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N11tn Petrol Subsidy, Illogical

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  • N11tn Petrol Subsidy, Illogical

Terminally ill refineries, unsustainable imports, intermittent scarcity and a notoriously opaque accounting system; things might not get better anytime soon for Nigeria’s petroleum industry, let alone the economy.

It is why the Federal Government has spent more than N10 trillion on petrol subsidies in the past six years, the Senate recently stated as it approved another subsidy payment of N129 billion to 67 oil marketers. This is a wasteful hole that ought to be sealed swiftly.

In all, the Senate Committee on Downstream Petroleum Sector estimated that it cost Nigeria N11 trillion to fund petroleum subsidies in six years. For a major crude oil producer, this is an irrational economic model. Nonetheless, this is not new because the country’s refineries, with 445,000 barrels per day name-plate, have been obsolete for decades. In turn, the country has depended heavily on imports to sustain itself. How ridiculous.

Until the 1990s, the imports were minimal, but the refineries progressively degenerated due to mismanagement, cronyism and corruption. Predictably, massive imports ensued, which the Olusegun Obasanjo, the short-lived Umaru Yar’Adua and the Goodluck Jonathan administrations failed to tackle. Amidst all this, corruption and product scarcity thrived.

Undeniably, the sleazy bazaar reached its zenith on Jonathan’s watch. Import contracts were dished out to shell companies and the Peoples Democratic Party’s cronies. In one unforgettable episode, a committee discovered that the Accountant-General of the Federation’s office made 128 subsidy payments of N999.99 million in the space of 24 hours between January 12 and 13, 2011.

Subsequently, the number of petrol importers rose geometrically from 19 in 2008 to 140 in 2011. Most of the products were supplied only on paper; many importers got paid for products never imported. Products loaded in tankers did not reach their destination; others were smuggled to neighbouring countries. In total, the Jonathan government paid out N2.57 trillion as subsidies, 900 per cent more than the N245 billion in the budget. Bizarrely, that was half of the total federal budget for 2011. Rightly, when that administration raised petrol prices in January 2012, it triggered a backlash.

It is unfortunate that the Muhammadu Buhari government is enmeshed in the same subsidy folly in the guise of “under-recoveries.” On assuming power in 2015, the President had declared that he would stop petrol subsidies and rehabilitate the refineries. On both counts, he has failed woefully. This is incomprehensible: Buhari campaigned for office promising to enthrone financial rectitude; his experience as oil minister during Obasanjo’s military dictatorship in the late 1970s has been of no use.

These days, it is the public entity, the Nigerian National Petroleum Corporation, that shoulders the burden of importing petroleum products. Absurdly, the oil ministry regulates the price of petrol, capping it at N145 per litre though it has deregulated diesel imports. By fiat, the NNPC solely determines the quantity of petrol being consumed daily. This is anti-competition, locking out a chunk of business organisations in the downstream sector.

Moreover, it is subject to confusion and opacity. First, the NNPC labels whatever it spends on subsidies “under recovery” in an attempt to bypass scrutiny of subsidy payments by the National Assembly. This is a weird and illegal accounting system, which landed Jonathan’s administration in hot water in 2012. Second, Nigeria’s daily consumption has creased up astronomically. From about 35 million litres in 2011, the NNPC claims that Nigerians now consume over 53.2 million litres daily. This is suspicious. Instructively, the regulator of the downstream is also the sole importer.

In all this, the economy suffers profoundly. Too much money is being wasted on importing refined products and subsidy payments. That N11 trillion would have gone a long way in completing the 11,886 abandoned federal infrastructure projects compiled by the Presidential Projects Assessment Committee in 2011. There is yet the issue of agonising periodic scarcity. Unwittingly, the regulator has excluded the investors who would have built their own profit-making refineries. This is wrong.

In other oil producing countries, high premium is attached to refining for domestic consumption and exports. Aiming to double its refining capacity, Angola’s Sonangol has recently signed a partnership with an independent, United Shine, to construct a-60,000 barrels per day refinery in its Cabinda province. In 2013, Singapore (which produces very little crude), was refining 1.1 million barrels per day, stated the Organisation of Petroleum Exporting Countries. Indeed, OPEC estimates that by 2021, refining by member countries of Kuwait, Saudi, Venezuela, Ecuador, Angola, Iran, Algeria and the UAE will reach 13.3 million barrels per day with an investment profile of $66.5 billion.

In contrast, Nigeria’s four moribund refining entities run at a loss, with scant hope of resuscitation. This is illogical. An NNPC report stated that in Buhari’s first term, the refineries lost over N231 billion. A note by BudgIT, a non-profit, estimated in its “Inside Nigeria’s Local Refineries” report that the refineries incurred a combined loss of N159 billion in 2018, with capacity utilisation at a mere 8.6 per cent. This is not a business model that can succeed, which should provoke serious thinking in the Buhari government.

