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Divergent reactions to PIB’s 30% frontier fund

The dust that the Petroleum Industry Bill has raised is yet to settle. Economists and industry players spoke divergently about the provision of 30 per cent profit for the Frontier Exploration Fund from National Oil Company, JOHN OFIKHENUA reports.

As the National Assembly passed the Petroleum Industry Bill (PIB) into law, economists have been discussing the provision of 30 per cent for crude oil search in frontier basins.

Although the bill has five major parts, its most contentious segment is the eighth schedule that addresses issues about the Frontier Exploration Fund (FEF). This aspect of the bill proposes 10% of rents on petroleum prospecting licenses, 10% rent on petroleum mining leases, and 30% of NNPC Limited’s profit from oil and profit gas in production sharing, profit sharing and risk service contracts. The FEF shall be applied to all basins and undertaken, simultaneously. The Nigerian National Petroleum Corporation (NNPC), which the bill is transforming into the National Oil Company, is mandated to transfer the 30% of profit oil and profit gas to the frontier exploration fund escrow account dedicated for only the development of frontier acreages.

Ambiguity of where and what constitutes the frontier basins remains the most concerned part of the legislation. The rudimentary understanding of the phrase in the country seems to be exploring other sedimentary basins, including Bida, Gongola, Sokoto, Anambra, Benue Trough and Dahomey.

The Organization of Petroleum Exporting Countries (OPEC) Secretary General, Mr. Mohammed Sanusi Barkindo, last week said some companies and nations were already seeking the stoppage of investments in the oil and gas industry.

He said: “Countries around the world are feverishly attempting to adapt to the rapidly changing dynamics in the energy industry in an effort to adapt and mitigate the impacts of climate change. Investors environmental lobbyists and even some corporate boards are pressuring oil companies and governments to pursue radical policies and initiatives that could, in the end, be more disruptive than productive for the global energy industry. There have recently even been calls for investments in oil and gas to be discontinued, which is a dangerous and unrealistic scenario. These voices have emerged particularly in the context of the net-zero 2050 emissions discussions.”

The actions of some of the International Oil Companies (IOCs) in Nigeria have also indicated where their energy mix pendulums will swing in the next few years. Total E&P, for instance, has followed the international energy forecast to refocus its operations on renewable energies. In Nigeria, the French company has announced plans to invest $6billion in renewable energy by 2030.

A former Nigeria Labour Congress (NLC) Chief Economist, Dr. Peter Ozon-Eson, said he does not see the logic of investing in “a dying oil industry”.

He said: “My first reaction to that provision is that the act needs to specify what frontier basins are. It hasn’t done so. So, we are forced into this narrative of North versus South again, whereas if those basins were clearly defined the matter will be clearer.”

Insisting that President Muhammadu Buhari should imagine the place of hydrocarbons in the present global energy mix, he drew the attention of the proponents of the allocation of profit for the development of the frontier basins to the fact that new automobile firms have changed their vehicles fuelling technology to electric. The action, he said, has made investment in renewable energies the fulcrum of contemporary investment decisions.

His words: “For me, more importantly, it is from the dynamic economic point of view. We are in a world that is going green on energy. The whole world is pursuing the green economy. I would have wanted to see for instance an amount set even if it is that 30% of profit made by NNPC would be invested in alternative renewable energy. That is what I think economic logic today should guide us to do. For a dying sector like petrocarbons, I do not think it is well reasoned that we will be pumping more money into that sector irrespective of where we are looking for it whether it is in the south, in the North or in the middle belt.  We should be looking ahead in the dynamic world, looking for how we can invest and take position on renewable energy in the future.  And I hope before a reconciliation process between the Senate and the  House and even Mr. President  signs it into law, it should be important we realise petrocarbon is no longer the future. Cars are ceasing to use petrol.  Most other countries are looking for other alternative power and we should use the advantage we have now from profit if we can still make the short term while this petrol thing is still on to diversify into alternative energy.”

Another economist and former Central Bank of Nigeria (CBN) Deputy Governor, Dr. Obadiah Mailafia, said oil was fast losing its demand. Although he did not seek a complete halt in oil and gas investments, he reminded the Federal Government that most cars in developed countries would be electric in the next few years.

