Is PIA a fraud? : Nigeria’s oil money under siege

Ilenre Irele

It’s a tragic irony that the architects of the PIA are not only in position of authority but in power. Tragic in the sense that so far PIB has been a tool deployed a debilitating chokehold on the nation’s resources, very much akin to cat guarding a row of rats.

In many circles, including the precincts of power, , the Petroleum Industry Act (PIA) was highly welcomed and touted as the recipe for Nigeria’s oil sector woes – a landmark legislation promising transparency, accountability, and fair distribution of the nation’s oil wealth. Yet, as the dust settles, it reveals a disconcerting reality of promises not meant to be fulfilled.

Many commentators have expressed fears that NNPC Ltd. is being run like a captured fiefdom under the suzerainty of powerful forces.
Professor Adebanwo Adeyanju, an Energy expert told EnergyDay that There is yet no transparency in the running of the oil giant, and said it’s welcoming that NNPC will be making remittances to the Central Bank.
According to the latest data from both the US Energy Information Administration. Nigeria is ranked eleventh in the world and fourth in Africa in crude oil production as at September 2023, with an average of 1.14 million barrels per day.

Given that the country’s crude oil production quota approved by Organisation of Petroleum Exporting Countries (OPEC) for December 2023 was 1.72 million barrels/day, Adeyanju stated that no figures could be traced to the NNPC Limited within the same period.” The issues have not changed what has changed is the nomenclature, NNPC ltd in terms of transparency is just like its forbear before PIB, no iota of openness.”

Due to deep- seated structural neglect, the four government-owned refineries in Nigeria, built between 1965 and 1989, have all been shut down for several years.

In total their refining capacity combined is 445,000 barrels/day. Data provided by KNOEMA, a global data platform, shows the daily consumption of 520,000 barrels/day in December 2023.

Data available as at 2019 shows that about 43 licences were granted for large and modular refineries, out of which only about four modular refineries may be operational, with a total capacity of 34,000 barrels/day to grow to 135,000 barrels/day.

The Dangote Refinery total cost was put at $19 billion and was commissioned in 2023,it has lately started operation and has a production capacity for 650,000 barrels/day.

Adeyanju hinted that Through ‘Project Bison’, the NNPC, rather than through the Sovereign Wealth Fund (SWF), had brazenly gone ahead to acquire a 20 per cent stake in the refinery for $2.76 billion, and , will also supply 300,000 barrels/day of crude to Dangote at a discount and would forfeit 100 per cent of the dividend that will be declared within the repayment period.

In addition, ‘Project Gazelle’, a loan of $3.2 billion, was collected from AFREXIM bank to fund the Federal Government’s dollar liquidity crisis, while its repayment will be from crude oil.
“Tell me , what is the difference between old NNPC and NNPC ltd, given above scenario, where it continues to act as if though it is merely an agency of government and not limited company”, Adeyanju said

Many observers have continued to wonder why NNPC ltd decided to squander about $1.5 billion in 2021 on renovating PortHarcourt refinery which lacks readily available spare parts, when it owes about 130,000 barrels/day of oil from Dangote,

The renovation project was designed to take 44 months (until July 2024) and the first phase of the progress is largely unknown in spite of claims of technical completion of renovation . The conditions of the other three refineries are also unclear. With billions poured into the renovation, it.has not been reported to have started production, and text messages sent to Femi Soneye, the chief corporate communication officer of NNPCL for comment were not answered.

Dr. Olufemi Omoyele, a university don and analyst told EnergyDay that Nigeria is a blessed country, and that oil which was supposed to be a blessing had for long turned to a curse, which Nigerians are living in penury while the thieving elites live in affluence.

The money from oil is supposed to fund the federal, state and local government budgets; investing in infrastructure, education, health, agriculture; and saving for future generations. However, the management of oil revenue in Nigeria has been plagued and besieged by fiscal indiscipline, corruption, misallocation, and inefficiency, resulting in poor development outcomes and welfare.

According to Wikipedia, Nigeria’s Sovereign Wealth Fund (SWF) that is meant to save and invest some of the oil revenue for future generations, as well as to stabilise the economy during oil price shocks, was established in 2011 with an initial capital of $1 billion, and had $2.3 billion in it as at June 2023, which is a paltry $1.3 billion increment after 12 years.

It will be interesting to know how much was squandered on salaries and perks of office within those 12 years.

What is disconcerting is that NNPC Ltd remitted $2.7 billion to its CBN accounts from January to June 2022, with $645 million from NLNG dividends and $1.786 billion from operational activities, predating the PIB’s enactment. Post-PIB, the remittance details have been elusive. Remember, the PIB purportedly seeks to overhaul the oil sector, establish new regulations, and transform NNPC into a transparent limited liability company for improved efficiency.
Yet, transparency regarding post-PIB remittances remains uncertain.

Nigerians were presented with an albeit flimsy rationale for restructuring the NNPC, citing:

Reliance on government funding, making it less competitive for global investors.
Political influence causing bureaucratic delays, thereby unsettling International Oil Companies.
The NNPC had a workforce employed for political reasons, hindering its success as a commercial entity. Meanwhile the four refineries are non-operational and their large numbers of staff members are still paid all entitlements without producing a single drop of oil.
“High credit sales and indebtedness hindering operations, but we should remember that they borrowed $3.2 billion from AFREXIM bank, to be paid with crude oil”, Adeyanju stated.

The question remains: How much has the NNPC remitted to the CBN to date?

The 2021 Petroleum Industry Act, identified as Gazette No.142, comprises five chapters, 319 sections, and eight schedules. It addresses very distressing, disconcerting, frightening and upsetting issues that will impact over 200 million Nigerians, including the Domestic Base Price and Pricing Framework, Gas Price Formula for Gas-Based Industries, Capital and Production Allowances, Petroleum Fees, Rents, Royalty, and allocations to Host Communities and Frontier Basins. A detailed analysis of these provisions is not feasible here, but their implications are significant and wide-reaching for the populace.

The PIA provides for the establishment of new entities, such as the NNPC Ltd, the Ministry of Petroleum Incorporated, two regulators, the host communities trust fund, and the dissolution or transfer of existing entities, such as the NNPC, the Department of Petroleum Resources, and the Petroleum Equalisation Fund. It also provides for the transition of the existing petroleum licenses and leases, contracts and agreements, assets and liabilities, and staff and personnel, to the new entities or arrangements, within specified periods and conditions. However, implementation will face challenges such as legal disputes, political interference, bureaucratic delays, resistance, etc.
The PIA mandates the improvement of operational and technical capacities, as well as funding sources, for both new and existing entities in the industry. It emphasises the need for alignment and coordination of activities and funding mechanisms to foster synergy and harmony. However, addressing these challenges will be daunting, given existing skills shortages, technology gaps, and infrastructure limitations.
The PIA necessitates the creation and execution of monitoring, evaluation, and feedback mechanisms to uphold compliance, accountability, transparency, and performance. It underscores the importance of collecting, analysing, reporting, and disseminating data and information from these mechanisms to inform decision-making and policy formulation. However, such endeavours will face challenges in terms of data quality, availability, accessibility, and security, given the intricacies and crafty nature of those involved in the drafting and sign-off processes.
Now is the time to let PIB work, but for it to work, there’s need for transparency.