Knowledge Café

Regulation and Oil Wealth Redistribution in Nigeria. More recently, Nigeria began implementation of ambitious reforms aimed at significantly driving oil and gas industry impact on the domestic economy. This session focuses on major aspects on oil and gas industry regulation in Nigeria over the past 10 years, key impact of such regulations on the economy, challenges faced and highlights discussion points to be explored.

MONDAY

16 November 2015 | 3.30 pm – 4:30 pm | MC Atrium. World Bank. Washington DC

SPEAKERS

Ify Ogo, PhD Candidate at Maastricht University, The Netherlands; Phandulwazi Nge China Scholar at Centre for Chinese Studies, South Africa Cell: +234 806 206 5930 | email: iffyogo@gmail.com

Tobi Oluwatola, Policy Analyst at RAND Corporation; PhD Candidate at Pardee RAND Graduate School. United States Cell: +1 310 570 0938 | email: tobioluwatola@gmail.com

Michael Olorunninwo, Commercial Leader at Seven Energy International; Co-founder at Q.Aspen. Nigeria Cell: +234 803 719 9590 | email: michael.phurtune@gmail.com

Each year, Law, Justice and Development (LJD) week brings together World Bank Group staff, senior officials from other international financial institutions, international development practitioners, government officials, lawyers, judges, scholars and representatives from civil society. It also

involves the collaboration and participation of the 170 international partners of the Global Forum on Law, Justice and Development (GFLJD).

www.worldbank.org/ljdweek2015

Presentation at the World Bank Global Conference on Law, Justice and Development | Washington D.C. 16 November 2015

Session I: WOULD THE PIB SOLVE NNPC’S CASH LEAKAGE PROBLEMS? | Tobi Oluwatola

Over the last decade alone, Nigeria’s government has commissioned more than six investigations into the operations of its national oil company, the Nigerian National Petroleum Corporation (NNPC). Summarily, these reviews of the NNPC have raised five main causes (NRGI 2015) of waste in the governance of the national oil company, including:

1. Domestic Crude Allocation: 445,000 barrels of its crude oil lifting is allocated daily to local refineries. However, more than three quarters of this gets exported and only about 58% of expected revenues ($16.8billion in 2013) are recovered.

2. Opaque Revenues and Expenses: NNPC omits to report its exploration and trading revenues and lacks clear rules for obtaining financing. The exact amount of its debt or retention is yet unknown.

3. Oil for Product Swap Agreements: NNPC exchanged oil worth up to $35b between 2010-2014, in swap deals for petroleum products. The nature of these deals are often disadvantageous to Nigeria and the resulting oil products subject to racketeering and theft.

4. Use of Middlemen: Nigeria is the only major oil producer that sells its crude through traders rather than directly to end-users.

5. Corporate Governance, Oversight and Transparency: NNPC lacks basic checks and balances: it does not produce annual reports nor does it provide statutory reports to regulatory bodies.

First drafted in 2008, the Petroleum Industry Bill is the single comprehensive proposed law to solve administrative problems in the Corporation. The current draft of the bill was first presented to the House of Assembly in 2012. However the bill continues to face opposition from international oil companies’ for its royalty rate increases, state governors over disputes about revenue sharing from the federal oil account, and the NNPC due to its resistance to increased oversight. It was hurriedly passed in the House of Assembly on the final day of the immediate past assembly, but didn’t get the concurrent approval of the Senate.

The Bill in its current iteration proposes to address the fiscal and corporate governance issues raised. The government will divest majority of its holding through the stock exchange and earn its income through taxes, royalties, and dividend payments. But fails to address the domestic crude allocation, use of middlemen or oil swap agreements.

