FEC Approves New Petroleum Policy

• Removes NAPIMS’ control over oil projects costing
• Crude oil price hits two-month high at $52.33
• Dangote Refinery to save Nigeria $7.5bn yearly
The Federal Executive Council (FEC) has approved a new petroleum policy, restructuring the Nigerian Petroleum Investment Management Services Limited (NAPIMS) and stripping it of its responsibility of regulating costing of projects.
Projects costing would now be done by an independent regulator, which would emerge from the restructuring of the Department of Petroleum Resources (DPR).
NAPIMS would now be a pure asset management agency while cost regulation would reside with the sector regulator.
The content of the new policy christened the National Petroleum Policy, which is awaiting gazetting by the federal government, indicated that the Ministries of Petroleum Resources and Finance had been given the nod to restructure NAPIMS using a competitively procured global level consultant.
NAPIMS, a subsidiary of the Nigerian National Petroleum Corporation (NNPC), was established to manage the federal government’s investments and interests in the upstream sector of the country’s oil industry.
It specifies minimum expenditure during oil exploration; reviews and approves contractor’s annual work programme, budgets, and costs; as well as creates the data bank for benchmarking and cost estimation in hydrocarbon projects in Nigeria.
However, it has been repeatedly fingered as being corrupt, inefficient and easily manipulated by political influences, especially at its tasks. For instance, the agency told the Senate in March 2017 that it spent $9 million to transfer and resettle its staff within a year.
It was similarly fingered in the $289,202,382 allegedly collected in 2015 and housed in Ikoyi by the National Intelligence Agency (NIA). Investigations into the cash deposit had subsequently resulted in the suspension of NIA’s Director-General, Ambassador Ayodele Oke.
Buttressing these claims against NAPIMS, the petroleum policy in its description of the agency and need for its shake-up, stated that: “NAPIMS’ cost of managing government’s interest is significantly higher than it ought to be. An expenditure of over $200 million per year is unjustifiable in the current oil price environment. These costs, when applied across the JVs and PSCs, make some of the government equity interests in the joint venture unprofitable.”
It added that: “NAPIMS has 10 divisions but only three are operational (JVs, PSCs, Gas). There are no written rules, procedures or policies to guide its activities; institutional capacity (management and staff capability) is weak; there is no compliance unit, which should be a given; costs per barrel within operations under its supervision are unacceptably high; there is poor data management, information asymmetry both internally and with NNPC Corporates and the organisational structure is fractured.”
It noted on the proposed reform: “The petroleum policy considers that NAPIMS is incapable of reforming itself because of the internal organisation. Effective NAPIMS reform can only come from fundamental restructuring with commercial discipline, and reform must come from outside NAPIMS.
“NAPIMS will be substantially restructured and may ultimately become independent and with full autonomy from the (National Oil Company of Nigeria) NOCN.”
“The restructuring and reform process, to be led jointly by the Ministry of Petroleum Resources and the Ministry of Finance will include: a global level management consultancy to be hired to help with the restructuring; a value-for-money audit; enable faster contracting cycles (3-6 months); priority focus on low-cost oil operations ($9-10/bbl); NAPIMS will be limited to a pure asset management function whilst cost regulation will reside with the sector regulator,” it stated.
It also explained that NAPIMS would be made to share data with other relevant sector agencies to ensure transparency and efficiency.
Meanwhile, the Vice-Chancellor of the University of Maiduguri (Unimaid), Prof. Ibrahim Njodi, has described as an act of God, the recent ambush and murder of a team of explorers involved in NNPC’s search for commercial hydrocarbon deposits in the Bornu axis of the Chad Basin.
Njodi also stated that the 48-man team, comprising the staff of the university and NNPC, military and civilian security personnel sacrificed their lives for the economic well-being of Nigeria.
He added that while the university grieved its deaths, it would not give up on NNPC’s search for oil in the basin.
He said these in a statement in Abuja by the Group General Manager, Public Affairs of the NNPC, Mr. Ndu Ughamadu, which explained that a delegation of the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, and the NNPC led by its Chief Operating Officer, Gas and Power, Mr. Saidu Mohammed, were in Maiduguri, capital of Borno State, at the weekend to sympathise with the state and the university over the development.
Njodi said the university was distraught by the incident, but could not ‘chicken out’ from doing what it was supposed to do when eventually the NNPC re-organises and returns to exploration work in the area.
He said the school’s partnership with NNPC started some 12 years back when the corporation restarted the Chad Basin exploration activities, adding: “The situation, painful as it might appear, must be seen as a necessary sacrifice for the development of the country.”
He also called on the NNPC to stand firm with the university and families of the bereaved and provide support to overcome the setback.
Responding, the statement quoted Mohammed to have told Njodi that the corporation would support the university and the families of the victims of the attack.
“We have been great partners with the University of Maiduguri for many years and certainly when losses like this happen and under these circumstances, we cannot abandon our partners to their fate,” Mohammed said.
Crude Oil Price Hits Two-month High
In the same vein, crude oil prices were near two-month high Monday, putting July on track to become the strongest month so far this year, as news of oil producers’ meeting next week added to the bullish sentiment driven by the threat of United States sanctions against Venezuela.
This is coming on the heels of the Minister of State for Petroleum Resources, Dr. Kachikwu’s charge to oil companies operating in Nigeria to cut down the cost of production or shut down operation, stressing that it is better to leave the oil in the ground than to produce at the current $27 per barrel, which according to him, does not make sense.
Also, Africa’s richest man and President of Dangote Group, Alhaji Aliko Dangote, has said that the Dangote Refinery will save the country over $7.5 billion yearly through import substitution.
The global benchmark Brent crude traded at $52.33 per barrel Monday, after hitting $52.92 a barrel earlier in the day, its highest since May 25.
The US light crude oil traded down at $49.31 a barrel, after jumping above $50 a barrel for the first time in two months early in the session.
This followed threats by US officials that sanctions on Venezuela could be announced as early as Monday.
