INTERVIEW: Only negotiations can resolve Nigeria’s $62 billion controversy with IOCs – Sylva

Nigeria's minister of State for Petroleum Resources, Timipreye Sylva,
Nigeria's minister of State for Petroleum Resources, Timipreye Sylva,

The Minister of State for Petroleum Resources, Timipreye Sylva, held his maiden briefing with journalists on Thursday on the activities of the ministry since his assumption of office. He spoke on various issues including the plan to give Nigerians alternative to petrol as fuel for vehicles, Petroleum Industry Bill and the lingering $62 billion oil revenue controversy with international oil companies.

Business & Economy Editor, Bassey Udo, was there.

Excerpts:

Q: What’s the update on the effort by the federal government to recover the $62 billion from international oil companies operating in the deep offshore fields in Nigeria following the 2018 Supreme Court decision on the issue?

SYLVA: First, let me clarify that I am not part of that engagement with the oil companies. Yes, there was a provision in the amended Deep Offshore Act that when oil prices rise above $20 a barrel, the federal government will ask for some form of an increase in their take.

Unfortunately, we didn’t activate that aspect of the law. Nobody will blame the federal government, nor the oil companies for not doing that at the time. But, from today’s reality, one will agree that $20 can be considered a windfall. In those days $20 when oil was less than $9 per barrel, probably it may have been considered a windfall. That was why it was pegged at that price for the additional take to kick in. But, for a long time now, $20 has ceased to be a windfall.

Ten years ago, the oil price was already over $100 per barrel. Even if we rewind five years further, maybe 15 years, $20 would not have been considered a windfall.

I feel one cannot now put a blanket rate and say we should calculate from 1992 or whenever (when oil price went above $20) and recover from the oil companies up till today. That will be very unfair. One must determine, first and foremost, when $20 stopped to be a windfall before one begins to calculate. That is not going to be an easy task. We have to go through a lot of processes to achieve that.

Beyond that, this is a partnership between the federal government and the oil companies. In partnerships, we always have these issues which the partners resolve. In this case, too, the Ministry of Petroleum is looking at it as a partnership issue that would be resolved amicably.

$62 billion could not have been sitting somewhere for us to harvest now. It’s not possible. It can only be a product of a lot of discussions.

At this point, I cannot say where those discussions are because I am not part of the team yet. But, it’s something I believe we will work out amicably with our partners.

Q: When you as the Minister of State for Petroleum Resources say you are not part of the discussions on the issue, the suggestion seems to be there was no consultation with the Ministry by the Attorney General of the Federation before the demand was made. A group even called for your resignation from office for speaking against the demand? What’s the situation now on that?

SYLVA: I don’t really want to go too deeply into the issue. It’s not as if the government did not think about it. The truth is that there was a court judgment, and there are technical bottlenecks to achieve it.

One can say a court can give a decision. But, sometimes those decisions would have to be subjected to the reality on the ground, which a partnership between the federal government and the oil companies. Now, discussions are ongoing. But, it is how to manage the partnership that matters.

Chevron

One cannot say because a court has said $62 billion should be paid, then the money will be brought from a cupboard and paid.

In this case, it is a whole process of discussing, establishing and reconciling records. There is a lot of reconciliation to be done. Probably one has to go to Chevron in San Ramon in the U.S; Mobil, Shell and all the other IOCs to do all that.

After the judgment, then the technicalities will begin.

For example, if they say yes there is a law which provided that the federal government will improve its stake after the price goes beyond $20 per barrel, the presumption at that time for making this law that that price was considered windfall, high profit. At the time offshore was a frontier territory. It was not a tested territory. So, all these incentives were given to the operators to encourage them go into the area and sell the oil and at a certain price. But, if the price goes beyond a certain level, the government will come in and take more.

That was considered windfall at the time of passage of this law in 1992. But, today, the reality is different. $20 per cannot be considered a windfall. If you successfully determined when oil price ceased to be $20 per barrel so that the federal government to take more revenue, then we are saying let all the oil companies leave the country, because nobody will operate profitably in this environment.

That is why I said the only way to resolve this issue is to handle it as partners. Each partner might infringe on the right of the other, and another time the other partner infringes, the other might find a way of accommodating him, and vice versa.

It’s a process of accommodation. That’s what we are looking at. Let us accommodate each other as partners. We don’t want these companies to leave now. Our intention is not to wind down the companies, share the profit and go our separate ways.

The intention is to keep our partners and continue to work with them. That means whatever the judgment is, we have to look for realistic ways to resolve the matter.

