A toddler 20 years ago when Nigeria drafted its first comprehensive Petroleum Industry Bill would have become an adult now, yet the bill is still stranded at the national assembly in its infancy.
Unfortunately, the version under consideration does not guarantee that the country will boast of a sustainable national life and economy after the dust settles on fossil fuels dominance in the global energy mix.
Despite decades of sluggish progress, the revised Petroleum Industry Bill (PIB) like the ones that have preceded it ignores an open secret concerning how the world is undergoing an energy transition from fossil fuels to a system based on renewable energy sources.
Faced with pandemic-driven demand destruction and a relentless call for climate-consciousness, most oil-producing countries are resigning themselves to the uncomfortable fact that a significant amount of their oil and gas reserves will end up totally worthless.
“The revised PIB is good and must be passed, however issues concerning having strong reserves and preparing for the end of the oil era was not dealt with,” Kelvin Atafiri, who runs Cavazanni Human Capital Limited, an investment firm exposed to the oil and gas sector said.
This message appears lost on Nigeria’s political elite as the country’s most important energy bill currently being debated by the National Assembly is not equipped for the monumental changes facing the sector.
For instance, Norway’s National Oil Company (NOC) Equinor, is currently an investor in Oxford Photovoltaics, which produces a device for generating electricity directly from sunlight.
Equinor is also creating the world’s first fully decarbonised industrial cluster at an old chemical plant in Saltend, England.
Saudi Arabia is investing $30 billion in the renewable energy sector by 2025 in order to diversify the energy mix while Sweden has an ambitious goal to eliminate fossil fuels from electricity generation by 2040.
A prediction by Goldman Sachs estimated that investment in decarbonising the energy industry- renewables, carbon capture, hydrogen, and the upgrading of power infrastructure — will reach $16 trillion over the next 10 years.
Whether the world leans towards renewable energy or not, the Department of Petroleum Resources (DPR) has also admitted that Nigeria will completely run out of its prized oil reserves in the next 49 years.
While other countries are consciously planning for life beyond fossil fuels, Nigeria’s PIB is obsessed with applying 10 per cent of revenue from acreage rents to subsidise petroleum exploration in frontier basins for reserves that may not be worth much after 2030, a development some experts say is elevating sectional political agendas over compelling commercial and climate change priorities.
Most experts say the current PIB tends to focus on solving past problems rather than meeting future challenges, or as the Columbia Center for Sustainable Investment (CCSI) described it “the PIB is a small step when Nigeria needs a leap.”
“The PIB, ultimately, fails to account for climate change, acknowledge the Paris Agreement, and address the need for diversification to adequately prepare Nigeria for the energy transition that is already underway,” CCSI notes in its blog.
In 2015, the Paris Agreement, which was agreed in December that year, set the framework for immediate actions for international wind-down of coal, oil, and gas while also having long term strategies to prevent dangerous climate change.
The notes that “rather than locking more capital into projects and infrastructure that will soon be obsolete, Nigeria should be promoting the stewardship of assets that propel the energy transition forward, not those that will be left behind.”
“The world is turning its back to oil and Nigeria seems docile,” Luqman Agboola, head of research at Sofidam Capital said. “We have absolutely nothing to fall back on, yet we act as if we are a rich country.”
While Nigeria’s rainy day fund seems to stagnate even with rising oil prices, others are looking to take strategic positions despite the economic effect of the coronavirus pandemic.
Among them is Saudi Arabia’s Public Investment Fund (PIF), which has transformed from a sleepy sovereign wealth fund into a global investment vehicle making multi-billion-dollar bets on hi-tech companies such as Uber as well as other equity investments and pledging tens of billions of dollars to funds run by Japan’s Softbank.
Last month, Indonesia received investment commitments of up to $10 billion from global firms for its ambitious sovereign wealth fund.
Some believe the future may not be that bleak.
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“Oil has suffered near death several times. It is natural of human systems to be born, peak and die. Many thought the invention of the light bulbs would displace oil but then came internal combustion engines and the aviation industry,” Wummi Iledare, Ghana National Petroleum Corporation’s Chair of Petroleum Economics at Institute of Oil and Gas Studies, IOGS, in the University of Cape Coast, Ghana said in a phone interview.
To compliment a progressive PIB, analysts say lawmakers would have to amend Section 162 (1) of 1999 Constitution that prescribes that government income, apart from personal income tax, should be placed in the Federation Account and shared among the federal, state, and local governments.
Although Nigeria believed in the ideal of oil savings funds, the country currently boasts of three ‘rainy day’ funds: Stabilisation Fund, Excess Crude Account, and Nigeria Sovereign Investment Authority (NSIA), however, NEITI says “the funds are mostly not adequately ring-fenced, and are too tiny to adequately serve the intended purpose.”
To assuage the impact of COVID-19 on government’s earning, Nigeria withdrew $150 million for a population of over 200 million people but a country with a similar oil production, Norway cashed $37 billion for its less than 6 million people.
Also, Abu Dhabi withdrew $20 billion for its 9.70 million population while Oman withdrew $8 billion for its 4.90 million people.
The Nigerian Extractive Industries Transparency Initiatives (NIETI) has consistently warned that constant oil price volatility exposes oil-dependent countries like Nigeria to regular economic crises.
NEITI suggests the abolishing of the Oil Price-based Fiscal Rule (OPFR) where revenue in excess of oil price benchmark is saved and replaced with a mandatory saving of a percentage of daily oil production like Angola does, saving proceeds from 10 per cent of its daily production.
NEITI assured that this process will ensure savings at all times, whether prices are high or low which can allow Nigeria to save proceeds of between 5 percent and 20 percent of its daily oil production.
With this, Nigeria could easily save between $1 billion and $3 billion every year even in periods of low oil prices.
“This will need collaboration and consensus not only between the executive and legislative arms of government but also among the three tiers of government,” the extractives sector watchdog said.
NEITI also recommended abolishing the 0.5 percent Stabilisation Fund and the ECA then transferring the balance in those accounts to the NSIA.
The ECA is where Nigeria pays the difference between its budgeted benchmark oil price and actual receipts. It is supposed to help smooth out the cyclical nature of oil prices on the domestic budget.
It has however become a kind of slush fund for the executive to appropriate funds as it wishes for largely opaque expenditures.
When former president Olusegun Obasanjo left office on May 29, 2007, he left $25 billion dollars in the ECA however between 2007 and till date, there has been an upward trend in withdrawals as persistent demand by states to fund various programmes and the inability of the Federal Government to generate adequate revenue to fund its operation had put pressure on it to draw down the account.
Support for this report was provided by the Premium Times Centre for Investigative Journalism (PTCIJ) through its Natural Resource and Extractive Programme.