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Professionally Speaking SPE Digest

Corporate Nigeria (CN) talks to

Dr. Emmanuel O. Egbogah (OON), 

Special Adviser to the President on Petroleum Matters.

 

Restructuring the Oil and Gas Sector

 

CN: Dr Egbogah, you are the Special Adviser on Petroleum Matters to President Yar’Adua. Can you describe your responsibilities and activities as Special Adviser to the President on Petroleum Matters?


Dr Egbogah: I advise Mr President holistically on matters of hydrocarbon resources exploration, planning, development, management, asset value, economics, policy, strategy, governance, legal and regulatory framework, fiscal regimes and petroleum arrangements, financing and all issues pertaining to refining and transportation. The advice covers the entire hydrocarbon value chain.


How would you characterise the prospects for the oil and gas industries in 2008?


Considering the sustained high demand for crude petroleum and associated products on the world market the prospects for oil and gas industries in 2008 must necessarily be good and robust.


What is the government’s highest priority for action on oil and gas in 2008?


The new Nigerian government of President Umaru Musa Yar’Adua has promised to stand by the ban on routine gas flaring that had been set for 2008. The Niger Delta security issue will be a priority in as much as the government has already started to engage the people of the region through dialogue.  

 

In September 2007, the President decided to restructure the state-owned Nigerian National Petroleum Corporation (NNPC). Why was it necessary to restructure NNPC?


The transformation of the Nigerian National Petroleum Corporation, NNPC, as it is currently organized and managed as a huge amorphous cost centre with conflicting roles in Policy, Regulation, Commercial Operations as well as National Assets Management, is central to the Oil and Gas Sector Reform. The reform seeks to transform NNPC from its present status as a ”guardian“ of Government Oil and Gas Assets into a fully fledged International, Integrated Commercial Oil & Gas Corporation driven by revenue generation and profit objectives.


The current NNPC shall be subsumed into the new National Oil Company, to be known as the National Petroleum Company of Nigeria (NAPCON). It shall be a fully integrated oil and gas company, competing both locally and internationally in all sectors of the industry. It would be divorced of other conflicting roles of Policy, Regulation, and National Assets Management, and would focus on its commercial operations with the prime objectives of revenue generation for its shareholder – the Federal Government of Nigeria.


What changes are being made to the structure of the NNPC and what will be the effect of these changes?


The NAPCON will therefore be structured as a purely commercial, profit-oriented, duly capitalized limited liability company with rights to raise funding for its projects and operations.

It shall have a Board of Directors with a non-executive chairman. It shall also have a Group Managing Director (GMD) and a number of Executive Directors that may be prescribed from time to time depending on the exigencies of its business portfolio.


Funding the NAPCON:

The NNPC as currently structured has no capital base and therefore is constrained from accessing funds from either the domestic or the international capital market. To remedy this situation, the Reform Committee recommends that:

–    NAPCON shall be capitalized

–    A seed money shall be given to it as working capital

–    NAPCON shall be vested with a percentage of the National

–    Reserves to enable it get appropriate credit rating, and

–    The Strategic Business Units of NAPCON shall also be capitalized and funded.


In October 2007, a report of the committee on energy crisis proposed creating a new structure of the regulatory bodies overseeing the industry, replacing the Ministry of Energy with a National Energy Directorate and creating a supra-ministerial organization, the National Energy Council, for strategic planning.


Can you describe the recommendations of the Report? What conditions have led to the need for reform in the oversight of the industry?


Because of his concern for the energy situation in the country, Mr. President set up a Committee on Saturday, August 11, 2007 to look into the energy crisis in the country. The Committee made a presentation to Mr. President on Monday, August 13, 2007.


What did the Committee Present to Mr. President?


The Report of the Committee on Energy Crisis was presented by Dr Rilwanu Lukman, Honorary Special Adviser, Energy and Strategic Matters and Chairman of the OGIC Reform Implementation Committee.


The recommendation of the Report addressed the following areas:

1. Required Legislation

2. Funding and Privatization

3. Gas Linkage with Power Supply

4. Role of the Three Tiers of Government


The Report argued that the transformation of the Nigerian National Petroleum Corporation, NNPC, as it is currently organized and managed as a huge amorphous cost centre with conflicting roles in Policy, Regulation, Commercial Operations as well as National Assets Management, is central to the report of the Oil and Gas Sector Reform Implementation Committee (OGIC).


The Report seeks to transform NNPC from its present status as a ”guardian“ of Government Oil and Gas Assets into a fully fledged International, Integrated Commercial Oil & Gas Corporation driven by revenue generation and profit objectives.


