[co-author: Kemi Segun]
Dentons would like to thank Kemi Segun, from ACAS Law (http://www.acas-law.com) in Nigeria, for this month’s contribution to the Africa section of the Dentons South Africa Newsletter. In this article, Kemi discusses the Nigerian oil and gas sector.
In October 2016, the Nigerian government unveiled its plan to develop a stable and enabling environment that will maximise investment opportunities in the oil and gas sector (the Industry) and yield increased growth in the Nigerian economy. The major highlights of this plan are underscored in a document termed the “7 Big Wins – Short and Medium Term Priorities to Grow Nigeria’s Oil & Gas Industry 2015 – 2019”. The plan shows the government’s intention to focus on seven key areas as discussed below.
Policy and regulation
The government aspires to develop robust policies and laws to remedy existing challenges in the Industry. These aspirations will be reflected in a new Petroleum Industry Bill (PIB), which will embody the most fundamental legal requirements that will apply to the entire Industry. The government also proposes to introduce certain policies including the National Oil Policy and National Gas Policy, which will also target the downstream sector and fiscal reform. The indications are that the implementation of the government’s plans in connection with policy and regulation will situate gas as a stand-alone commodity and promote private investment in gas development. Some of the short-term objectives are to enact a Petroleum Industry Reform Bill (to be harmonised alongside the PIB) and establish a single independent Industry regulator. The strategy for implementation includes the conduct of new licensing rounds, timely renewals of existing leases, and the creation of an effective funding structure for government-owned interests in the upstream sector.
Business environment and investment drive
The government plans to impact positively on the appetite for investment in the Industry by improving governance and transparency, creating a lasting solution to security challenges in the Niger Delta, deregulating the downstream sector as well as generally reforming the regulatory and fiscal regimes in the Industry. The strategy for implementation of this objective includes a review of the government’s equity in the existing joint ventures, attracting investment in non-associated gas development to drive gas to power initiatives, implementing a long-term surveillance and repair programme for maintenance of Industry facilities, and developing incentives to attract investments in service facilities supporting deep-water projects and operations (such as categorising vendors to give first consideration to investors with facilities set up in Nigeria).
Nigeria holds the ninth largest gas reserves in the world and the government recognises its potential of moving from an oil-based economy to a gas-based economy. The gas revolution plan seeks to establish robust gas infrastructure and gas-based industries and to deploy a liquefied petroleum gas (LPG) penetration programme. More specifically, the ultimate objective of the plan is to: (i) develop gas infrastructure; (ii) revolutionise gas projects; (iii) promote domestic utilisation of LPG and compressed natural gas; (iv) reduce gas flaring; (v) implement a gas commercial framework; and (vi) maximise the use of gas to power for economic development.
Refineries and local production capacity
Major steps have been taken to eliminate petroleum products subsidies and liberalise the marketing of petroleum products. The government intends to complete the rehabilitation and enhancement of the utilisation capacity of local refineries and set up co-related refineries (such as greenfield and modular refineries) to guarantee the supply and distribution of petroleum products across Nigeria and the African sub-region.
Niger Delta and security
The government recognises that a secure environment is essential to encouraging investment. Current investment in the Niger Delta is huge with about 159 oil fields, 275 flow stations, 1,481 oil wells and more than 7,000 km of crude oil products and gas pipelines and flow lines (according to the government’s statistics). The upsurge of militant attacks on oil and gas installations within the region caused a significant reduction in oil and gas production as well as in production activities. Years of environmental neglect also left the Niger Delta in an abysmal state of environmental degradation.
The government has identified the need for strong collaboration among Industry stakeholders in the deployment of resources and for an appropriate strategy to achieve an environmental upgrade and adequate security within the region. To achieve this, the Government: (i) has commenced an environmental clean-up of the Ogoni land; (ii) intends to develop programmes to enhance capacity building and economic empowerment of the people indigenous to the region; and (iii) intends to improve infrastructure to enhance living standards in the area.
Transparency and efficiency
The government plans to effect transparency and efficiency reforms in the Industry. These plans will be aimed at providing investors with fiscal clarity, balancing the objectives between risk and reward and providing communities with equitable distribution of revenue sources to eliminate obstacles to safe and efficient operations. It is anticipated that there will be a general improvement in (i) access to industry information; (ii) capacity building; and (iii) regulatory efficiency and governance model.
Stakeholder management and international coordination
The Industry is adopting a stakeholder management framework to address the specific needs and circumstances in the industry. This reform will be achieved through the: (i) deployment of potent communication strategies; (ii) enhanced relationship development and management; and (iii) improved international energy relations and bilateral cooperation with Industry stakeholders.
We might want to call the “7 Big Wins” a glorious rhetoric and simply discount its content as again containing all the right sayings about an all-too-well-known situation, reminiscent of previous similar extolled but failed plans. In truth and as a matter of fact, the deployment of appropriate strategies and the conscientious implementation of the plans envisaged for these seven key areas should greatly enhance the development of a stable and enabling oil and gas environment that will allow investors to maximise investment opportunities and yield increased growth in the Nigerian economy. However, the devil is always in the detail and, indeed, in the implementation. It therefore remains to be seen whether the “7 Big Wins” will achieve its objectives or become another cliché in a long line of catchy phrases the industry has witnessed.