- Kachikwu’s Two Years of Impactful Reforms
This month, Dr. Emmanuel Ibe Kachikwu will mark two years as the leading policy driver of Nigeria’s petroleum and gas industry under the leadership of President Muhammadu Buhari. He was first appointed Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) by the President and eleven months later, Minister of State, Petroleum Resources was added to his portfolio. In July last year, Dr. Maikanti Baru was appointed GMD of NNPC. This allowed Kachikwu to focus squarely on policy formulation and coordination as Minister of State.
The last two years under Kachikwu’s watch easily qualify as one of the most reform focused periods in the history of the country’s oil and gas industry. He has led with vision and an infectious passion to make a difference. The minister has introduced innovative initiatives and set in motion groundbreaking changes in the sector. These initiatives are helping to manage the fallouts of turbulent global oil prices on the Nigerian economy as well as redefine and adjust the longstanding structures of the industry. They are also laying a stronger foundation for a more vibrant, more efficient and more profitable sector that can contribute sustainably to the national coffers.
A good place to start a review of his track record is the latest target which the minister has set: leading the country to achieve self-sufficiency in local refining capacity and end fuel importation in 2019. Like many of his moves, it has the audacious Kachikwu stamp.
The plan is to seek financing from reputable international oil companies to fund, rehabilitate and jointly operate the three refineries in Port Harcourt, Warri and Kaduna so as to boost them to optimal production capacity. According to a recent report from the NNPC, the refineries, installed to refine 440,0000 barrels of crude oil daily, worked at only 8.55% of their combined capacities from January 2015 to September 2016.
Kachikwu’s plan is to get the refineries to optimal capacity which if achieved would significantly reduce reliance on petroleum imports to meet domestic demand currently put at about 35million litres per day.
Another component of the plan is to support investors in Greenfield refinery projects. The biggest of these is the proposed Dangote refinery which is expected to provide an additional 650,000 barrels per day refining capacity by 2019. The combined refining capacity of the three government refineries at full capacity of 450,000 barrels per day and the Dangote refinery would put the country in the over one million per day category and will enable the country meet 100% of local demand.
This sounds like a tall order. But Kachikwu’s impressive track record of performance, personal credibility and the clear action plan that he has drawn up suggests that with the support of critical stakeholders in the industry, this task would be achievable.
Significantly, the minister has reported that several IOCs have indicated interest in supporting and financing the refinery revamp project. Dangote is on track to deliver on the refinery as scheduled. In spite of teething problems, things seem to be moving in the right direction.
One of the defining features of Kachikwu’s two years at the helm is that, with the support of the President, the minister has progressed the deregulation of the downstream sector which has reduced the cost of running the corporation by 30 percent and taken significant pressure off the country’s finances. It has also opened the sector to investment – local and international. Kachikwu has therefore succeeded in reducing the subsidy burden on the nation’s coffers and saved the country monies that are being re-directed to the financing of critical projects that will impact ordinary Nigerians and strengthen the economy.
As a result, queues have significantly disappeared from filling stations across the length and breadth of the country. “We are currently witnessing a period of calm and predictability in the petroleum industry not seen in the country in over two decades. The fuel queues have literally disappeared. Filling stations are always sufficiently supplied to meet demand” said Mr. Nantim M. Joseph, a public affairs analyst who resides in Abuja.
Kachikwu’s passionate and constant engagement with major stakeholders in the Niger Delta has also helped to foster peace and reduce militancy in the oil producing areas. A notable initiative in this regard was the meeting he organized in November 2016 between the Pan Niger Delta Forum (PANDEF) and the President, Muhammadu Buhari. At the meeting – which served the purpose of breaking the ice and building confidence – the group of elders from the region presented a 16-point list of things they wanted the federal government to address. He has been consistent in facilitating dialogue between key interest groups in the Niger Delta and the federal government to address areas of concerns. This has despite recurring incidents of pipeline vandalisms, significantly helped to increase oil production.
Kachikwu also reversed the opaqueness and outright secrecy which defined the operations of the industry for decades by introducing full transparency into the finances of the NNPC and the entire oil and gas sector. Months into his appointment as GMD of the Corporation, he started publishing full monthly operational accounts of NNPC. With this act, Kachikwu signaled a new era of openness and empowered Nigerians with knowledge about the workings of the industry that is the backbone of the nation’s commonwealth.
