Petroleum is one of the many natural resources Nigeria has been endowed with, but its full economic potentials has not been maximized for more than five decades since its discovery and the commencement of commercial production.
Despite being one of the leading crude oil producers in the world, Nigeria’s refining capacity remains one of the smallest in the world with capacity utilization plunging from under 60% in 2002 to 14% in 2014 with no improvement till date, although the country ought to operate at 90% or more of the capacity utilization.
With global crude oil price declining, the period of high oil prices is now over. The midstream and downstream petrochemical market within the oil sector however present promising opportunities, with the right institutional and policy framework in place as anticipated by the National Petroleum Policy.
The National Petroleum Policy, 2017 (new policy) has therefore been conceived to maximize the opportunities that the refining and petrochemical market portends amongst others.
The new policy builds on the reform efforts of the Federal Government of Nigeria (FGN) anchored on the National Economic Recovery and Growth Plan (ERGP 2017-2020) and the 7 Big Wins Initiatives developed by the Ministry of Petroleum Resources (MPR).
The new policy framework unveils a pathway for the institutional, commercial, legal and regulatory reforms of the petroleum industry of Nigeria with a long-term vision of repositioning Nigeria in the global energy landscape:
“To become a nation where hydrocarbons are used as a fuel for national economic growth and not simply as a source of income”.
Conceived in that light, the new policy vision contains important elements viz:
1. Moving the Nigerian economy away from the current situation where crude oil is exported and no further uses are made of the hydrocarbon opportunities;
2. Oil is not simply exported but is refined and further processed within Nigeria;
3. Nigeria becomes a regional and international center for crude oil refining;
4. A vision of a diversified industrial base nation where Nigeria has significant petrochemical and other petroleum based industries;
5. Diversifying the petroleum resources based within Nigeria to ensure security of supply;
6. Operate a petroleum industry with a clear division of roles between private and public sectors;
- Public sector policy making and regulation;
- Private sector implementation, investment and operations;
7. Provide an enabling environment for an increased Nigerian private sector participation in the petroleum sector;
8. Complement the vision of the National Gas Policy for a diversified gas based industrial economy.
This report reviews the new policy framework as well as the implementation strategy underpinning the reforms of the petroleum industry of Nigeria from the governance framework, industry structure, developing resources, mid and downstream infrastructure, human capacity development, road map and action plan perspectives.
THE GOVERNANCE (LEGISLATION AND REGULATION)
The new policy framework on governance acknowledges the inadequacy of the current legal and regulatory regime applicable to the petroleum industry.
The new policy framework therefore seeks to promote a new legal and regulatory regime conceived under the proposed Petroleum Industry Reform Bill (PIRB) to overhaul and modernize the petroleum industry by addressing a broad range of issues, such as sector governance and institutional framework, fiscal regime, corporate structure of state owned enterprises, transparency, accountability and environmental issues etc.
In order to drive the reforms and address the current inefficient and ineffective institutional environment, the proposed PIRB anticipates the consolidation of the diverse regulatory agencies into a single independent regulator that will be responsible for implementing the policies formulated by the MPR and setting technical standards for the petroleum industry in Nigeria.
The goal of the new policy direction is to restructure and strengthen the governance framework in order to usher in a private sector driven and self-sustaining petroleum industry, which will mark a departure from the current industry structure.
It is hoped that the institutional reforms will be matched with adequate manpower and institutional capacity development to meet the dynamic challenges of the sector.
Under the new policy framework, the ubiquitous role of the Nigerian National Petroleum Corporation (NNPC) will be significantly restructured, with a new National Oil Company (NOC) incorporated to drive the commercial interest of the Federal Government of Nigeria (FGN) within the industry. The new policy direction anticipates that NOC will have an independent and sustainable source of funding and will not be subjected to the annual appropriation cycle of government.
The reform proposition of the new policy framework envisages that the market players of the petroleum sector will consist of NOC which will represent the commercial interest of government and private operators, all of which will operate across the upstream, midstream and downstream sectors of a market driven oil and gas industry.
Essentially the policy thrust for the petroleum industry is to move Nigeria away from crude oil export to value adding activities such as refining and petrochemical industry and expand into a gas driven industrial economy.