The current administration has expressed commitment to represent a new draft of the bill. It has also commenced its reform agenda by implementing executive decisions to tackle some key issues, in the interregnum to the passage of the revised bill. It recently approved the corporatization of NNPC’s joint venture (JV) assets, a move that was included in the original bill, but excluded from the more recent iterations. It has also cancelled oil swap deals and the use of middlemen, for “sales-direct” agreements of crude and for product by the NNPC. Going forward, the administration will have to lead the passage of five major bills to ensure sustainability:

Institutional reform: transferring assets to private entities and ensuring corporate governance;

Fiscal reform: clearly stating government’s revenue streams

Petroleum Products (midstream and downstream) reform: sourcing inputs for domestic refineries and replacing supply currently fulfilled through product swaps

Local content, technology transfer and increased industrialization

Natural gas reform

Discussion Points

1. What are the suggested critical steps to ensure quicker passage of the PIB? Stakeholder management? Passage of bill piece meal?

2. How does the NNPC guarantee the supply of petroleum products and avoid scarcity in the absence of swaps?

Presentation at the World Bank Global Conference on Law, Justice and Development | Washington D.C. 16 November 2015

Session II: LEGISLATION AND INDUSTRY DEVELOPMENT | Ify Ogo

The oil and gas industry is central to Nigeria’s economic performance: the industry contributes up to 80 percent

of government revenue, and about 20 percent of GDP. The Nigerian government has attempted to engineer the

Nigerianization of the oil and gas industry through the enactment of the Nigerian Oil and Gas Industry Content

Development Act (NOGICDA), 2010. This Act seeks to dilute the dominance of international oil companies

operating in Nigeria. These companies led oil exploration ventures in the 1950s, and gained control of the oil

industry in subsequent decades.

The NOGICDA 2010 or ‘Local Content Law’ is a legislative tool directed towards increasing Nigerian participation

in the oil industry by mandating minimum levels for the use of local services and materials. Also, the local content

legislation attempts to ensure the transfer of technology and skill to the Nigerian economy and Nigerians

employed in the oil and gas industry, respectively. Highlighted below are some of the key effects of the Act:

Places local content as an important element for overall project development and management philosophy

in the execution of projects in the oil and gas industry (S2 NOGICDA 2010)

Confers an advantage on Nigerian operators by giving these first consideration in the award of oil blocks, oil

field licenses, oil lifting licenses and in all projects for which contract is to be awarded in the Nigerian oil and

gas industry. (S3 NOGICDA)

Requires operators to craft and submit Nigerian Content Plans demonstrating compliance with the Nigerian

content requirements of this Act to the Nigerian Content Management Development Board in the bidding

of any license of permit or interest, and before carrying out any project in the Nigerian oil and gas industry

(S7 NOGICDA 2010)

Industrialization and the Local Content Law

The local content law presents the benefits of the law in the management of natural resources. Specifically, this

legislation articulates and pursues the developmental objectives of the Nigerian government: it has contributed

to increased levels of employment of Nigerians, created opportunities for Nigerian businesses to service oil

companies, and creates advantages for Nigerian businesses seeking to operate in the industry.

However, the NOGICDA 2010 does not contribute to the industrialization of the oil and gas industry in Nigeria.

While the Act is effective in requiring operators to adopt local content objectives, it does not speak to the macro-

development of the oil and gas industry. The local content law places the responsibility of achieving the

Nigerianisation of the oil and gas industry on operators, the majority of which are foreign investors, and gives

the government a supervisory/monitoring role. Performance requirements placed on operators create

opportunity, as well as access for Nigerians and Nigerian owned businesses. The Act maintains the status quo,

or dominance of IOCs, as it does not provide the capabilities or incentives necessary to equip Nigerian operators

for qualitative and increased engagement in the oil and gas industry.

There is a need for further measures to ensure the industrialization of the Nigerian oil and gas industry, and

enhance the competitiveness of Nigerian operators. In light of proposed reforms (to be discussed in the GAS and

PIB segments of this Knowledge Cafe Session), this segment seeks to discuss the methods by which legislation

may contribute to the industrialization of the oil and gas industry.

