“In a petroleum-product-deregulated environment, there can be no PPPRA (Petroleum Products Pricing and Regulatory Agency) and PEF (Petroleum Equalisation Fund), as they exist today. Unfortunately, Nigeria seems too preoccupied with rent-seeking, rent sharing, and Esau syndrome in the execution of her policy framework, with not enough consideration for mutuality of interests among stakeholders, investors, and government”.Professor Iledare
When it comes to petroleum and energy economics in today’s global petroleum arena, they do not come better than Wumi Iledare. He has left huge footprints across the globe in the disciplines of petroleum engineering and petroleum economics, notably being the first African to hold the position of President of the International Association for Energy Economics in 2014 (and helping found the Nigerian affiliate of that association). He is currently Africa Regional Director of the Society of Petroleum Engineers and an eminent member of the rare group of Nigerians groomed in petroleum engineering by the famous duo of Professor Gabriel Falade and Dr. Emmanuel Egbogah, during the pioneering years of the School of Technology at the venerated institution.
Having cut his teeth in the field in Nigeria and several other assignments elsewhere, he landed at the Louisiana State University in Baton Rouge, USA, where he was the Director of that university’s Centre for Energy Studies. It was from LSU (where he is Professor Emeritus) that he was headhunted by Dr. Egbogah to come and drive the Emerald Energy Institute at the University of Port Harcourt, which the latter found. Iledare was appointed for two terms as Director of the Institute and was named by Dr. E as Chirota and Emmanuel Egbogah Distinguished Professor of Petroleum Economics.
Professor Iledare has been very involved in policy activism in the energy industries, especially in Nigeria and Ghana – playing key roles in the previous efforts to pass Nigeria’s petroleum industry reform legislation. He is currently GNPC Professor and Chair in Petroleum Economics and Management, University of Cape Coast Institute for Oil and Gas Studies, Cape Coast, Ghana. He is also Executive Director, Emmanuel Egbogah Foundation, Abuja.
Professor Iledare shared with Ikechi Ibeji, his perspectives on the continued efforts to pass the petroleum industry reform bills and what should be Nigeria and Africa’s post-COVID 19 policy strategy.
How would you say the COVID 19 pandemic has accelerated or impacted the global energy transition, which was a threat to the African petroleum industry, even before the pandemic broke out?
To a large extent, Covid-19 pandemic impacted energy demand growth projection because of the downturn in the global economy. OPEC did not act quickly enough to reduce oil production in time to effect a decrease in supply. As a result of that, crude prices collapsed. The collapse in crude oil prices makes the transition fuel production less profitable without subsidies. Unfortunately, there are limited funds to continue to subsidies under the Covid-19 global economic downturn.
With more people migrating online during the worldwide lockdowns, digital technology has taken centre stage for post COVID recovery. Placed against the backdrop of huge deficits in broadband connectivity and technology infrastructure, what are possible options for African governments to create enablers for application of big data, Artificial Intelligence, machine learning, and the Internet of Things, especially in pivotal industries such as energy and mining?
An excellent question that I may not have a direct answer to give within the context of advising the government. My indirect answer to your question is to look at education more holistically. This begins with the quality of education across the board—primary, secondary, and tertiary. The applications of AI does not begin on the street. Quality education is critical going forward and we are not even a match to the standard in the developed world. I am sure you know what we tried to do at EEI through the efforts of Dr. E, and how it was scuttled for no reason than governance incompetence.
“African governments should deemphasize paying too much attention to early rent extraction”
There is no way we can create enablers for the application of big data if we continue to ethnicize our institutions with respect to students, staff, faculty, and administrators. We must try to bring the best critical mass in one, place using the inherent strength in diversity.
With Nigeria becoming uncompetitive by the day in several areas of the E&P value chain, do we still have any viable projects that could attract big-ticket investments?
Of course, we do. Nigeria has prolific geologic basins of promise to explore. In natural gas terms, 200TCF proved reserves and 600TCF probable reserves speak to that fact. What will spur action is industry governance and fiscals that are competitive and attractive. Unfortunately, Nigeria seems too preoccupied with rent-seeking, rent sharing, and Esau syndrome in the execution of her policy framework, with not enough consideration for mutuality of interests among stakeholders, investors and government. Of course, there is softness in the LNG Market in Europe and Asia, but the Africa market is there to explore. There is a room for Mini LNG projects for the West Africa Market.
As a follow-up to question (3) above, we note that the hitherto promising Olokonla and Brass LNG projects appear to have been torpedoed partly by the divestment of some of the promoters like Shell and British Petroleum, who cashed out from many of their Nigerian assets to invest in the humongous LNG project in Australia. Today, Trinidad and Tobago in the Caribbean; Mozambique, Equatorial Guinea and several other African countries are competitive LNG plays – even having the upper hand against Nigeria that was already a dominant LNG player before these countries discovered gas. Is the world LNG market a lost cause for Nigeria?
Nigeria missed the opportunities mentioned because of prebendalism in my opinion. There is no way Olokonla and Brass LNG projects would have been as viable as NNLG without the same incentives granted to NLNG extended to them. Somehow, the Nigerian government failed to understand these essential ingredients. It is sad and of course, you can trace these to industry governance that is amorphous, ineffective and inefficient. The protracted industry reform efforts did not help matters either. Let me add, however, that Nigeria may be better off using the gas for the domestic economy and by extension the West Africa economies. Remember, NLNG came into being to reduce flaring and the cost of gas to NLNG remains highly subsidized.
