich nations had yet seen those riches transformed into real prosperity for their people. In Nigeria, we had only limited experience as an oil producing nation, and like almost everyone else, had absolutely no idea of the vast changes the future would bring for the sector.

So, in drawing up the regulations and arrangements that would apply, it was natural that the expertise and experience of the international oil companies should have made an important contribution to the thinking of Government at the time. And much of the success of our oil industry since then has been due to the expertise and good advice offered.

Of course, it would be naive to expect the oil companies of those days to have encouraged arrangements or regulations that seriously inhibited their own business opportunities, and over the years that followed, great wealth flowed from Nigerian oil wells into the corporate coffers of our business partners. But this in itself is no bad thing. Today, we remain equally determined that our industry partners of the future will thrive and prosper. But that prosperity has to be based on fair partnership, mutual respect and social responsibility. Over the years, it has become increasingly apparent that these qualities have not always formed the bedrock of the commercial exploitation of our petroleum industry.

Environmental devastation

But it is not just a matter of commercial arrangements. There has also been a great cost suffered by our country and our people in terms of environmental damage. Much has been said, and arguments have raged over the extent of this damage; the causes, and where the blame lies. But anyone who spends any time in the Niger Delta will tell the same story.

The harm done has been grievous. The land, the air and the waters of the Delta have been polluted and poisoned over many decades. And for this, the international oil companies must take a great share of the responsibility. Of course, these corporations don’t cause every spill: sabotage, theft, and illegal refineries also seriously share in the blame. But corrosion, out-dated piping (often far beyond its projected lifespan), and maintenance malpractice by some of these large firms have led to hundreds of spillages – large and small, each year. According to the World Bank, the number could be in the thousands.

In the Petroleum Industry Bill (PIB), we recognise that this constant abuse of the environment and of local livelihoods of the farmers and the fishermen must stop. As part of our response, we’re introducing a regulator with real teeth that will investigate all damage to the environment, and hold it up to the light for intense public scrutiny. We need an end to impunity. To do this, the bill breaks up the Nigerian National Petroleum Corporation (NNPC), which currently acts as both regulator and an oil corporation – both a player and a referee.

PIB objectives

Under the PIB, the regulator will stand alone and will defend the environment from further devastation, no matter how large or small the offender.

These environmental issues represent the sharp end of the stick: any oversight or accident in the oil industry is felt first, and felt hardest, by the environment. But the PIB doesn’t leave off with these immediate concerns.

Currently, the revenue stream from oil-production is shared, and one of these streams – the Derivation Fund, pours money into local development. But there have been problems of distribution and of fairness. The bill meets this complaint with the introduction of a new, additional measure: the Petroleum Host Community Fund,which splits part of the oil (and gas) revenues between the coastal communities with oil and gas facilities, including pipelines, for the first time giving both local upstream and downstream communities a decent share of their black gold. Over the coming years, the Fund would start to meet the basic deficiencies we see every day in the most oil-rich areas of Nigeria: bad roads, bad street-lighting, and a lack of clean, safe water.

But naturally, the bill isn’t just about the environment: it’s also about fine-tuning the engine of the industry, and directing the oil industry back toward growth. For example, by parcelling land into smaller blocks like the United Kingdom (UK) does with its North Sea oil and gas, we’re planning to make Nigerian exploration and extraction more competitive, forcing companies to explore their land blocks or risk losing them. This is urgently needed,as Nigeria discovers fewer and fewer wells each year and reduces its output, countries as small as Ghana are growing from pygmies into real competitors in the international oil markets. Under the PIB, we’ll also be prising open space for smaller companies to operate alongside the international corporations, while cutting back certain taxes to ensure we can gain and retain the best partner companies for Nigeria.

To guarantee the future of Nigeria’s hydrocarbon supply, the bill also establishes a Frontier Exploration Service to search for and analyse Nigeria’s extensive deposits. Critics of the bill have argued that it makes no provision for exploring undiscovered Northern reserves.

But the Exploration Service does just that, and in the process of exploring, it’ll make its findings freely available to any member of the public or interested party. Nigeria is interested in extracting oil wherever it finds it, and the Exploration Service will lead the way. It’s good news for the oil corporations, and it’s good news for the North, and ultimately, good news for Nigeria.

So the bill is ambitiously reformist. Undoubtedly, there are open questions and these questions will receive attention. But the PIB draft contains solutions to urgent problems. If Nigeria is to maintain its competitiveness worldwide, and its people are to get their new, fair deal in this oil bargain, Nigerian legislators should be prepared to ruffle the occasional corporate directors’ feathers. These companies have been our friends, playing their part in Nigeria’s rocketing growth, and the returns we ask are no greater than those asked by Norway or Indonesia of their own corporations. Indeed, Nigeria and the oil industry have a strong common future, but the terms of engagement must be updated. Through legislation and cooperation, the Government and corporations can clean up this industry, recognising that the old rules aren’t protecting Nigerians against new and difficult circumstances. The economist, John Maynard Keynes, understood the dilemma. As he once quipped, “When the facts change, I change my mind – what do you do, sir?”

•Membere is the Group Executive Director, Exploration and Production, Nigerian National Petroleum Corporation (NNPC)


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