Reuters reported that the United States is considering imposing sanctions on the country’s oil sector in response to Sunday’s election of a constitutional super-body, which Washington has denounced as a “sham” vote.
Even though the White House has said that “all options are on the table,” the most likely action, banning Venezuela from importing US oil, could come as early as Monday.
US production has hampered efforts to rebalance the market but signs that the market is tightening have emerged after heavy inventory falls and slower new oil rig additions last week.
But drilling for new US production is also slowing, with just 10 rigs added in July, the fewest since May 2016.
However, some OPEC and non-OPEC members will meet on August 7-8 in Abu Dhabi to assess how the group can increase compliance with production cuts that began on January 1.
Speaking yesterday at the annual conference of the Nigerian Council of the Society of Petroleum Engineers (SPE) in Lagos, Kachikwu said that the cost of oil production in Nigeria has remained high, despite efforts to cut costs.
He noted that while Saudi Arabia produces oil at a cost of $9 per barrel, Nigeria produces at $27 per barrel.
“When you look at the cost of production in Nigeria, it remains blatantly high, and even though we have been singing over the last two years that we need to drive cost down, the current figure that I still have showing me the numbers of last year have not shown me a major dramatic reduction in the cost of production. So, we are going to not just force this, we are going to compel it because there is no way this country will produce oil at this sort of swelling prices that we see, there will be no margins left for this country. Only oil companies who are able to be efficient, who are able to drive down costs will have a footage in Nigeria. For me, you rather leave the oil in the ground than produce at a cost that doesn’t make sense. So, the cost is going to be a very high driver. So that is certainly one area we are focusing on; we are working collaboratively with oil companies. But let’s make no mistake about it: If we cannot negotiate it down, we will compel it or we will stop the production; it does not make any sense,” Kachikwu explained.
Kachikwu also dismissed claims by the producing companies that security is a major component of the production, stressing that the cost of security is only $2 – $3 per barrel.
“It is no longer sufficient to say, ‘You know Nigeria is unique, security consideration. But what is the security component in the cost of production? $2 to $3 per barrel. Collaborative means of addressing security problem must begin to take place so that those costs must be driven down. If there is any single item that is required to be dealt with yesterday is the issue of cost,” the minister added.
“The other thing we need to do is focus on our infrastructure. We have a huge infrastructural gap, and we need to begin to address that. We need to begin to set incentives for Nigerian companies who are willing to fund and invest in infrastructure. We need to take away government’s monopolies in infrastructure so that the industry can grow. There is too much monopoly in the industry. I am going to be working with the NNPC and all the parastatals to loosen the grip in the industry,” Kachikwu said.
Dangote Refinery to Save Nigeria $7.5bn
In a related development, Africa’s richest man and the President of Dangote Group, Alhaji Dangote, has said that the Dangote Refinery will save the country over $7.5 billion annually through import substitution.
Speaking Monday when Kachikwu visited the refinery complex at the Lekki Free Trade Zone in Ibeju Lekki, Lagos, Dangote said the foreign exchange spent in fuel importation would be saved by the refinery when completed in December 2019.
‘‘We will be adding value to our economy as all these projects will be creating about 4,000 direct and 145,000 indirect jobs. We will also save over $7.5 billion for Nigeria annually, through import substitution,’’ he said.
Dangote praised Kachikwu for his efforts towards ensuring availability of petroleum products and championing a comprehensive overhaul of the energy sector in Nigeria.
According to Dangote, the efforts of the minister would make the country a self-reliant nation, adding that his company is committed to playing its part in the efforts of the minister and the federal government to comprehensively address the energy crisis in the country.
‘‘As you are aware, we are currently building the world’s largest single line Refinery, Petrochemical Complex and the world’s second largest Urea Fertiliser plant. The Refinery will have the capacity to refine 650,000 barrels of crude oil per day while the Petrochemical Plant will produce 780 KTPA Polypropylene, 500 KTPA of
Polyethylene while the Fertiliser project will produce 3.0 million metric tonnes per annum (mmtpa) of Urea,” Dangote explained.
Dangote added that the company will also be building the largest sub-sea pipeline infrastructure in any country in the world, with a length of 1,100km, to handle three billion SCF of gas per day.
According to him, the company also plans to construct a 570 MW power plant in the complex, adding that gas from its gas pipeline will augment the natural domestic gas supply with an additional 12,000MW of power generation added to the grid from its gas system.
In his speech, the minister urged Dangote to task his engineers to go back to the drawing board and complete the refinery before the scheduled December 2019 to make his dream of ending importation in the same year a reality.
He said he was overwhelmed by the dimension of the project, adding that the present government has always believed that the private sector holds the ace in industrialisation efforts of the government and noted that that belief has been reinforced by what the Dangote Group is doing.
“It is good to say that the private sector is the answer to Nigeria’s problems with a project as big as this. The challenge I will give you today is that of time, I see your time for completion is 2019 December but I am sure you will understand my greed if I tell you that the refinery component of this project should come earlier than the set date.
“I have made a very firm commitment to Nigerians that I must stop the importation of petroleum products by 2019 and I am going to keep to it. It is absolutely important that we do this early and given the feat that we have achieved in terms of speed of construction and I urge you to do all within you to achieve its completion before the due date.
“I am sure His Excellency, President Buhari will be absolutely enthused if he were to find himself, not only crystallising the policy position we have taken so far but also coming here himself to come and open a facility as big as this before the end of his first term. Whatever configurations your engineers have come up with, I urge that they go back to the drawing board and get me my refined products before your said date,” Kachikwu explained.


6 years ago




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