And for those who called for my sack because (of what) I said, they can continue to make the call. But, that is the truth. There is no $62 billion anywhere that any oil company can pay. It is a process that needs to be accommodating; to be discussed as partners and resolve it.

Q: You spoke about improving the relationship between the petroleum sector and the masses by reducing the cost of fuel. Are we talking about reducing the price of petroleum products?

SYLVA: I could easily have said yes, we are reducing the price of fuel. I am sure all would be wondering why I am saying so. Why that is so is that the government is thinking of giving the masses an alternative fuel. Today, we are all hooked on PMS (premium motor spirit). What we want to do going forward is to see that we are able to move the masses to CNG (compressed natural gas) cars.

This is what is called the GSM treatment. There was a time Nigerians used to fight anytime the federal government wanted to privatize NITEL, because there was no alternative.

But, when the masses were given GSM, they got hooked to it. No one kicked again, because it didn’t matter to them anymore. I believe the problem of fuel is also that way.

Today, everybody clamours when poor people agitate when the federal government mutes the idea of an increase in fuel price. We all agree that has continued to be a drain on Nigeria’s finances. When so much is spent to subside fuel. The process itself is being manipulated by all kinds of unscrupulous elements.

But we also recognize that is the only point of contact between the oil industry and the masses. So, we decided we should give the masses an alternative by moving the masses to CNG. We will start by taking transport vehicles out of the PMS loop for them to be using CMG, then we will see that that is the point of contact with the poorest of our population. It will, even further down, take out a lot of people from the PMS loop.

CNG, unit for unit, costs less than even the subsidized PMS. A litre of subsidized costs of PMS is about N145. CNG will cost about N95-97 per liter. That is why I said we want to reduce the cost of fuel. That way, we believe that when an alternative is given to Nigerians and they get used, they will not even notice when the subsidy on PMS is removed.

That is the alternative government is working on. It will start very soon to roll out. Already, there is a pilot programme in Benin, which has worked for a long time, with about 10,000 vehicles already on CNG in Benin City.

So, we want to expand that CNG programme across the country. We believe that it is going to create a lot of opportunities for Nigerians, and also give Nigerians a new lease of life, because they will be accessing their fuels cheaper.

Q: You spoke about the oil and gas bid round. Is it happening this year?

SYLVA: Yes, we expect to have a bid round. But, I have a minister, who is the president. So, everything hinges on his approval. We are discussing the need for a bid round. But, the main bid round can only take place after the Petroleum Industry Bill has been passed, so that the fiscal framework around the operation of the oil industry assets will be clearer.

That way, we will be able to attract more interesting participation.

Everything actually hinges on the passage of the PIB. That is why we are calling on all Nigerians to come together to ensure the PIB is passed this year. The stagnation in the industry is mostly due to the non-passage of the law.

As Nigerians, we all need to ensure we clarify and sanitize the fiscal environment and the framework so that we can attract investors into the sector.

Q: The UAE Ambassador visited you recently, perhaps in connection with upcoming Nigeria International Petroleum Summit in February. What benefits are Nigerians looking to gain from the event?

SYLVA: Nigerians have had excellent relationships with the UAE. We had good discussions with the Ambassador. I am hoping we can deepen the relationship between UAE and Nigeria.

Of course, NIPS has continued to grow. It is becoming one of the foremost events in the oil industry not only in Nigeria but internationally. It brings a lot of investors together. We hope that through the NIPS, we will attract important investors. We want to expand the operating environment in Nigeria. The only way to do that will be to attract new investors in the industry.

The NIPS is one of those fora we think we are going to attract some of those investors. We hope to get some very important investors in the industry to participate in the NIPS.

Q: How concerned are you about the speculations on the exit or the reduction of stake in Nigeria by Chevron?

SYLVA: I am not aware of Chevron exiting or reducing their exposure to Nigeria. People have asked me about it. But, I don’t see any sign of the stake reduction. What Chevron is saying is that they have some assets that have become marginal to them, and they want to encourage some local operators to take over those assets.

What I am aware of is that there are a lot of additional investments going on. The final investment decision on Nigeria LNG Train 7 was taken recently. There is still a lot of confidence in the Nigerian environment. Shell and all its partners in the NLNG project are still investing in Nigeria. So there is no sign of reduction of their exposure to Nigeria. But, I keep getting speculations in the rumour mill that Chevron is trying to reduce their footprints in Nigeria. I have asked Chevron management and they denied they ever contemplated doing that. In fact, when the factors are alright, like when the PIB has been passed, they say they will be ready to invest more in Nigeria.

So, in the oil industry I can say authoritatively Chevron remains a very strong partner to Nigeria and has never approached us on plans to reduce its footprint in the country.