Another Kachikwu landmark: for the first time in thirty years, the country is executing a sustainable plan to tackle the perennial problem of inadequate financing for oil and gas operations. This was achieved by the elimination of the old cash call financing scheme. It will be recalled that the National Economic Council (NEC) had approved the proposal of the Petroleum Ministry for a new private sector-led funding regime for Joint Venture (JV) oil and gas operations in the country to be known as Unincorporated Joint Ventures (UJVs). The key objective of the scheme is speed up the development of the sector by allowing International Oil Companies (IOCs) to charge the cost for technical production before sending the net amount to the federation account.
This new funding regime is a huge positive for the growth of the local oil and gas industry. Unlike the previous one, it puts the private sector in the driving seat of financing oil and gas operations. The implication is that the government will no longer directly contribute to the JV projects. Rather its contribution will be funded by banks under an arrangement that will allow the banks to recover their monies; the federal government will only collect dividends from the profits. This will free-up the government from the annual budgetary cash call obligations and increase the funds available for budget financing.
Related to this is the successful negotiation and agreement with IOCs which will see the country reduce the accumulated Cash Call obligation of $6.8bn dollars to $5.1bn. Under the terms of this agreement with the oil majors, Nigeria is to pay Shell, ExxonMobil, Eni, Chevron and Total $5.1bn to cover arrears of exploration and production costs between 2010 and 2015. The balance is to be paid within five years at zero interest from incremental volumes not current volumes.
The net effect of this deal for Nigeria is about $7 – $8bn in savings over 5 years. About $15 billion fresh investment is expected to flow into the country as a result of this measure and will help to reduce the cost of oil production from about $27 to $18 per barrel thereby increasing government revenues. The deal which is to be finalized before the end of the year will bring to an end the protracted dispute over the arrears between the country and the oil majors and create a conducive environment for greater foreign investment in the sector.
Another significant milestone of the past two years is the $15 billion cash-raising oil deal with India to raise foreign exchange to meet the shortfall in national revenues. The Indian government, one of the world’s top crude oil buyers, will upon completion of the deal make upfront payment for future crude oil purchases. This is to be repaid on the basis of firm term crude contracts over some years and in consideration for Indian companies collaborating in the refining sector as well as exploration and production activities on a government-to-government basis.
No doubt, Kachikwu has focused strongly on establishing a structured and sustainable financing scheme to enable the downstream sector to adequately fund itself without putting pressure on the federal purse. It was also to this end that the minister, during an investor roadshow in China, signed Memorandums of Understanding (MoUs) with several Chinese firms totaling over $80 billion in new investments that will span over five years. The deal will cover pipelines, refineries, gas and power, facility refurbishments and upstream financing to bridge the infrastructure funding gaps in the Nigerian oil and gas sector.
Also key are the secured commitments from Sinopec and China National Offshore Oil Corporation (CNOOC) to commit to further investments in Nigeria’s upstream oil sub-sector to the tune of $20 billion. These unprecedented financing deals would cumulatively bring the total amount of prospective investments by Chinese firms over a five-year period to over $100 billion.
The clear progress made possible by Kachikwu’s reforms gives hope that a modern efficient and profitable petroleum industry is possible. His strong track record in the industry, vibrant leadership and “can do” spirit have delivered measurable benefits to the economy and taken the sector many notches higher. He is indeed the game changer.
Oil Slips With Energy Prices in Europe Halts Record Rally
Oil dipped toward $72 a barrel in New York after prices of energy commodities in Europe halted a record-breaking run.
West Texas Intermediate futures fell 0.6%, having reached the highest intraday level since early August on Wednesday. A rally in European gas and power prices to unprecedented levels was set to end as industries were starting to curb consumption. The surge in energy rates could temporarily boost diesel demand by as much as 2 million barrels a day as consumers switch fuels, according to Citigroup Inc.
Still, the bullish signals for oil are continuing to increase. U.S. crude inventories dropped by more than 6 million barrels last week to a two-year low, according to government figures, as coronavirus vaccination programs permit economies to reopen. Chevron Corp. Chief Executive Officer Mike Wirth warned that the world is facing high energy prices for the foreseeable future.
The investor optimism is showing up in key oil time spreads widening. Trading of bullish Brent options also surged to a two-month high on Wednesday.
Prices have been pushed higher in recent days “by supply outages combined with expectations of switching from gas to oil in the power sector,” said Helge Andre Martinsen, a senior oil market analyst at DNB Bank ASA. “We still believe in softer prices toward year-end and early next year as curtailed production returns and OPEC+ continues to increase production.”
Strong prices for gas, liquefied natural gas and oil are expected to last “for a while” as producers resist the urge to drill again, Chevron’s Wirth told Bloomberg News. Norway’s Equinor ASA said Thursday it also expects European gas prices to remain high over winter.