Discussion Points

1. One of the shortcomings of the current local content law is that it places responsibility in the hands of foreign oil

majors. What can the Nigeria government do differently in this regard going forward?

2. Are legislative reforms alone enough to enshrine local content development and ensure industrialization?

Presentation at the World Bank Global Conference on Law, Justice and Development | Washington D.C. 16 November 2015

Session III: NIGERIA GAS MASTER PLAN | Michael Olorunninwo

To increase the contribution of the oil and gas industry to the economy, larger investment is required to monetize gas. The

greater ripple effects of investing in gas means Nigeria can achieve both oil (and gas) and non-oil sector growth through gas

development. However, while lack of commercial framework and appropriate incentives created disorientation for

investments, gas development was also uncoordinated. Given these attendant opportunities, a Gas Master Plan was

proposed in February 2008 and Nigeria began laying framework for investment and infrastructure expansion in domestic

gas. Similar regulation passed in South Africa: 2001, Malaysia: 1974, 1993 and 2016 (for IBR - Incentive Based Regulation).

Some of the critical elements of the Nigeria Gas Master Plan include:

a. Creation of Gas Pricing Policy for Power, Industrial (feedstock), and Commercial sectors to incentivize investment b. Domestic Supply Obligations mandating International Oil Company (IOC) operators to set aside predetermined quantity

of gas for domestic market c. Gas infrastructure blueprint for gas gathering, processing facilities, pipelines to connect supply with demand centers d. Stimulate gas based industries such as methanol, ammonia, urea, chemical fertilizers, among others e. Consolidate Nigeria’s position in high value export of liquefied natural gas (LNG) and other liquids f. Assure long term energy (gas) security for Nigeria by balancing transgenerational needs

Successful reform by Nigeria Gas Master Plan has created considerable impact on the domestic economy:

Financial Services – provision of local and international financing. Funding by local banks increased. Financing need

estimated between $25-30b/year. World Bank Partial Risk Guarantee to mitigate payment risks - for gas-to-power

Establishment of pipe milling, fabrication yards, additional Free Trade Zones to support domestic market and local

content development

Upstream/midstream development of associated and non-associated gas – more than 1.5bcfd produced in 2014, about

400km of pipelines completed, major regional interconnection pipeline projects planned or in progress

Increased activities: LNG and LPG plants, gas processing facilities and gas based/consuming industries (examples -

Notore: fertilizer, Dangote: cement, Honeywell: petrochemicals) – more than 20,000 jobs created

Increased gas supply to grid-power and development of captive power, generation peaked at about 5,000MW in 2015.

Although, power consumption per capita still low, Nigeria: 156kWh, South Africa: 4,405kWh, Malaysia: 4,345kWh.

Challenges Facing Nigeria Gas Master Plan

Despite successes, achieving the broad objectives of the Gas Master Plan faces immense challenges. These include supply

availability resulting from export orientation of gas activities since inception and infrastructure inadequacy, commerciality

of supply bordering on pricing of gas (products) to ensure investment viability, securitization of revenue, and inadequacy

of bankable gas business agreements. In addition, the lack of effective legal and regulatory framework is posing a challenge

as Nigeria is yet to approve standard Production Sharing Contract (PSC) terms for gas or network code for gas pipelines.

These have led to foreign direct investment (FDI) losses to other emerging oil and gas producing economies.

Other challenges include increasing vulnerability of pipelines to vandalism, project delivery issues (approval delays,

contractor performance, and community challenges), upstream JV funding shortfall, and lukewarm international oil

company (IOC) attitude towards domestic gas.

Reform Recommendations to Holistically Address Implementation Challenges

Broadly speaking, the Nigeria Gas Master Plan is yet to have a full legal status or government policy status, as it is embedded

in the stalled Petroleum Industry Bill. It is now imperative to have a robust legal framework that protects all players,

provides attractive commercial terms, incentivizes longer-term and joint government/private sector investment in

infrastructure, and ensures revenue securitization. Other areas of focus include improving efforts to leverage various gas

supply sources for domestic market, providing framework for scalability and connectivity of gas infrastructure.