He said: “Well, first of all on the issue of investments. It is true that oil is on its way out because most of the advanced countries manufacturers of automobiles have been given orders to stop manufacturing petrol and diesel vehicles. Some have been given 10 years, some have been given 15 years, and some have been given 30 years. As we know automobiles make up 70% of the market for oil. So, whether we like it or not, by the next 20 years, majority of cars in advanced countries will be electric cars. So, we need to put that in perspective. But we have to do some investments. I think it is wrong that we just leave the sector like that. We have to do some investments that will sustain the operations going on for the equipment that needs to be replaced or repaired, for refineries that need to be resuscitated.”

Rather than exerting energy on the exploration and development of crude oil fields in the country, he urged the industry to focus on the consolidation of the development of Liquefied Natural Gas (LNG). The former CBN expert said LNG is the future energy. According to him, Qatar has raised its Sovereign Wealth Fund to $1.5trillion from gas earnings. The country, he said, processes and freezes LNG for export.

Mailafia lampooned the lawmakers for seeking to earmark 30% NNPC’s profit for exploration in the frontier basins. Describing the amount as too enormous, he vowed that 10% of profit from the corporation should be sufficient for the purpose.

He warned the Federal Government to guard against appropriating such a huge fund for the self-help of some people. He said: “On the issue of frontier basins, I think putting aside 30% of the oil mix is totally wrong. That is too large. I think 10% is more than enough.  That money should be judiciously and prudently used. And Nigerians must be told how the exploration is being done. It should not just be a slush fund that will be shared to some people. It will be totally wrong.”

NNPC Group General Manager, Group Public Affairs Division, Dr. Kennie Obateru, told The Nation that following the management of the corporation’s commitment to transparency and accountability, it does not conceal any information about its operations from the public. He referred Mailafia to the monthly financial and operations reports of the NNPC and either the 2018 or 2019 audit reports that contain all information on the operations including that of expenditures on oil explorations in the frontier basins.

Asked to put a figure to the amount expended so far on frontier basins oil search, Obateru said: “I can’t put a figure to it because it is not something you prepare like somebody is going to ask you.”

The Association of Miners and Processors of Barite (AMAPOB) National President, Prince Steve Aloa, was hopeful that searching for oil in the frontier basins could yield unimaginable results. He likened it to an arid country like Saudi Arabia that has about the highest global crude oil deposits. He also expressed hope that the search could build capacity in oil and gas in the future.

He observed that the since the lawmakers have proposed 30% for frontier basins, they must review the provision of 3% host communities fund. Explaining that it is too meagre for people that are already producing oil, he called on the lawmakers to raise it to 5%.

Alao said: “Most nations that have the highest deposits of oil in the world are mostly in the arid zones. Saudi Arabia is a desert. There is nothing wrong in doing exploration in all the frontier areas to build our capacity in oil and gas for the future.  So, it is a welcome development.  The percentage that is allocated to it is not bad. But I would have expected that the areas where they are exploiting the oil now they should increase the percentage to those communities. 3% is too small. If you are providing 30% for more exploration, communities that are already and still exploiting should get at least push it to 5%. Oil is still relevant to us. Exploration for crude is still relevant to us. It will increase our capacity.  Gas will be there also which is very useful as a greener energy.”

The Independent Petroleum Marketers Association of Nigeria (IPMAN) National Vice President Alhaji Abubakar Maigandi said since the implementation of net zero carbon has not commenced, Nigeria needs to keep investing in the oil and gas industry. He called the PIB a welcome development that could open up employment opportunities since it is enough to attract investors.

His words: “It (net zero carbon) has not yet started. Even developed countries are still using petroleum products. So, we cannot comment on something that has not started. It is only a projection. PIB is a good development to Nigerians.”

Despite the discordant tones of operators that are protecting their short term business interests only forces of demand and supply of oil and gas will drive the industry. Meanwhile, since the new Nigerian oil and gas industry is now in pursuit of commercialization, it can only thrive on adherence to economic fundamentals, not on politics and sentiments.

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