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Interview

Nigeria may never harness full development potentials in the Oil & Gas industry – Dr. Babajide Agunbiade

Dr. Babajide Agunbiade, Director of US-based National Oilwell Varco shares his views on Nigeria’s dependency on oil, PIB, among other industry issues.

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Nigeria may never harness full development potentials in the Oil & Gas industry - Dr. Babajide Agunbiade

The Nigerian Oil and Gas sector has been the lifeline of the economy over the years and this has been a source of concern to both local and foreign stakeholders.

In this interview with Dr. Jide Agunbiade, Director, National Oilwell Varco, Houston, Texas, the largest Oil and gas equipment manufacturing company in the world, he shared his views on the nation’s dependency on the sector, the Petroleum Industry Bill among other industry issues. Excerpts:

How would you assess the Nigerian petroleum industry?

An assessment of the Nigerian petroleum industry reveals that the NNPC is one of the inefficient government institutions in Nigeria, with heavy political interference, ambiguities, corruption and nepotism. Recent investigations and probes into government corruption in Nigeria reveals that a substantial part of government corruption, originates from the activities that relate to the management of the oil and gas proceeds, supposed to be channeled towards the growth and development of the nation.

READ: NNPC says local operators must improve capacity to achieve low cost of oil production

Despite the monetary resources remitted to its coffers, NNPC has since been facing challenges in funding its upstream operations and obligations. NNPC has also failed to effectively manage the downstream sector, which is characterized by moribund refineries, scarcities, inconsistent and uncompetitive fuel prices. Despite the abundance of petroleum commodities in Nigeria, the country’s largest import is from the petroleum products, which increases the supply and reduces the value of the Naira in the foreign currency market.

What about its international goodwill?

Consequently, NNPC has lost its international goodwill, because of its inconsistency and political interferences, and this has caused doubt and high business risk in the Nigerian oil industry. Though an oil rich country, Nigeria is the world headquarters of poverty, which explains further the poor management of the oil resources in the country.

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READ: DPR reveals 4 major areas of focus for downstream operations of oil and gas sector

Furthermore, in recent times the Nigerian petroleum industry has also been negatively impacted by a number of external factors such as a surplus of global crude supply leading to global oil price decline, competition from renewable energy, the devastating impact of the Covid-19 pandemic on the global oil economy, as well as the 2020 fracturing of the OPEC+ alliance (with Russia) leading to a sharp decline in oil prices in 2020. Many of these challenges though near to medium term have the potential to continue for the longer term.

In September 2020, President Muhammadu Buhari proposed the scrapping of the NNPC and the creation of NNPC Limited, in the new Petroleum Industry Bill 2020 submitted to the National Assembly.

READ: Non-Performing loans in Nigerian Banks rise to N1.21 trillion in H1 2020

The hope is that with the proposed scrapping and commercialization of the NNPC, this will mark a turning point for the petroleum industry in Nigeria and that the challenges that the sector has faced for many years will be addressed and remedied.

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Former President Obasanjo decided to privatize the nation’s refineries but was reversed by former President Yar’adua. Today, the nation has spent hundreds of millions on them. If you are the President, how will you address the issue?

More than 55 years after Nigeria started producing and exporting crude oil and gas, the government-owned refineries — located in Port Harcourt, Kaduna and Warri, are sitting idle. Prior to their shutdown, the refineries were performing minimally due to years of neglect, mismanagement and pillage, leaving the country almost wholly dependent on imported petroleum products. Claims from successive governments, of turnaround maintenance and rehabilitation of these refineries have yielded no positive results.

READ: Lekoil Limited seeks refund of $450,000 after loan scam involving Qatar firm

The Government has deviated from her traditional role of providing social services, law and order etc., to conducting businesses. She has channeled her funds and energy into business ventures such as running the refineries which have led to spending hundreds of millions with no significant change. Since the de-privatization of the sector by Yar’adua, the nation has suffered a decline in oil-revenue despite the amounts been spent on running these refineries.

If you were the President of Nigeria, what will you do?

Relinquish government control of the operation and management of the nation’s refineries by divesting a majority of its 100 percent equity to competent, resourceful and experienced independent private refining firms with the requisite capital and technical expertise needed for the development and maintenance of the refineries.

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I will also establish a governmental agency that would have a board made up of external and independent stakeholders, that would govern and regulate the activities of these independent private refining firms.

Privatizing the refineries, the government and the nation as a whole stand to gain several advantages which include but not limited to improvement in the efficient allocation of resources, for mobilizing investment and for stimulating private sector development; reduce corruption and parasite mentality of Nigerians towards government-owned sectors and infuse capital and modernize technology in our refineries, many of which have not seen any improvement for years among others.

