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Business News of Wednesday, 29 December 2021


Nigeria’ll be short-changed if govt decides to sell refineries –Usifo

President of the Petroleum and Natural Gas Senior Staff of Nigeria (PENGASSAN), Festus Usifo President of the Petroleum and Natural Gas Senior Staff of Nigeria (PENGASSAN), Festus Usifo

There have been so much hue and cry over the planned sale of the nation’s four refineries, especially from the Organised Private Sector (OPS), but unions operating in the sector have different opinions contrary to the intention of the government

The President of the Petroleum and Natural Gas Senior Staff of Nigeria (PENGASSAN), Festus Usifo, said Nigeria will be at the losing end should government proceed with its plan to sell the refineries in their present state because many things have been damaged.

He advised that rather than selling the assets as scrap,government should rehabilitate and then follow the NLNG model in privatising the refineries and make huge return on the investment.

He also speaks on the need for diversification as oil will soon go extinct. Moreso as oil presently only contributes 10 percent or less to the nation’s GDP, and over 90 percent of foreign exchange earnings.

Usifo also shares his thought on the new Petroleum Industry Act and the most fundamental advantages it has brought to the industry.


State of Nigerian refineries

Before now, the unions, both PENGASSAN and NUPENG were not really at the centre stage of refineries rehabilitation. Despite funds put into turnaround maintenance, the refineries were still in comatose.

But today, when government started the rehabilitation, the unions insisted that we want to be in the steering committee of the exercise, which was granted. When we started the process, there were some push that we did. For instance, for the Port Harcourt, Nigeria was borrowing $1billion from Afreximbank. We advised that Nigeria should not collect that money and pay into federation account or the CBN so that the politicians will not have access to the money. We advised that the best way to go was to open an escrow account, while the bank pays into the escrow account; where NNPC and contractors will be signatories. At the end of the day, you will release money to the contractors per milestone. If you have committed 10 percent of the work breakdown structure, that is the amount that will be released so that the money would be utilised for its purpose. That was what was approved. With our advice, they created the escrow account with the signatories, while Afreximbank will release trunk of it depending on the verifiable milestones.

That is one of the things that we ensured is done. On privatising the refineries, this is our take. Firstly, this is a national asset. Over the years, it has not worked because of lots of issues. One of them is the lack of will from the government. If government decides to sell the refineries, Nigeria will be short-changed because many things have been damaged. It will not be in our national interest. We advocated that we should fix the refineries such that once they start working, government should divest. They should give 51 percent shares to private investors and retain 49 percent. Just as it is with the NLNG.

This will help because when the refineries are now working and we are now trying to privatise Nigeria will make excess money from it. Then on the amount of money spent for turnaround maintenance, would be based on the scope of work. The scope of work is massive. We don’t think that the amount being put into it is wasted with the scope of work, more so, because the money will not be made available to the politicians.

Repairs carried out on the refineries so far

For the Port Harcourt refinery sanctioned in May, presently, the contractors are mobilising to site and carrying out 3D lacer scanning around the facility. That is the first thing in the scope of work before you commence the rehabilitation process. Activities are going on there. For the Kaduna and Warri refineries sanctioned about three weeks ago, paper works are going on. The phase five on the older refinery will come on stream less than two years from when the contract was signed. We are expecting the phase five to come on stream by 2023.

PIA and investment

The PIB was before the National Assembly for so many years and that created a lot of confusion in the industry, because nobody knew what the rule of engagement will be. Most of the International Oil Companies (IOCs) held back their investments.

When it was now delaying overtime, they now moved their investments to other parts of Africa. Because of the uncertainty that played in the Nigerian environment, Nigeria was not attracting investments. With the signing of the bill, most fundamental advantage is that it has stopped the uncertainty in the industry.

The uncertainty of what will the law be if I invest a particular amount; how much am I going to get, how much am I going to pay as tax, as royalty, as capital gain tax? It reduced that uncertainty. That is a major win that the bill has been able to achieve. There is a provision in the bill, which for us we think is novel.