However you want to look at it, there is unprecedented uncertainty for the oil and gas business in the length and breadth of Africa. There has been no major investment in exploration in Nigeria for the past ten years, with the consequent zero discoveries and a decline in reserves. Based on this uncertainly, some prophets of doom are saying that exploration and production are now past tense in Africa. How close are they to the truth?
These are not prophets of doom but false prophets. You cannot have exploration and discoveries without new block allocations. You cannot invest in E&P in Nigeria without concluding the reform Nigeria started in 2000, nearly 20 years. You have discoveries in other West African countries. The resources are there to discover, but you have to create an environment to attract investments. The business environment is not conducive, so the best the industry is doing is to develop existing assets and that is why nearly every indicator is moving in the opposite direction in Nigeria, more so since 2015. Again, the government missed the opportunities in 2018 because of election politics. I am optimistic that if the government passes the fiscal bills that will be competitive and attractive by Dec 2020, things can turn around. Government just needs to avoid too much emphasis on early revenue extraction mechanisms in the fiscal bill.
If you were President or Minister of Petroleum in Nigeria or any other major African oil producer, what key policies would you drive to reverse the gloom hanging over the African E&P business?
Fortunately, I am not President or Minister of Petroleum but let me advise the countries in Africa, as a distinguished and professor emeritus in petroleum economics. First, deemphasize paying too much attention to early rent extraction. Second, separate governance institutions with well-defined institutional responsibilities. Third, promote indigenous participation apolitically by avoiding the temptation to create millionaires with carry-me mentality. Fourth, optimize the entire petroleum value chain with less emphasis on crude oil exportation and product importation. Finally, enact a petroleum revenue management act that forbids the use of petroleum for concurrent expenditure.
Given the hard work you put into the passage of the Petroleum Industry Governance Bill in the last National Assembly, are you optimistic that the renewed effort by the Minister of State for Petroleum will succeed?
I was very optimistic during the last assembly but disappointed with understanding the plausible inevitability of it’s not being passed because it was a member bill and the executive did not own the bill. It is different this time because the bills originate as executive bills. Also, the National Assembly and the Executive are in sync this time around and there is an understanding that a failure this time may have dire consequences. Nigeria must come to terms with the fact that there is no perfect law and that is why laws are termed. If the professionals will bury their egos and work to perfect the provisions to the extent possible, it is more likely than not that we will get the President to assent to the bills by December, ceteris paribus.
What were the issues for which President Buhari withheld assent to that Bill? Have the issues been resolved?
Interesting question. I just realized I am not as knowledgeable on the subject matter or not trusted enough in Nigeria to have access to the ongoing draft bill. Luckily I am trusted by international organizations to review the bill when it is out (LoL)
But if my guess is worth anything to dwell on, the reasons for not assenting to the bill last time around bothered more on political interests than policy or economics. For example, the gripe concerning single regulatory institution in the governance bill that was in sync with Petroleum and Gas Policy documents gazette by FEC leaves much to be desired. In a petroleum product deregulated environment, there can be no PPPRA (Petroleum Products Pricing and Regulatory Agency) and PEF (Petroleum Equalisation Fund), as they exist today. Neither can you continue to have PTDF (Petroleum Technology Development Fund) and NCDMB (Nigerian Content Development Monitoring Board), doing the same thing, indirectly.
My instinct is that there will be no single regulatory institution in the new governance bill, but at least two—upstream and downstream. I can live with that. Financing them was an issue the last time around and responsibility overlaps may be a concern. I also think breaking the PIB into four was an issue, and I understand it is now a two in one bill.
There is also a concern that the FIFB last time paid too much emphasis on output expansion, which may be stochastic. Some professionals were not happy with emphasising profit-based instruments, termed delayed rent extraction. They tend to prefer early rent extraction using royalty by volume and value, which to me is regressive and can make Nigeria less competitive and attractive to investment flow. I want to hope that the new fiscal bill will find a balance such (that there will be) a combination of both classical instruments to make the entire system move towards progressivity.
Finally, the last time around, the tax structure was problematic concerning the ease of implementation. Implementation of the PIT and APIT looks complex. I want to hope for a dual tax mechanism this time around. Dual tax is not synonymous with double taxation by the way. The tax base is not the same and one is a resource tax and the other is a corporate tax. The resource tax is nothing but a special petroleum tax which is common worldwide. Best for us to wait and see the bill, and I promise I will review and make meaningful contributions to improve the bills as always.
Over time, the IOCs have had an overwhelming influence on government policy relating to the oil and gas business. Do they still wield such influence? And have such influence played any part in the protracted delay in passing the PIB?
Honestly, I do not share that view. The delay cannot rest on the IOCs. They are entitled to make contributions to the provisions of the bill to ensure the profitability of their assets. They have the right but they do not have a vote. The Esau syndrome of those responsible for reforming the industry, but fail to act is to blame not the IOCs. Let me say again that the IOCs have no votes to defeat the passage of the legislation.
What should be Nigeria’s first post COVID priority?
Pass the petroleum industry reform bills and hit the ground running for the post COVID environment that is guaranteed to add much more value to the economy than years before.
Next is to find a way to reform the education sector. It is critical going forward in the new norm. What Nigeria has today in the education sector is dilapidated. The world is not waiting and the digital age is here.
Petroleum Revenue Management legislation is long overdue. I am worried that if Nigeria does not do something with the way petroleum revenue is managed, we may end up like Venezuela and that may be the beginning of the end. Too much of the petroleum revenue is used for a national lifestyle that is not sustainable with little regard for future generations. This must stop post-COVID 19.