What is your take on the PIB, have you observed any gap?

A major gap in the PIB 2020 is that the government’s continued control of the new NNPC raises concerns of a likely continuation of old practices such as corruption and weak accountability. Also, the PIB 2020 does not specifically require the government to sell shares in NNPC Limited and this may stifle the much-needed fundraising required for the growth of the sector. Furthermore, unlike previous reform proposals, the PIB 2020 does not set a specific deadline for when the privatization/commercialization will be completed.

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READ: Oil: International oil companies scale down on Nigeria operations 

Also, the passage of the PIB is being pursued without matching the goals and vision of the PIB and the country’s energy policies. Without linking the PIB to a clear energy policy direction that responds to the troubling issues of epileptic power supply, the security of local consumption of gas, reform of the downstream sector and refineries, enhancement of local content, linkages between the Oil and Gas (O&G) sector and local economy in order to unleash the industrialization potentials in Nigeria, Nigeria may never be able to harness the full development potentials in the O&G industry. And for so long, it is unlikely to free the sector from the instability that threatens the revenue peace in the Niger Delta.

READ: FG discovers crude oil in north, says there’s more 

What is your take on the alleged unbundle of the NNPC under the draft of the new PIB?

I believe the unbundling of the NNPC would make for a clear separation of powers, increased statutory and sectoral funding, operational autonomy, transparency in appointments and dismissals, and insulation from political influence, within the newly established governmental entities.

If unbundled, what structure do you suggest should be implemented to further block holes in the sector?

I believe the structures/new entities proposed by the PIB 2020 (as discussed above), should be adequate to block holes in the Nigerian oil and gas sector.

Globally, one key structure that helps block holes in the oil & gas sector is sustainable finance. International experience shows that NOCs need flexible, reliable options for accessing capital while maintaining checks and balances that prevent them from becoming states within the state. Of particular importance is developing a workable revenue retention model that allows the kind of medium and long-term planning needed for effective commercial operations. This can be achieved by publicly listing the NOC shares. If managed well, public listings can enforce market discipline. They have encouraged innovation and efficiency in Petrobras (Brazil), Statoil (Norway) and KMG (Kazakhstan).

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As a case study, Brazil partially privatized Petrobras in 1997 with the ratification of Law 9.478. At the same time, the state established a regulatory body, the National Petroleum Agency, to guide Petrobras through its transition to a mixed public-private entity, and in particular, to assist in the sales of its shares abroad (notably on the New York Stock Exchange). Proceeds from the sales then went back into the sector, principally in offshore drilling and exploration.

This exercise served Petrobras’s stated goal of increasing revenues in three ways. First and most obvious, the share sales raised cash upfront. Second, compliance with stringent U.S. stock exchange reporting requirements incentivized better, more efficient management, which in turn reassured investors when Petrobras went out to raise capital. Third, the share sale helped reduce fuel subsidy costs, which were ballooning Brazil’s public debt and inflation. By creating new and binding obligations to maximize Petrobras’s profits for shareholders, Brazil gave itself a fresh legal argument against entrenched interests around subsidies. Phaseouts were then done gradually to reduce political fallout, with price controls on products with smaller market shares (jet fuel, lubricants and kerosene) reduced ahead of the big gasoline and diesel subsidies. Within a period of years, Petrobras’s production levels, proven reserves and revenues increased substantially, and the company has further enhanced its skills and reputation as a world leader in deepwater exploration and production.

READ: Lawmakers want Oil firm investigated for flouting local content laws

The Bill provides for a 10% Host Community Fund for inhabitants of communities hosting oil and gas resources but failed to disclose how the fund will be sought. Do you think this will create issues in the future?

The PIB 2020 states that the funds will be sought from contributions received from E&P companies operating within the community. The issue I foresee arising is how the payment of the 2.5% of the actual operating expenditure of these E&P companies will be enforced, in terms of if the E&P companies can be made to accurately disclose their actual operating expenditure for the preceding year. However, this may be resolved by ensuring they submit their audited accounts for the preceding year for confirmation.

That being said, the creation of PHCF is arguably not the solution to the Niger Delta crisis and it is indeed incredulous that so much agitation has arisen in this regard. Prior to the proposal and subsequent inclusion of the PHCF in the PIB, various government intervention has been put in place in addition to the allocation of derivation, such as the Niger Delta Development Board, the Oil Mineral Producing Areas Development Commission (“OMPADEC”), the Niger Delta Development Commission (“NDDC”), and the Ministry of Niger Delta Affairs (“MNDA”). Rather than identify and address the root cause of why the various government interventions in the past have not yielded the desired result, there is a shift towards either placing an additional layer of responsibility on oil companies and/or creating another layer of institution which would likely be bogged down with the same problems plaguing the existing institutions.