To show seriousness, Buhari should end the conflict of interest in the industry. Henceforth, the President should cease to be the oil minister. The Petroleum Resources Minister, who also heads the NNPC board, should not head the boards of other agencies under the NNPC. This way, these other agencies can act independently.

Crucially, Buhari should privatise the refineries. Holding on to them is a massive disservice to the national economy. Shell Petroleum constructed the first refinery in partnership with the government. Using this model, the Buhari government can enter into partnerships with the oil majors to build new refineries. With a modern rail network, products can be transported to all parts of the country. At the same time, this policy will encourage those acquiring licences to begin work on their refineries and save the economy from ruin.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Energy

Equatorial Guinea to Launch Vision on Post-COVID Energy Transition Plans with Report and Film

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The Africa Energy Series (AES): Equatorial Guinea 2021 campaign – comprising a report and a documentary – will serve as a critical tool to navigate the energy investment landscape in one of Africa’s more mature petroleum producing markets; Equatorial Guinea has largely been able to sustain its pace of engagement with global investors in the face of COVID-19, forecasting $1.1 billion in FDI in oil and gas activities in 2021; The third edition of the AES: Equatorial Guinea 2021 report will be released at Africa Oil & Power’s U.S. Africa Energy Forum 2021 networking event in Washington, D.C. this July.

Africa Oil & Power is proud to announce the upcoming launch of its Africa Energy Series (AES): Equatorial Guinea 2021 investment report and documentary, as part of a multimedia campaign set to champion the domestic energy sector and shape the West and Central African energy narrative.

The dual-language publication will target key developments driving a post-COVID-19 recovery in Equatorial Guinea – namely, the growth of petroleum and power industries; regional gas monetization initiatives; a clean energy transition; the impact of environmental, social and governance criteria; and expansion of the national diversification agenda.

A 30-minute documentary will provide a visual complement to the publication, featuring first-hand interviews with government officials, private sector players, industry regulators and energy experts discussing Equatorial Guinea’s unparalleled ambition and future plans.

“From spearheading regional gas monetization initiatives to drilling new exploration wells as early as Q2 2021, Equatorial Guinea continues to cement its reputation as a progressive, dynamic force on the African energy stage,” said H.E. Gabriel Obiang Lima, Minister of Mines and Hydrocarbons. “The Africa Energy Series publication in conjunction with a detailed documentary format, gives us the voice to showcase the depth of our full-stream investment opportunities to a global audience.”

Since the onset of COVID-19, Equatorial Guinea has been proactive in safeguarding opportunities for foreign investors and continuing to drive capital into its hydrocarbon resources. In February, Chevron achieved first gas flow from the successful execution of its Alen Gas Monetization project, a $475-million investment representing the first phase of Equatorial Guinea’s Gas Mega Hub masterplan.

The Ministry of Mines and Hydrocarbons is currently promoting several capital-intensive projects – including the construction of modular oil refineries, a gold refinery, liquefied petroleum gas strategic tanks, a urea plant and the expansion of a compressed natural gas project – which are open for investment. Last December, the Ministry of Mines and Hydrocarbons announced a forecast of $1.1 billion in foreign direct investment in oil and gas activities in 2021.

Active in Equatorial Guinea since 2015, AOP released its first AES documentary on the country in 2016, followed by investment reports in 2018 and 2019.

The AES: Equatorial Guinea 2021 investment report will be launched at the U.S. Africa Energy Forum 2021 online seminar and in-person networking event in Washington, DC. (July 12). The documentary will be launched at the U.S. Africa Energy Forum conference in Houston (October 4-5) and broadcast globally on news networks.

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U.S. Africa Energy Forum 2021 Launches: Promotes U.S. Role as Primary Investor in African Energy

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The U.S. Africa Energy Forum 2021 – organized by Africa Oil & Power, in partnership with the African Energy Chamber’s U.S.-Africa Committee – will foster alignment between U.S. and African governments’ energy policies and highlight African oil, gas, power and renewable projects across the energy value chain for U.S. investors; the multi-day forum unites U.S. and African policymakers, energy executives and industry leaders to create new linkages and foster discussions that drive long-term policy formation and project execution; the in-person, two-day summit and gala dinner will be hosted in Houston, Texas (October 4-5, 2021) and an online seminar and in-person networking event will be held in Washington D.C. (July 12).

Africa Oil & Power (AOP) and the African Energy Chamber are excited to announce the launch of the first-ever U.S. Africa Energy Forum (USAEF). This event aims to create deeper cooperation between the U.S. and Africa on energy policy, to reach alignment on long term sustainability goals, to stimulate greater American investment in the African oil, gas and power sectors, and to engage and reposition the U.S. as the primary partner of choice for African energy developments.