Discussion Points

1. What additional legislative provisions should Nigeria be considering to ensure gas infrastructure development? 2. Will a solely gas industry focused legislation be enough to ensure achievement of reform objectives?

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EXPERT BIOS

Tobi Oluwatola

BSc Electronic and Electrical Engineering (OAU), PhD Candidate Pardee RAND Graduate School

Expertise: Policy Analysis, Economics, Finance, Energy, National Security, Environment, Labor

Markets, Defense

Experience: KPMG, RAND Corporation, World Energy Council, Future Energy Leaders Advisory Board

Bio: Tobi Oluwatola began his career at KPMG Management Consulting where he advised clients in

diverse areas, from Nigeria's ministries of finance and energy to multinational technology

companies and banks. He took a leave of absence to become the national coordinator of the volunteers supporting the

2011 presidential campaign of the Action Congress of Nigeria (Nigeria's largest opposition party). Combining skills

developed at KPMG with his networks from the campaign, he then co-founded a consulting firm that employed more than

150 people and worked with the British Department for International Development (DFID). He is a Ph.D. candidate at the

Pardee RAND Graduate School.

Michael Olorunninwo

BSc Insurance and Management (Lagos), Associate Chartered Insurance Institute of Nigeria,

Member Institute of Chartered Accountants of Nigeria, Chartered Financial Analyst (Level II)

Expertise: Corporate Strategy, Economics, Finance, Corporate Development, Operations Mgt.,

Compensation & Benefits, Personal Income Taxation, Financial Services, Oil & Gas, FMCG

Experience: Seven Energy International, KPMG, Q.Aspen, NICON Insurance Corporation

Bio: Prior to joining KPMG Management Consulting, Michael started out as an aviation risk

underwriter at NICON Insurance Corporation, one of the largest insurance companies in Nigeria. At KPMG Management

Consulting, he advised top-tier organizations in banking, consumer markets, oil and gas, and government agencies on

corporate strategy, financial and operations management, and human capital development. Over the past years, he has

been deeply involved in the oil and gas industry, working in diverse roles within Seven Energy International, a company

focused on developing energy infrastructure to provide domestic gas for power generation and industrial uses in Nigeria.

Michael also works as a social initiator and community organizer. He is Co-founder at Job Bureau (a non-profit) and Q.Aspen,

a social enterprise whose mission is to build Africa's next generation of high-growth, successful, indigenous businesses.

Ify Ogo

BA Law and Politics (London), LL.M Law and Development (London), PhD Candidate Law and Economic

Development (Maastricht University)

Expertise: Regulatory Analysis, International Economic Law, International Investment Law, International

Institutions, Law of Finance, Economic Development.

Experience: United Nations, Generation Enterprise, Labyrinth Development Consulting, Q.Aspen

Bio: Ify Ogo is a doctoral researcher at Maastricht University, the Netherlands. Her research project

centers on investigating and identifying the legal strategies, mechanisms and vehicles which have enabled

economic development in sub-Saharan Africa over the last 10 years. Ify’s professional experience covers strategy, risk

management, investment advisory, economic development, project management, venture development, research,

communication, community relations and capacity building. She has worked with Corporations, Governments, Donor

Agencies, Start-Ups, and Non-Profit Organisations across Africa. Her work experience covers extractive industries, FMCG,

renewable energy, technology, finance, agriculture, health, education and media and communication.

Ify worked as pioneer project coordinator at Development Information Centre Nigeria, a joint desk of the World Bank and

United Nations. Also, she served as Deputy General Counsel of Generation Enterprise, an incubator for youth-led businesses

in Nigeria. Building development and entrepreneurial skills for youth, she has implemented capacity building programs for

youth in South Sudan, Kenya, Togo, Nigeria and Cote d’Ivoire through the Knowledge Project Africa.