Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari, in an interview with Deutsche Welle Radio, sheds light on the significance of the newly signed Petroleum Industry Act (PIA), allaying fears of the host communities and explaining the new form being taken by the nation’s oil and gas industry. Bolaji Ogundele monitored the interview. Excerpts:
President Muhammadu Buhari has signed the new Petroleum Industry Bill. What is unique about this bill?
Thank you very much, I think its history made in the sense that we’ve been battling with changing to legislation around our petroleum operations. As we may all be aware, the current petroleum framework is actually anchored around Petroleum Act and Petroleum Profit Tax Act, both of them of 1967. There hasn’t been any substantial change to either the regulatory or even the fiscal framework of the oil and gas industry since 1967. The only minor change that has happened is the introduction of the Deep Offshore and the Inland Basin Acts.
To that extent, you can reasonably say that there hasn’t been significant changes in the petroleum industry and the end result is that we have seen very significant drop in investments in our country and since we introduced some form of uncertainty in year 2000, when we decided to do something about the petroleum legislation, everything stopped and the real indication is that in the last five years, there are over $50 billion of direct foreign investment into Africa and out of that less than $4 billion came into Nigeria.
This is an indication of concerns around the fiscal framework and also concern around the stability of our fiscal system. Then, of course, the entire regulatory framework wasn’t very competitive and not in line with the current realities of our times. Therefore, what this law has done is to remove all those uncertainties, bring our loss in conformity with the best practices in the world and also bring up our fiscal environment in such a way that investors are assured that they will make reasonable margin operating in this country, with some level of uncertainty that is there.
So, for us, the accent to this law by Mr. President is history made and it is to be a game changer for the whole of the oil and gas industry. What will happen is that there will be significant investment that will flow into this country, there will be activities created, more taxes will be realised by all institutions of government, including all tiers of government, from local government to state government, because activity will spring up.
More importantly, we know for sure that this bill is clearly focusing on gas development. Gas development hasn’t been the focus of any legislation in this country, in the industry, we are all looking for oil and nobody’s looking for gas because the fiscal framework doesn’t support it. What this bill has done is to create an environment where infrastructure for gas development would be put easily and also investment in gas will be much more profitable than it used to be.
So overall, you have a bill that is as clear, that is modern, that is fitting into the realities of today, and ultimately, it’s an indication that this country has moved forward.
Overbearing governmental control, over time, has been a major issue in the Nigerian oil and gas industry. How is the new law going to change all that?
Sometimes it’s maybe misplaced, but what people don’t understand and realise is that when you have an industry that is the backbone of economic activities and development, there’s no way you can eliminate government from those conversations. But what this bill has done is to delineate boundaries between commercial activities and the activities of regulatory institutions or that of government and therefore that clear line that is drawn between it has also brought into focus what others do; in every country you do have governments taken interest in oil and gas operations and we are not an exception. But what is the truth today is that this bill has clearly drawn a line between the two; it has created a very commercial national oil company, not a corporation, but is a company that is registered under the Companies and Allied Matters Act.
The meaning of this is that it will just be another company, it will just be another Shell or Chevron or any other company that is there. It is there to pay taxes and royalties, to also declare dividends to the shareholders. Incidentally, the shareholders of this company are the 200 million plus Nigerians.
So, it’s a different ballgame, it’s a different environment. This company, particularly the NNPC, must make profits now because that is the only reason why a company will survive under the Companies and Allied Matters Act. It is no longer a service deliverer, but it’s an enabler company and also a company that should return value to its shareholders.
Niger Delta, the host communities involved in oil exploration in Nigeria, seems not to be happy with parts of the bill. How do you hope to work and succeed with Niger Delta not being happy?
The operationality of this bill will bring on ground the realities of what we have done for the host communities, not just in the Niger Delta, anywhere in the country. What this has done to bring the host communities into focus, this was lacking in the past, where we’ve seen many interventions that have taken place that have not materially changed the life and living of these people in the horse communities. What we did is to create a special fund for the host communities from our operating costs in such a way that the communities are now directly responsible for their fate and they are in control of activities that takes place around them and ultimately, those material benefits that were lacking in the past will be seen.
The contention has been how much of the money are we ready to put down? This was clearly misunderstood and people are brandishing percentages of numbers, but they don’t know what it is. When it says 3% of your operating expense, mind you the operating expense in the industry is up to $16 billion in a year. That means that 3% of that operating expenses is clearly somewhere around $500 to $600 million, it can even be as high as $800 million. So, when you look at this, that value is almost bigger than the size of the budget of the NDDC. So, it is a really huge investment.
Clearly, this is a very huge intervention and people don’t know the value and the quantum of it and they’re comparing it with numbers that clearly are not representative of what we’re dealing with.
We’re very proud that this has come and only this government can do this in the sense that it’s a giveaway from resources that would have come to the centre and it is in addition to other existing incomes that clearly would have gone to somewhere else. I think time will show that this is a very good initiative and that the host communities are actually catered for.
Does this mean privatising the industry?
No, it’s not. Privatisation means who is investing in a country. I think the whole idea of having a national commercial oil company is to prepare it for ultimate ownership by third parties, not today, obviously that will build up a window where this can happen, but there’s no timeline on it. What it really means is that this company must run as a CAMA company on behalf of all of Nigeria, the shareholders can decide at any time to sell off the part of their shares.
Who are those shareholders?
The 200 million Nigerians are the shareholders of this company.
Does that mean we’re going to see improvement in oil production level now?
Absolutely, because uncertainty makes people not to invest and once the uncertainties are removed, people can see the value that they can get and obviously they will put more money into a business and once you put more money, you will see more production and of course, you have also done something different, which is to encourage development of your host communities. By doing this, you’re enhancing security and once you enhance security, it allows you to produce more.
So ultimate, it’s a total package that we know will work and we’ll see increased production of oil in our country.
What will you say about the production of gas?
Gas has been abandoned for a very long time, a number of initiatives have taken place. For instance, in the last 20 years, you have heard of many gas projects, which have not materialised and the very reason is that people don’t have a line of sight around how they can recover their investment and also the value of investment that they can cover. This hasn’t been clarified by past legislations, the existing framework before the passage of this bill hasn’t taken care of that. So, what this bill did is to focus on making sure that investments can be recovered, people can get benefits from their investment, and more importantly, have some certainty around fiscal regime and some stability. So ultimately, infrastructures will come up for gas development and you will see more gas coming to our country.