How Oil Rich African Nations Can Escape Nigeria’s Woes
With the current low investor’s appetite for oil
and gas financing due to the energy transition,
emerging African oil-producing nations
have to embrace reforms and good governance to
drive growth.
Underpinned by stiff competition
for limited investments flowing
into the hydrocarbons industry,
African oil producers have to
apply technology, revise policy
and rethink economic principles
to remain competitive. This
proposes that they have to be
transformational instead of being
transactional in their investment
mindsets, with clear intent
to create national prosperity
as opposed to making few
people wealthy within a largely
impoverished population.
Renowned petroleum economist
Professor Emeritus Wumi
Iledare, who made the assertion
while speaking on the topic: The
Search for Petroleum Industry
Reform in Africa: Lessons from
Nigeria, at the 2nd Offshore Africa
Energy Conference in Accra,
urged resource-rich nations to
think posterity instead of instant
prosperity. Using Nigeria as a
classical example, he highlighted
the damage the deferral of reform
and bad governance is capable of
inflicting on a thriving oil and gas
nation.
According to him, the catalysts
for growth in the industry remain
among other things: sector
legislation and regulations;
local content and mid-stream
infrastructure; transparency; and
frameworks and fiscal terms.
Iledare, who currently lectures at
the Institute of Petroleum Studies,
University of Cape Coast, Ghana
shared the grace to grass story
of the Nigerian oil industry to
admonish other resource African
nations to avoid bad governance,
policy gaps, transactional mindset
and deferment of reforms in the
industry.
The petroleum economist also
urged Ghana to make necessary
adjustment to its legal framework
to revive the oil and gas sector.
“Ghana’s industry has to be
reformed. Legislation should be
dynamic and not static. Between
2010 and 2023, we need to see
sectoral reform,” he advised.
Nigeria ranked among the top
20 oil producers in the world in
2021, with approximately 1.5-1.7
million barrels per day on average
and 36 billion proven reserves of
crude down from top 10 ranking
in 2005, with production of about
2 million barrels per day on
average and 35 billion liquids of
petroleum reserves. “In 2005 it
was the promise nation and most
coveted petroleum development
bride in the Gulf of Guinea,” he
added.
Prior to the coming of the
Petroleum Industry Act (2021) the
Nigerian oil and gas industry was
stymied by declining production,
declining reserves, leakages,
infrastructure deficits, revenue
shortfalls, price volatility, political
and forex uncertainty, challenges
attracting funding, uncertainty,
unattractive commercial
frameworks, uncompetitive fiscal
terms.
The protracted delay in passing
the Petroleum Industry Act, which
took over 21 years to happen,
short-changed the nation, denying
it critical investments, extra
revenues to state and job creation,
he said, adding, “The key to
attracting investors is reform and
good governance…..Oil countries
should think about delayed
revenue. If government takes
too much it will disincentivize
investors. This has nothing to do
with sentiments; policies drive
investments,” he stressed.
The PIA offers renewed hope
for the Nigerian oil industry,
with the intent to restructure,
rebrand and rekindle institutions
through separation of roles-policy
with commercial and regulatory
functions well defined. The
legislation engenders attractive,
competitive and progressive
fiscal and contract terms; valuecreation acreage; management
administration removing
discretionary award renounced
and relinquishment terms
articulated; host community
inclusiveness and optimization of
community development-benefit
sharing with host communities;
and to enforce transparency,
accountability, stability and
sustainability.
The Nigerian legislation aims
to enforce good governance,
competitiveness, global best
practice and ease of doing
business, and eliminate
uncertainty due to protracted
non-overhaul of legal framework
on governance and fiscal
environment. While paying
attention to national economic
principles such as: early revenues
for government; simplicity of
administration, equity and
fairness, competitiveness, best
practice, sustainability and role
clarity.
Prof. Iledare believes the PIA
will be the game-changer for
Africa’s most populous nation
if well implemented. “The
consequences of the quadrilemma
in the petroleum sector on energy
availability, energy accessibility,
and energy affordability are quite
obvious in Nigeria of today but
PIA implementation can make a
big difference.”