The Chairman, Energy Institute, Nigeria, Osten Olorunsola, says the recent breakout of the deadly Coronavirus, or COVID-19, and the ensuing oil crisis could worsen the state of the Nigerian economy if the federal government does not handle the aftermath of the global challenge with a sense of urgency and responsibility.
Mr Olorunsola should know what he is talking about. Apart from being a key player in the country’s petroleum industry, having worked with some of the multinational oil companies at various times, he is a former director, Department of Petroleum Resources (DPR).
He is also a member of the advisory panel of the Nigeria Natural Resource Charter (NNRC), a non-profit policy institute promoting the effective management of Nigeria’s natural resources for the public good.
Mr Olorunsola also gave reasons why the process to get the Petroleum Industry Bill (PIB) passed should be given accelerated attention if the country’s economy is to be saved.
He spoke with Business & Economy Editor, Bassey Udo, on the impact of the coronavirus on the global economy, particularly on the Nigerian oil industry.
PT: The recent breakout of the deadly coronavirus appears to have unsettled world economy. What do think Nigeria’s fate is now, considering that the country has barely recovered from the fallout of the 2016 economic recession?
Osten: The recent breakout of the coronavirus is one of two key issues impacting crude oil prices at the international oil market and the Nigerian economy in the short term. The issue affecting the petroleum industry today is long term.
The point is that the oil price itself is going down as a direct consequence of the coronavirus that is fast spreading around the world and affecting the global economy.
Because the survival of the Nigeria economy depends 80 per cent on what happens to oil and its price, it is obvious why Nigeria’s situation could worsen if it is not handled with a sense of urgency.
The other short term issue is the fact that in responding to the market situation, the Organisation of Petroleum Exporting Countries (OPEC) and its allies in the non-OPEC group, including Russia, has the difficult decision to make, by further cutting the oil production quotas of members by another 1.5 million barrels per day.
If the decision to cut members’ output by about 2.1 million barrels per day taken earlier is still subsisting, then one can imagine what Nigeria’s fate is going to be.
For countries like Nigeria, where its oil production capacity was already reduced from the usual 2.3 million barrels per day to below 1.9 million barrels per day, and also not getting high price from its exports, it poses a dire situation for the country’s economy.
This is because the country needs every dollar it can get now to develop the country. As it stands, it is obvious the 2020 budget is going to be under-funded. I hear the government is already talking about a review of the fundamentals.
Of course, the third point which is of a longer-term is the fact that even the world itself is undergoing global energy transition at this time, in trying to balance the issues around the huge demand for energy against not just limited supply, but also responsible supply, in terms of decarbonised energy.
PT: From these three scenarios you have presented, how scared should we be as a people and government about the Nigerian economy?
OSTEN: Well, I would not say we should be scared. Rather to get ourselves prepared and really re-strategise about certain things we do as a country. The first thing is the fact that we need to demonstrate a sense of urgency in everything we do, to show the dire situation we are facing.
Between 2005 and 2007, the country gave out oil prospecting licences to 77 new operators. Out of this huge number, only one of the beneficiaries has progressed to production.
The fact that the government gave out oil blocks to people and nothing happens from the oil blocks in ten years should give government enough concern not to keep quiet.
In my view, refusing to take action to recover the oil blocks after ten years is not how to react with a sense of urgency.
Again, the fact that the government has not given new oil blocks to new investors for 13 years does not also show a sense of urgency.
If we are not careful, we might get to a situation where, like we have so many cargoes on the sea today and nobody is buying them. Also, if we are not careful, we will even have this same oil under the ground and can’t bring it out to the surface, because the value has diminished.
So, we need a lot of sense of urgency in what we do, right from licensing of new operators to development of the oil blocks, and even to be responsible about things around oil field abandonment.
It sounds bizarre that government can give out 77 oil blocks that people actually competed for, bided, won and paid for, and up to 13 years, nothing has happened, except only one of them, and government is keeping quiet as if nothing wrong happened.
Sometimes, I sit back and ask myself, even the signature bonuses the awardees paid is it that they just decided to dash government all that and go to sleep?
I don’t think anybody who paid so much of his or her hard-earned money to acquire a licence for an oil block would not have expected that by now we would have seen oil wells or production going on. But, we are not seeing any of such things.
Technically speaking, if we are to go by our law books and regulations, by now the government should have revoked all those oil licences and returned the oil blocks into the basket of oil blocks to be put forward for fresh biding.
According to our laws and regulations, there is no oil block that is given to anybody for more than ten years of exploration.