Fuel Scarcity: Petrol Sells N220 Per Litre in Nsukka
Premium Motor Spirit, otherwise called petrol, now sells for between N200 and N220 per liter at the independent marketers’ service stations in Nsukka, Enugu State.
The News Agency of Nigeria is reporting the hike in the price against the official pump price of N162 per liter.
It said it started about a fortnight ago due to the scarcity of the commodity in the town and its environs.
Some residents of the town expressed deep worry over the development in separate interviews with NAN on Wednesday.
A civil servant, Stephen Ozioko, said the situation had further compounded the economic difficulties in the area.
Ozioko said many private car owners had been compelled to park their vehicles at home and move around in public transport.
He said: “Since the scarcity started, I decided to park my car and take public transport to the office and back home. N220 per liter is exorbitant and I cannot afford it considering my salary as a civil servant. I shall continue to use public transport until the situation returns to normal.”
A building material dealer, Timothy Ngwu, said the development had also led to an increase in transport fare in the area.
Ngwu said: “Some people now trek from Nsukka Old Park to Odenigbo Roundabout because of the 100 percent hike in fares from N50 to N100 by tricycle.
“Before now, transport fare from Nsukka to Enugu was N500, but transporters now charge between N800 and N1000.”
Also, a commuter bus driver, Victor Ogbonna, described the scarcity and hike in the price of petrol as “unfortunate and an ugly development”.
Ogbonna added: “Today, only a few filling stations are selling the commodity in Nsukka town, while others are shut.”
He alleged that some filling stations, which claimed to be out-of-stock, were selling to black marketers at night.
He said: “This is why black marketers have sprung up everywhere in the town, selling the commodity for about N300 per liter.”
NAN reports that virtually all the major marketers in the area have stopped the sale of petrol, claiming to be out-of-stock.
The people called on the government to urgently intervene in order to bring the situation under control and also put an end to its harsh economic effects on the messes.
DPR Targets N3.2T Revenue by Year-End
Nigeria’s Department of Petroleum Resources (DPR) will hit the N3.2 trillion revenue target by December 2021, according to its Director/ Chief Executive Officer, Mr Sarki Auwalu.
Auwalu made the disclosure when he led a delegation of the DPR management team to the Executive Secretary of Petroleum Technology Development Fund (PTDF), Mr Bello Gusau, in Abuja on Wednesday.
He said that 70 percent of the revenue projection had already been met. “Last year, we exceed our revenue budget. We were given N1.5 trillion but we were able to generate N2.7trillion.
“This year, our revenue budget was N3.2 trillion. By the end of August 2021, we have generated up to 70 per cent.
“So, we with September, October, November and December, it is only the 30 per cent that we will work over,’’ he said
He noted that the government took advantage of fiscal terms within the old and new legislation, thereby creating a level of increased signature bonuses.
“We reorganise the work programme that is normally being done in the DPR to key into the new operational structure as we see it in the bill, now an act.
“That programme is being handled by the planning and strategic business unit as against what we use to have because the entire work programme is supposed to show not only technical but also commercial and viability of oil fields and to guarantee the return on investment for investors.
“We have also created an economic value and benchmarking unit to key into the new fiscal provisions of the PIA,’’ he said.
Commenting on capacity, Auwalu said the country stands at the advantage of exporting skills to emerging oil and gas countries across Africa with proper implementation of the newly passed Petroleum Industry Act.
This, he said, the DPR was ready to partner with the Fund to continue to build capacity in the oil and gas sector
He noted that the Federal Government was determined to create leeway that would encourage investors and drastically improve the nation’s petroleum industry.
He further noted that no fewer than 300 legal battles in the oil and gas industry in Nigeria, which had been stalled for the past 20 years in courts, had been resolved through alternative dispute resolution.
According to Auwalu, the DPR is strategising well to ensure effective implementation of the PIA.
Responding, Gusau commended the DPR for enabling the industry and enhancing business activities in the oil and gas sector.
He said that DPR remained the head of the oil and gas industry in Nigeria adding that the Fund was grateful to benefit from the wealth of ideas from DPR.
“The last time we visited, we had a good discussion and issues raised are being implemented like tracking the inflow of funds in signature bonus accounts.
“We extended the meeting and involved ministry of Finance, Accountant General office and even the Central Bank of Nigeria (CBN).
“Sitting at field development plans and attending significant meetings, helped us to know where and what the industry is trying to do and it also helps to inform our decisions in training and capacity plans,’’ he said
He urged the DPR to continue on its effort to ensure an efficient and productive petroleum industry in Nigeria
He assured collaboration with all as the head of the implementation committee of the Petroleum Industry Act. (NAN)
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