Under the theme “New Horizons for U.S. Africa Energy Investment” the forum will explore diverse foreign investment and export opportunities across the continent, including natural gas as a vital fuel for the energy transition; energy storage and battery minerals; Africa’s place in global energy supply chains; the benefits of the African Continental Free Trade Area; evolving energy technologies and how they relate to the future role of petroleum resources; and on-and off-grid power developments.

An online seminar and in-person networking event will be held in Washington D.C. on July 12, 2021, building up to the in-person U.S. Africa Energy Forum summit and gala dinner, to be hosted in Houston, Texas, on October 4-5, 2021. Africa Oil & Power and the African Energy Chamber invite all U.S.-based companies with an interest in engaging with African industry leaders and project developers to participate in the USAEF Houston summit.

This initiative comes at an important juncture in U.S.-Africa relations. The Biden Administration’s announcements of its intentions to proactively build a stronger U.S.-Africa partnership coincides with the fact that African projects are seeing rising interest from U.S. companies and lending institutions alike. The USAEF event is thus dedicated to enabling dialogue between its participants that advances these developments.

“Our mission has always been to showcase the resource potential that Africa has to offer while at the same time showing its growing preference for sustainable energy policies and technologies. Toward that end, we hope it becomes evident that Africa does not just want investment capital: it wants smart capital and an accompanying partnership with the investors,” says James Chester, Senior Director of Africa Oil & Power. “The U.S. Africa Energy Forum represents the first-of-its-kind opportunity to catalyze U.S. participation in Africa’s energy transformation – via technology, policy support, capital injection and skills development – and turns a new page in the chapter on global energy investment.”

In partnership with the African Energy Chamber’s U.S.-Africa Committee, AOP will introduce American companies to African opportunities and advance an agenda of sustainable, long-term investment in African energy and other sectors by U.S. organizations.

“The rise in support from the U.S. to the continent is a credit to Africa itself, which is increasingly viewed as a favored destination for global investors, multilaterals and export credit agencies,” says Jude Kearney, President of Kearney Africa and former Deputy Assistant Secretary for Service Industries and Finance at the U.S. Department of Commerce during the Clinton Administration. “Africa continues to command a healthy share of global FDI in oil and gas industries. It has for decades shown that investment in those sectors is favorable compared to other jurisdictions and can be successful by many measures. Even as Africa and the rest of the world wrestles with a global pandemic, Africa’s energy sector shows vitality and resiliency – not only in hydrocarbons but in regard to new opportunities in mining, liquefied natural gas, and agriculture.”

Both African governments and private sector sponsors of African energy projects value highly the combination of investment and partnership that US investors famously convey. The USAEF seeks to enable successful partnerships between its participants such that the energy development goals of U.S. investors and strategic partners and their African counterparts can be achieved.

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Angola’s Petroleum Agency Outlines Timeline for Ongoing Bid-round

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Angola’s National Oil, Gas and Biofuel’s Agency (ANPG) has outlined its timetable for the evaluation of its ongoing 2020 bid round, as interest in the acreage on offer continues to grow.

In line with its statutory duties as national concessionaire in charge of the attribution of petroleum exploration blocks, the ANPG has sought to adjust its processes to remain competitive in the current market environment, which is dominated by concerns around COVID-19, long-term demand considerations and stiff competition from new and promising frontiers like Guyana and Suriname.

The ongoing bid-round is a manifestation of Angola’s strategy for the continuous attribution of petroleum concessions 2019-2025 which was approved and codified by Presidential Decree no. 52/19, of 18 February 2019. The aim of the strategy is to provide access to promising acreage to competent explorers in an effort to increase geological knowledge about Angola’s hydrocarbons potential and ultimately increase proven reserves.

A hybrid online and physical roadshow for the current bid-round is scheduled for April 6 in at the Talatona Convention Centre in Luanda. This event will provide the opportunity for investors to engage with the agency regarding the blocks on offer, the data packages and the accessibility studies, as well as touch upon environmental, logistical and local content issues.

This will kickstart a series of both digital and in-person roadshows and technical presentations to promote the blocks to be awarded in key international markets. The acreages on offer include:

  • Three blocks of the lower Congo onshore Basin CON1, CON5 and CON6
  • Six of the Kwanza onshore Basin (KON5, KON6, KON8, KON9, KON17 and KON20)

In line with the provisions of Presidential Decree No. 86/18, of 2 April 2019, which establishes the rules for the organization of bid rounds, the ongoing 2020 bid round will unfold as follows:

  • Tender Launch
  • Proposal submission
  • The opening of offers from potential suitors in a public setting
  • The evaluation and qualification of proposals
  • The submission of the evaluation report to the Ministry of Mineral Resources and Petroleum and Gas
  • Contract negotiation with the winners of the bid-round
  • Signature

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