The provision like environmental remediation fund and environmental remediation plan. As you are getting your license for oil prospecting, you will submit to either the commission or authority your environmental remediation plan and you will also be setting funds aside on a yearly basis into the fund. Should there be a spill, this fund will now be used in fixing it unlike before, where there is no fund when there is a spill there will now be problem. To eliminate the issue and to ensure that the Niger Delta, the pollution that we have currently, does not increase much more, that fund that is set aside overtime will be used in doing some remediation work. It is a good provision.

Another good provision in the bill is also about development of gas. Before now, our old laws, the Petroleum Act of 1959 did not make any provision relating to gas. But in the current PIA, we have a provision. About 50 sessions of the PIA, now fully dedicated to gas. About how you develop gas, gas infrastructure, gas storage system and distribution, among others.

This is because gas will remain for a very long time as oil will not remain the main thing. Over time, Nigeria as a country will move more into gas. Before now, what we only have about gas is the regulation and policies, but there is no concrete law that backs gas development. We have been able to address that now.

Also in the PIA, is about gas flaring. Before now, we have no concrete laws apart from regulations on gas flaring, but today there is. One salient point that is good is, the penalty on gas flaring will be paid by the company and used by the host community. The community will be the direct beneficiary of the fund if you flare a gas in a community, which we also think is good. Another milestone is the provision of Incorporated Joint Venture (IJV).

Before now we have a provision for joint operating agreement between the IOCs and NNPC not backed by some laws. What the Act did, though optional, is to ensure companies incorporate the JV into Corporate Affairs Commission under the Companies and Allied Matters Act (CAMA law), which tends to reduce or eliminate the cash call that today, most companies are finding it difficult to live with. These are some of the benefits among others as provided in the PIA.

Insecurity and foreign investors

Currently, insecurity in Nigeria is a huge challenge and it is doing a lot of harm to the economy. We are advocating and urging government to up the game.

Today, in an average offshore installation site, we have between five to 10 security vessels manning the installation round the clock, with 100 to 200 personnel working there.

The cost of manning each security vessel is not less than $5,000 per day. With about five security vessels, we have $25,000 daily. There too, we’ll pay the naval officers, buy AGO and by the time you add all these costs, it could be $30,000 per day. That adds to your cost of operation.

As an investor, you’ll prefer to go to neighbouring countries that is relatively secured instead of investing in Nigeria. In the bill, we advocated that government must look at the peculiarities. If you want to increase royalties as other countries, you must create the enabling environment to attract investment.

We have challenges securing the pipelines, securing the offshore and onshore installations. If you go to an offshore installation, it is like you have a battalion of army that are guiding most of the onshore installation, which ought not to be like that. That is why the National Executive Council of PENGASSAN recently resolved that beyond mere saying, we did a security awareness campaign across all our zones to advocate and also rewarded some police officers that are exemplary.

We distributed N2 million with about N250,000 each to eight police officers across the zones to encourage and identify with them. We did an open letter to President Muhammad Buhari for us to draw his attention that we are facing challenges in the oil and gas industry regarding security.

The security awareness campaign will be constant. Most of our members are being kidnapped. In fact one of our members spent about 44 days in captivity and just got released recently. We are exposed to insecurity. However, as a union we are trying to partner with security agencies and give them all the maximum support they require.

Diversifying to non-oil sector

Today, oil only contributes 10 percent or less to our GDP, while it contributes over 90 percent of our foreign exchange earnings. It is a misnomer. This is because Nigeria is not developing the value chain. If the country had developed the value chain of crude oil, it would have brought more developments as the value chain is enormous. The way we can develop other sectors is the money from oil. Our advocacy is that government should put plans in place so that between now and say five to 10 years, let’s start producing up to three million barrels of crude oil per day.

The money that you get from the extra one million barrels per day, you can set it aside to do two things; to be investing in renewables as we are moving into energy transition and to be developing other sectors like agribusiness, which is the key that will unlock our development. If we develop our mid and downstream in agric, it is a pointer to develop our economy.

For effective agribusiness, Nigeria needs a deliberate policy that will do backward integration and develop the value chain. That is the fastest way to grow the economy. Our take is that we must generate enough money from oil to develop other sectors and the fastest sector to develop is the agribusiness sector, which contributes largest to our GDP. If we develop that sector, it is going to create a lot of jobs. We need to develop the value chain around the agric sector.