The law is that if an oil block is given to a licensee, if he does not do anything about its development after ten years, the government should step in and revoke the licence and take the block back immediately.
PT: But, some of them keep talking about certain conditions bordering on port investment climate in Nigeria hindering their plans to develop the oil blocks.
OSTEN: They will always give all sorts of excuses. If one wants to listen to excuses, one will always find excuses. Nigeria is not the only country in the world that gives out oil blocks and actually goes for it the way it is supposed to do.
PT: Who do you blame for this?
OSTEN: For me, the fault is on both sides, between the government and the licensees. On the government or regulatory agency’s side, the DPR is supposed to be a lot more assertive in enforcing our laws and regulations concerning giving out our national assets to people. They should be ready to enforce the regulations without any compromise.
In this case, if somebody that has been issued an oil licence fails to do what he is supposed to do, DPR should let him know what the law says and ensure the law takes its course.
On the other hand, the licensees themselves, they will need to know that the licence is not forever. It is a license that has a beginning and an end. It has a limited period that it has to remain valid, after which it expires. And once it gets to that end, in this case, ten years, you lose it and forfeit your signature bonus. That’s what happens everywhere in the world.
PT: So, with government talking about a new oil licensing bid round this year, do you expect to see all these undeveloped oil blocks returned in the basket of those to be put up for fresh bids?
OSTEN: Ideally, that is what should be expected. But, if one looks back, one would still ask why has the government not also given out more licences since 2007? That is 13 years now.
And another person will ask: Even the ones you gave out what has become of them? What have the beneficiaries done with them? If that is the case, does the government really need to give out any fresh licences at all?
PT: But, really, why has the government not given out new licences over this period?
OSTEN: The answer is that 76 licences that were given out between 2005 and 2007 are still there and nothing is happening. Is there any justification to give out more?
PT: What would you say really are the constraints to the process to give out more oil blocks?
OSTEN: One of the bigger issues is the fact that the government has refused (or is it unable), to conclude work on the Petroleum Industry Bill (PIB) since the last time the licences were issued.
There is nobody who is going to come into Nigeria to bid for an oil block if the very basis of his investment is not clear. All these issues would become clear with the passage of the PIB.
So, even this year that the government is thinking of holding another oil bid round is premised on the fact that the PIB will be passed by the National Assembly and signed into law by the President.
If the PIB is not resolved, I can tell you that it will be very difficult to expect people to go into any bid round. This is because there is no basis for any investor to come into the petroleum industry if the conditions and operational terms are unclear.
PT: Are you suggesting that the proposed oil bid round should be postponed or delayed till such a time when the PIB has been passed and signed into law?
OSTEN: No, not really! That is not what I am saying. I will rather put it the other way round. The government should accelerate the process of resolving the issue of PIB. There is no doubt that we need the law to do what we have to do.
In essence, we need the two – the PIB and the oil licensing bid round. Accelerate the process to get the PIB passed and signed into law so that we can have our bid round this year.
PT: We are already in the first quarter of the year. Do you think we can accomplish all that within the period left before the year comes to an end?
OSTEN: I am very very confident it is possible. That is where the issue of acting with a sense of urgency and responsibility really comes in.
PT: What gives you that confidence?
OSTEN: I am very much in touch with the government and all the people involved in the process to get the PIB sorted out within the shortest possible time. They are doing a very good job.
I can tell you with all confidence that within the next two weeks, the PIB is almost ready to be transmitted to the National Assembly for deliberation and passage.
I don’t think the National Assembly will need more than eight to 12 weeks to go through the legislative process before the passage of the PIB.
PT: We have gone through that process before, and the bill has survived more than two legislative sessions without passage. Why should we expect things to be different now?
OSTEN: I am very hopeful things are different today.
PT: On the 2019 NNRC Benchmarking Exercise on Nigeria’s natural resource governance that has just been launched, nothing appears to have changed, except a few precepts, since the last time a similar exercise was conducted 2017. How do you explain this?
OSTEN: Well, if you have reviewed the report closely, there are precepts that are marked yellow, while others are green. Yellow means the performance of that aspect of the industry was average, while green colour means excellent. Red colour means poor performance.
Those that are green cannot be any greener than that. It means the country is basically doing well, which is like saying we have scored 9 over 10 marks, and nothing there to try to spend our energy trying to move to the top. We should try not to allow the green colour to become red.
Those precepts that have been benchmarked with yellow colour include strategy, legal and institutional framework; transparency and accountability; exploration, licensing and monitoring operations; taxation and other company payments.
The others are: investing for growth, stabilising expenditure, public spending, private sector development, the role of extractive companies, and the role of the international community.