Q: Are you in talks with the Russian gas company for more involvement in Nigeria’s gas industry?

SYLVA: Yes, we are talking to investors from Russia. We had discussions with Gazprom. We are strengthening those discussions.

Lukoil is also looking forward to taking a very strong position in Nigeria. We want to expand the operating environment. We are looking to very major investors in Nigeria. Gazprom and Lukoil are very strong investors we will like to have in Nigeria.

QUES: You also mentioned that the PIB will be passed this year. But we know Bill was broken into five different parts. So, will the National Assembly pass it in bits or in bulk?

SYLVA: The PIB is one bill. I only looked at the two parts of the bill. So, when we approach the bill, we are not taking it in parts. We are going to take it as a bulk bill and passed as a PIB.

Q: Can you give us an idea on the subsidy for December 2019?

SYLVA: I frankly can’t say how much it is. But, we should be happy as Nigerians that today we can celebrate Christmas in December with fuel crisis. Frankly speaking, it was not under any additional cost at all. It was due to better management of the process. The process has, over the years, been taken advantage of by some unscrupulous Nigerians.

When those problems are eliminated, what you have is a sanitized process. So, the federal government just sanitized the process and strengthened the management of the subsidy scheme. That is why you saw the result in December. We are hoping we will never again have fuel scarcity in this country.

Q: You spoke about some of the plans you want to achieve this year and the years ahead. But, we recall that sometimes in 2016, the President launched a roadmap called “7 Big Wins” containing very comprehensive strategies the government said it will run the industry in the short to long term. What is the fate of that document now? Has it been jettisoned?

SYLVA: There is continuity in government. We expect improvements. So, whatever is contained in the document is still relevant today. But, what has happened is that the document has been improved upon during this tenure.

Before we were sworn in, we had a presidential retreat and mandates were given to us flowing from the 7 Big Wins. Of course, that is what we are running with. It is still linked up with the 7 Big Wins. Whatever budget that was made available is still available to us.

QUES: You said by the first anniversary of your appointment, PIB will be passed. May is the first anniversary. Are you aware of that?

SYLVA: We are very ambitious about the PIB. We are hoping that it will be passed before May this year, which is the first anniversary of the second tenure of this government. But, we are counting on the excellent relationship between the executive and the legislature. But, it must be said that is why we are mobilizing your support, National Assembly and the industry to build the consensus around the PIB. The non-passage of the PIB has held us down for too long. So, we need to get it passed quickly.

It’s taken us a while to really tidy it up, because we want to take every interest on board. Of course, not every interest can be taken on board. But, we are comparing our jurisdiction to our competitors’ to ensure we are very competitive. When we come out, we believe it is a law that will be acceptable to all.

Q: You also said 2020 is the year of gas for Nigeria. What specific things do you want to do to realize this?

SYLVA: Apart from our plan to move vehicles to CNG to open up the gas sector, we are also looking at improving exponentially the liquefied petroleum gas (LPG) penetration in Nigeria. Our people must be taken to LPG usage.

Unfortunately, our LPG usage today is one of the least in Africa. What we also use is firewood, kerosene. Of course, it’s all about the race against carbon emission. We believe gas is a cleaner fuel and it is going to save our forest resources. So, we are going to be heavy on that front.

Q: About refinery, what are you going to do differently to get the refinery working to end imports?

SYLVA: What we are doing differently about rehabilitating the refineries is that we will involve the original equipment manufacturers (OEMs). Over the years, a lot of monies have been spent on rehabilitating the refineries. But, unfortunately, they do not function optimally. One of the problems is that the OEMs were not involved in the rehabilitation process. If we don’t involve the owners of the technology, there will always be problems.

The other issues are at the management level. We have all come to the conclusion that the refineries cannot be effectively managed by the government bureaucracy.

For example, a seal begins to leak in Port Harcourt refinery and requires a replacement. The limit of approval of the Managing Director of the Port Harcourt refinery is N50 million. One seal probably costs N100 million equivalent. The MD comes to get approval from the Group Managing Director of NNPC. By the time he finishes the process to actually purchase the replacement, two more seals have gone bad.

With the two additional seals, the cumulative cost is more than the approval limit of the GMD and needs to be escalated to the Executive Council of the Federation for approval. By the time it comes to the GMD-FEC and back, 10 more seals have spoilt.

So the government bureaucracy cannot be applied to the management of refineries, in addition to other leakages that happen through the government processes. So because of this, what we are trying to do differently is to ensure when these refineries are finally restored and rehabilitated, we will put operation and management (O&M) contract, so that a professional manager will manage the refinery. That will cut off all these bureaucratic bottlenecks for the refineries to function well.


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