The new policy seeks to maximize existing production blocks, and diversify the resource base from the Niger Delta region to other basins that have been identified such as Anambra basin, Kerri basin, Yola basin, Gongola basin, Bida basin, Lullemeden basin and Chad basin.
It anticipates government’s exit from the current Joint Venture (JV) cash call arrangements to a Production Sharing Contract (PSC) arrangement whilst acknowledging the challenges of the Production Sharing Contractual arrangements (PSCs). It therefore envisages a stringent monitoring and enforcement regime on the cost structures in the development and production segments of the industry.
The goal of the FGN under the new policy initiative will be to strictly monitor cost of production, improve the international product marketing and create opportunities for as many private sector investments as are possible in order to foster competition and drive production growth across the petroleum industry.
The new policy is anticipated to take advantage of the huge hydrocarbon opportunities by encouraging private sector led investment in the midstream infrastructure to drive increased refining capacity. The strategy will be to carry out an audit on the storage capacity as against the operating capacity of the refineries in order to ascertain the design capacity, current state of assets, current operating capacity, the current entry and withdrawal speeds, the amount of investment needed to bring the capacity up to sufficient levels.
Strategically, the policy anticipates that more jetties will be built to diversify the risk associated with the Apapa and Calabar import terminals, divest government interest from non-performing state-owned refineries to ultimately build a strong refining sector for fueling the national economy.
DOWNSTREAM-INFRASTRUCTURE AND MARKETS
A commercially operated and liberalized downstream petroleum products sector in Nigeria is anticipated by the new policy which will require bold reforms in downstream capacity enhancements and safe operations, building up strategic product reserves, improved sector logistics, private sector investment in sector infrastructure, permanently removing all petroleum products subsidies, unbundling and fundamental restructuring of Nigeria Petroleum Marketing Company (NPMC).
The strategy is to transit the downstream refining sector to an unregulated market with limited regulation covering areas such as tariff on the monopoly aspectof the infrastructure, health and safety, product standard and consumer protection. The new policy envisages that subsidy will be phased out in the reformed regime and unregulated end-user prices will be published and monitored to ensure consistency.
DEVELOPING NATIONAL HUMAN RESOURCES
In moving the petroleum sector forward, the new policy aims to develop indigenous human capacity to take over the management and development responsibility of the hydrocarbon industry. The new policy aligns with the gas subsector policy in terms of the human capital development trajectory. The strategic approach by the new policy will be to implement the local content legislation (Nigerian Oil and Gas Industry Content Development) NOGICD Act 2010 and develop competent work force especially through apprenticeship and competency training programs across engineering, finance, law and related professional and specialist areas to drive effective implementation of the policy and laws applicable to the industry.
Communication is vital in driving strategic outcomes. Part of the strategy to engender the successful implementation of the new policy initiative for the petroleum sector is to facilitate communication amongst the different stakeholders. The intendment of the new policy in terms of communication is to enhance confidence in the reform process and ensure that all stakeholders key into the policy reforms. Thus, the strategy aims to explain the policy directive of the FGN to all stakeholders impacted by the industry reforms and drive a significant cultural shift, thereby changing attitudes within the industry.
ROAD MAP AND ACTION PLAN
To facilitate the strategic implementation of the new policy initiative, the policy sets out a road map and clear action plans from short, medium to long term projections in unlocking the potentials of the upstream, midstream and downstream sector of the petroleum industry. It takes into account critical policy milestones for the unfolding of a new hydrocarbon industry regime for Nigeria.
The Nigerian hydrocarbon industry potentials are enormous. As a leading crude oil producer with vast gas reserves, the current energy reforms straddling across the power industry (Nigerian Electricity Supply Industry) and the petroleum industry clearly demonstrate the response of the Federal Government of Nigeria (FGN) to the global seismic shifts driving the energy industry worldwide.
The new policy anticipates to fully maximize the economic potentials of the energy industry through a wave of strategic reform processes that aligns with the overall economic growth trajectory of FGN, particularly in a more constrained business environment and recessed economy. It intends to tap into the value adding derivatives of the petrochemical industry potentials of Nigeria.
It is hoped that when these reforms are positively implemented, the hitherto underperforming downstream sector of the energy industry will unlock increased economic opportunities for investors and private sector operators alike which will contribute to significant growth of the Nigerian economy.