READ: First E&P seals $901m deal with Malaysian firm, Yinson

Restructuring of an institution like NDDC such that a large portion of the funds accruing to them can be channeled towards creating a PHCF or a Fund with similar characteristics should be considered.

It has been suggested that a good way to prevent mismanagement of such a Fund would be to involve international agencies such as the United Nations (“UN”) in its management.

Such a partnership initiative would reduce the layer of corruption by ensuring that disbursements from the Fund are utilized for the specific community or regional development project it is earmarked for. The Federal Government also has a major role in ensuring that it meets its funding obligations as and when due.

Bill also allows the Agency to accept gifts of money or other property upon such terms and conditions as may be specified by the person or organization. Will this not affect the integrity or accountability of the agency?

This is a provision of the PIB 2018 (this provision may also be replicated in PIB 2020). The provision is replicated below –

(27) The Commission may accept grants of money or other property upon such terms and conditions as may be specified by the person or organization making the gift provided, such gifts are not-

  1. inconsistent with the objectives and functions of the Commission under this Act;
  2. accepted from persons or organizations regulated by the Commission. (2) Nothing in subsection (1) of this section or in this Act shall be construed to allow any member of the Board or staff of the Commission to accept grants for their personal use.

From the above exceptions in a) and b) as well as (2), I believe these clauses adequately limit the ambit of the Commission to accept gifts and also secure the integrity or accountability of the Commission.

What is your take on a modular refinery?

Modular Refineries are ideally suited for remote locations and are viable for investments by Public-Private Partnership (PPP) as a source of rapid production of primary fuel products and raw materials for Petrochemical Downstream Industries.

Establishing a crude oil refinery requires approval from the Department of Petroleum Resources (DPR) in Nigeria. Investors may need to apply for oil block allocation or partner with the government at different levels to guarantee investment and feedstock for the production plant.

No doubt, Nigeria’s refining sector holds great prospects for the future. There have been some government initiatives to increase local refining capacity to offset the continued growth of importing finished products for growing consumer demand. The goal is to provide lower-cost, steady supply of fuels and products on a local level.

This is very commendable as it will go a long way in increasing local security of supply for transportation fuels, local electricity as well as sustained use of LPG cylinders for cooking and heating fuel obtained in-country, benefiting from lower regional pricing, transportation, and other incentives such as local jobs creation.

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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Business Half Hour

How managing your business can be easier and better with Pennee Tech – CEO

Pennee’s core target is to help business owners become more business savvy, make better decisions and have the resources to actually grow the business.

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With the hundreds of thousands of businesses that the Corporate Affairs Commission registers annually, the Nigerian economy and the GDP should be booming, but this is not the case. Statistics suggest that about a third of these businesses crash within the first 18 months, and another 20% crash before they clock 5 years.

Several others struggle for years, hardly growing from micro and small businesses to become the medium-scale businesses that the economy needs to advance. Still stuck at the micro-level, most of them do not get to the point of employing people and paying them well. It is to help businesses like these that Pennee Technologies exists.

Co-founder and CEO of Pennee Technologies, Mejero Emmanuella Kunu, was a guest on the Nairametrics Business Half Hour and explained that Pennee had sprung up to provide support to small and micro-businesses and help them advance to a point where they survive, grow and create better employment opportunities for others.

No economy can survive on just big businesses, or small businesses, so there is the need to push and support the small businesses to become medium businesses that can make some significant impact on the economy. Kunu and her Co-Founder started Pennee in 2019 to provide this much-needed support.

What kind of support can small businesses get when they decide to sign up with Pennee?

One complaint common to small businesses is the inability to access much-needed loans to scale and grow their operations. Pennee is solving this by giving them asset-based loans and overdrafts.

“We don’t want that kind of situation where someone presents the business to secure the loan, and spend it on something else. Any loan we are giving has to go straight into the business, buying assets, restocking etc, and our target is to improve your productivity so that you can easily repay,” Kunu said.

Sales and inventory management is also part of the package Pennee offers. With Pennee, small businesses can automate accounting, store transaction history, and download financial statements. This takes the huge burden of organising the books off business owners so that they can focus on running the business. Pennee also provides them with a mobile wallet for transactions, backed by Providus bank, and allows them to receive payments via transfers and cards.

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“You might not be able to open a corporate account due to stringent requirements but you can open a corporate wallet with Pennee easily, and over time, have access to loans and overdrafts. You can save in your NUBAN assigned wallets and earn interests,” she explained.