The Act establishing the NNPC must be repealed and an enabling Act enacted by the National Assembly before the operation of the New Companies. This also implies that full legislative process must be followed to insure that appropriate enabling laws are enacted before the OGIC recommendations and decision of Government can be implemented.


In achieving these broad objectives, the now NOC (National Oil Company), NAPCON (National Petroleum Company of Nigeria) must have a Clear Mandate, Financial Autonomy, Operational Independence and Managerial capacity/capability, which the current structure and its management practices could not achieve.


The Report catalogued its points as follows:


1. The phased implementation of the Oil and Gas Sector Reform Committee Report (OGIC) as approved by Government should form part of the programme of Umar Musa Yar’Adua Presidency.

2. Mr. President should, as a matter of urgent national importance, constitute an Implementation Steering Committee.

3. The Steering Committee should be charged with the full implementation of the OGIC Report within a specific period of time not exceeding six months.

4. All major amendments to the report that might arise in the course of the implementation must be cleared with Mr. President.

5. To ensure the overall effective supervision of the Oil and Gas Industry, the President should ensure the immediate establishment of a National Energy Council (NEC) for all major policy and strategic decisions relating to the industry.

6. The National Energy Council should be responsible for all major policy and strategic decisions relating to the industry.


After extensive deliberation of the Report, including the proposed New Oil & Gas Industry Structure, Mr. President directed that the Committee’s Report should be comprehensively re-presented to the Federal Executive Council, FEC and this was done on Wednesday, August 29, 2007 under the title ”Road Map for the Restructuring of the Oil and Gas Industry in Nigeria“ which is well anchored on the National Oil & Gas Policy:


The New Oil and Gas Industry Structure


National Energy Council (NEC)

1. The National Energy Council (NEC) is the supra-ministerial council chaired by Mr. President, charged with the responsibility for broad, long term policies of the nation’s Oil & Gas Industry.


2. The NEC ensures that the strategic decisions relating to the Oil and Gas Industry are not only coordinated at the highest level of government, but are also carried out from the perspective of macro-economic linkages.


3. The NEC underlines the strategic place of Oil and Gas in the national economic wellbeing and Nigeria’s future prospects of developing into the top 20 economies of the world.


Membership of the Council:

–    Mr. President

–    Vice President

–    Minister of Petroleum

–    Minister of Finance

–    Minister of Justice

–    Minister of National Planning

–    Secretary to the NPC

–    Four other members to be appointed by Mr. President


What will be the role and organisational structure of the National Energy Directorate?


We have a National Petroleum Directorate, NPD. The NPD subsumes the current Ministry of Energy. It would be responsible for detailed policy development, policy implementation and Resource Management. It would also be in charge of planning and production activities of the industry.


It would have a Director General appointed by Mr. President and shall consist of five strategic departments including:

I.    Oil Development

II.    Planning and Coordination

III.    Legal Services

IV.    Corporate Services

V.    Gas and Power


The NPD would remain compact, focused and professional. It would serve as the Secretariat from where the Minister of Petroleum would operate.


What will be the activities of the National Energy Council?


The National Energy Council (NEC) is the supra-ministerial council chaired by Mr. President, charged with the responsibility for broad, long term policies of the nation’s Oil & Gas Industry.

The NEC ensures that the strategic decisions relating to the Oil and Gas Industry are not only coordinated at the highest level of government, but are also carried out from the perspective of macro-economic linkages.

The NEC underlines the strategic place of Oil and Gas in the national economic wellbeing and Nigeria’s future prospects of developing into the top 20 economies of the world.


What other bodies are proposed and what will be their roles?


The rest of the bodies proposed in the restructuring and their roles are as follows:


The Petroleum Inspectorate Commission (PIC)

The PIC would subsume the current Department of Petroleum Resources (DPR). It would remain the Technical and Commercial Regulator of the upstream sector of the industry. To perform this strategic role it has to be financially and operationally independent of the industry it is supposed to police. The PIC shall have a Director General and three Directors to be appointed by Mr. President.


The National Petroleum Company Of Nigeria (NAPCON)

The current NNPC shall be subsumed into the new National Oil Company, to be known as the National Petroleum Company of Nigeria (NAPCON). It shall be a fully integrated oil and gas company, competing both locally and internationally in all sectors of the industry. It would be divorced of other conflicting roles of Policy, Regulation, and National Assets Management, and would focus on its commercial operations with the prime objectives of revenue generation for its shareholder – the Federal Government of Nigeria.


The NAPCON will therefore be structured as a purely commercial, profit-oriented, duly capitalized limited liability company with rights to raise funding for its projects and operations.