Another critical support the business owners get is business intelligence and analytics which equips them to make better decisions. They can understand where their customers are coming from, where and when they make the most sales, how to target their ads, what products need to be purchased in larger quantities; and make decisions based on these, instead of randomly guessing their way through and groping in the dark.

There is also customer relationship management where Pennee helps businesses acquire customer information and use it to better manage the customers. They also get access to lots of resources that guide them through everyday business challenges.

“The core target is to help business owners become more business savvy, make better decisions and have the resources to actually grow the business.”

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When Pennee started in 2019, the loans for business owners were sourced via peer-to-peer funding, where those with excess money supported those in need. In spite of the COVID-19 challenges of 2020, this model remained solid and most business owners adapted to the new normal quickly, moving their businesses online and selling items that were in high demand.

To support the peer-to-peer model, Pennee also keeps a decent 80:20% ratio on wallet deposits and transactions which is used to give asset-based loans and overdrafts to these businesses.

The company is also currently raising a seed round to get more funding and Kunu says, “Sustainability and scalability are some things investors look out for, and we have proven that we can execute what we are saying. I think this is what investors will be looking out for. We are also on the lookout for investors that really get our vision and want to be a part of it.”

Pennee intends to be serving 1 million businesses across Africa within the next five years since the small business challenge is common to developing economies.

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Business Half Hour

How Awabah is helping the unbanked better manage their money – Tunji Andrews

Awabah uses the local agent network to build trust, employing the help of people in the locality whom they already know and relate with.

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Financial inclusion is generally the target of fintechs and other firms in the financial ecosystem and this is even more so for Awabah, a startup focused on getting financial services to the unbanked. Speaking during the Nairametrics Business Half Hour, Co-Founder of Awabah, Tunji Andrews said that after a decade of driving financial literacy, he decided that the time was right to take financial services to the last mile.

“It was always frustrating that the financial product people wanted was different from the financial services available, and after years of educating people, I thought I was in the right position to provide the services I know people need but are not getting in the local areas,” Andrews said.

From being a concept 2 years ago, Awabah was launched in 2020. The financial inclusion target meant that they would either go into micro-insurance or with micro-pensions to get the rural dwellers to make financial plans for the future either through insurance schemes or pension schemes. Both schemes are not considered natural to the average Nigerian or unbanked person, and that explains why financial institutions had difficulties with general reception in the past, even though these products are essentially meant to reduce poverty by distributing wealth and risks.

Andrews decided to start with micro-pensions since the unbanked Nigerians typically make no plans for a time they would no longer be able to work, and instead hope on their children to cater for them in old age. Launching the product in 2020 had to come with a lot financial education and enlightenment in those areas to help them understand the importance of a pension plan and how to better plan their money.

“Aged poverty isn’t a number we track in Nigeria because, by the stats, we have just about 5 million people 65 years and over.  But can you imagine the poverty effect when the 25-45 years join that age group, especially if we don’t actively push for retirement savings?” Andrews asked.

Since Awabah is not licensed as a Pension Fund Administrator, the startup partnered with Leadway Pensure in late 2020, to handle the micro-pensions funds administration while it continues the drive into the market. Though the products are also open to other self-employed persons and business owners who want to be a part of it, the business model focuses on the people at the grassroots.

PENCOM had already extended the micro pension to the informal sector for a while now, but it had yet to gain traction due to a poor understanding at the local level.

“Every financial product we see also exists at the local level, it is not just at the level we have it in the formal sector and it is not regulated. For the informal sector, it is self-contributory, done daily, weekly or monthly, and they decide how much they want to contribute. This is quite similar to the esusu or the ajo system. So we use what they understand and identify with to explain it to them. We let them know that in this case, they don’t pay for it like it is done in their local system, and instead they get some interest on their money,” Andrews explained in the show.

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As against the regular system where the locals seem intimidated by the suits-and-tie agents from the banks, Awabah uses the local agent network to build trust, employing the help of people in the locality whom they already know and relate with. The tagline “this bah, nah your bah, nah my bah, nah Awa-bah,” in itself passes across a feeling of comradeship and communal goal that they would want to be a part of.

Since it is easier for them to trust the system when one of their own is involved in the collection process, this system has seen Awabah achieving impressive results within months of operation. After getting them to sign up, the next point to get them to access more financial services is teaching them to adopt the USSD options since most of them do not have smartphones.

Though Awabah is still less than a year old and has had to grapple with the manpower and logistics challenges resulting from the coronavirus pandemic, the founder has big dreams of matching the current number of people holding micro-pensions in Nigeria at the moment within the next year. There are also plans to roll out its financial products across Africa in the next decade, to help more people access financial services, and eventually get out of poverty.

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