It shall have a Board of Directors with a non-executive chairman. It shall also have a Group Managing Director (GMD) and a number of Executive Directors that may be prescribed from time to time depending on the exigencies of its business portfolio.


The National Petroleum Research Centre  (NPRC)

NPRC to undertake serious research and development activities, integrating technology development programs by carrying out business driven R & D projects as well as providing value-added technical consultancy and laboratory services. The High Performance R & D Centre will provide quality Research and Technical services to NAPCON as well as other petroleum related companies nationwide.

Serious R&D into our specific industry problems, such as done in Malaysia, Brazil, Venezuela, Saudi Arabia and many other developing oil-producing countries, will stem the tide of capital flights resulting from analysis, data processing and engineering designs being carried out overseas.


The Petroleum Products & Distribution Authority (PPDA)

Whereas the PIC is the Technical and Commercial Regulator of the upstream sector of the industry, the PPDA shall perform the same functions for the downstream sector of the industry – both Oil and Gas. This would also include the functions of the current Petroleum Products Pricing Regulatory (PPPRA) and the  Downstream Gas Sector Regulator. The Authority shall have a Director General and three Directors to be appointed by Mr. President.


Unrest in the Niger Delta continues to hamper production in the region. What hopes do you have for a resolution to the situation in the near future? What compromises need to be made by various stakeholders in the conflict?


The Niger Delta security issue is the primary focus of the government. This administration have already started to engage the people of the region through dialogue. There is now in place a Master Plan for the overhaul and overall development of the Niger Delta to make that part of our country a pride, not just to the indigenes, but to the whole of Nigeria.


National Oil & Gas Assets Holdings & Management Services   (NOGAHMS)

These services are currently being performed by the NNPC through its unincorporated venture i.e NAPIMS on behalf of the Federal Government.

It has two components:

–    The National Oil Reserve Assets being held in trust by the NNPC

–    The Asset Management functions of NAPIMS under the NNPC supervision.


These functions would be transferred to a new National Oil & Gas Asset Management Organization as incorporated.


The new organization can eliminate the need for cash calls to finance the current JV operations by leveraging these assets, similar to the International Oil Companies. As it is constituted now, the NAPIMS lacks the capacity and the capability required to monitor and effectively protect the interest of the Nation in the various Upstream Joint Ventures and Production Sharing Contracts.


What effect is the unrest having on oil production in the region? How is this affecting the Nigerian economy?


The unrest is having a negative effect on oil production in the region. It has a deleterious effect on the Nigerian economy.

You have observed that developing the gas sector can help accelerate industrial development and economic growth, and the government aspires to generate as much revenue from natural gas production as it does from oil by 2010.


Is this goal realistic. What needs to be done to raise the profitability of the natural gas industry in Nigeria?


This aspiration is being met through promotion of several gas utilization projects, including domestic and export projects in collaboration with its operating partners and commitment to the development of a number of gas projects such as:

-    the NNPC/ExxonMobil Benin River Terminal Gas to Liquid Project

-    Trains 4 and 5 of the Nigerian Liquefied Natural Gas, NLNG Project

-    The 30 MPTA Olokola LNG (OK LNG) being handled by NNPC, Chevron, Shell and British Gas

-    The Brass LNG being carried out by NNPC and Shell

-    The Escravos Gas-to-Liquid (EGTL) Project, among others.


While the government has obviously invested more in oil than gas, and thus has generated greater revenue from oil than gas, it must be observed that the linkage of gas sector to the power, industrial and agricultural sectors present the most important opportunity for rapidly accelerating the nation’s industrial development and economic growth. The aim of Corporate Nigeria is to inform the global business community about business, trade and investment opportunities in Nigeria.


Why should foreign investors consider investing in the oil sector in Nigeria? What is the government doing to encourage investment in the sector?


Investments in the Nigerian economy in general and oil and gas sector in particular, are very much needed. In a recent address to the private sector group at a presidential breakfast, the President, Alhaji Umaru  Musa Yar’Adua declared that his meeting with them was expected to create requisite platform to clarify government’s policy thrust and productively engage our vibrant private sector in responding to the challenges of our development and the ongoing oil and gas sector reform.


He made it known that this government is rooted in Rule of Law; anchored on good governance, and driven by an uncommon sense of service. He stated that we are unequivocally committed to strict adherence to the rule of law, transparency, accountability and zero-tolerance for corruption in the conduct of all government business.


The President also assured that his Administration will continue to pursue the inflow of Foreign Direct Investment to support rapid economic growth and also aggressively promoting domestic private investment in order to have in place a robust home-grown growth strategy. Government is constantly strengthening the Nigerian Promotion Council and adopting pro-business and investment-friendly policies in order to create an environment conducive for business prosperity.




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