To counter the influence of China and the United States, Russia is strengthening ties with Africa through economic cooperation and military-technical partnerships, but the slow pace of reforms in Nigeria’s oil and gas sector has seen other African countries emerging winners.
Russia’s trade with Africa includes food supplies, metals, machinery and equipment with the largest being investments in the energy sector. Trade between Russia and sub-Saharan Africa has risen from around $1.8 billion in 2010 to around $4.8 billion in 2018. Exports from Russia to sub-Saharan Africa came to total of $3 billion, while imports from sub-Saharan Africa came in at $1.7 billion.
Nigeria Imports from Russia was US$1.02 Billion in 2018 while Russia Imports from Nigeria amounted US$33.19 million according to the United Nations COMTRADE database on international trade. Two of the biggest Russian investments in Nigeria, the Aluminium Smelter Company of Nigeria (ALSCON) and the Ajaokuta Steel Plant are comatose.
Since energy is the main focus of Russian investments in the African continent, Africa’s biggest oil producer stands in a pole position to attract major investments if it reforms the sector.
Russian geologists are working in African countries including Ghana, Madagascar, and Libya and big oil companies such as Rosneft and Lukoil are involved in huge oil and gas fields in countries including Egypt and Mozambique.
Meanwhile, Russian oil giant Lukoil is still trying to complete acquisition of Brazilian state-owned oil giant Petrobras assets in two major Joint Ventures (JV) Akpo and Agbami with a production capacity of 175,000 barrels per day, 200,000 barrels per day respectively since talks began last year.
Analysts say a major difficulty in getting projects off the ground is the slow pace of fiscal and regulatory reforms in Nigeria’s oil and gas sector. This is worsened by Nigeria’s cavalier attitude towards foreign investors that has seen the attorney general imposing a $62 billion demand on International Oil Companies in back taxes.
“I think this visit to Russia by the president is a good thing as it will let the government hear from investors what kinds of policies are necessary to attract investments,” says Chuks Nwani, an energy lawyer based in Lagos.
Last year, a consortium led by international oil trading house Vitol which included Africa Oil and Delonex Energy, backed by Warburg Pincus and the International Finance Corp were also in talks to buy stakes in the Nigerian offshore fields held by Petrobras and its partners valued at $2.5billion. The talks didn’t yield a deal.
Nigeria is the middle of rewriting fiscal terms for its oil assets after failing to enact a petroleum industry bill over a decade since the idea was first muted. Historically, fiscal framework in Nigeria has been rent, drawn from agricultural practice giving birth to terms like farm-in, farm-out. Rents are paid in the form of tax and royalties and Nigeria relies on the direct sale of crude to run its economy.
However, a sea change is ongoing in the oil and gas sector as depositional environment for hydrocarbon commonly found in Deltaic regions has now included inland basins and countries like Rwanda, Kenya, Ghana, and Tanzania are avid producers of oil and gas.
The technology for drilling oil is also improving such that shale producers now lay ambush on oil prices as they prove more prolific in reducing production costs and enhancing speed to market advantages.
To compound matters, the dynamics of distribution has changed too much that traditional buyers of oil and gas are now net exporters, with many closer to markets where they are needed.
Yet, Nigeria continues to operate its oil resources the same way it did in the 1960s with vast oil assets lying fallow because the government lacks a coherent vision of how to make the commodity act as an enabler to the economy.
Buhari is attending the Russia-Africa Summit in Sochi with an entourage that included state governors Muhammad Yahaya of Gombe, Bello Matawalle of Zamfara and Kayode Fayemi of Ekiti state.
There were also ministers of Foreign Affairs, Geoffrey Onyeama, Trade, and Investment, Adeniyi Adebayo, Minister of Mines and Steel Development, Olamilekan Adegbite and Minister of State, Petroleum, Timipre Sylva.
Operators say the biggest challenge in Nigeria’s oil sector is retrogressive regulations. “The single biggest challenge we have faced as a company has not been technical, it has not been money, it has been regulatory approvals,” Lekan Akinyemi, CEO of Lekoil, an indigenous producer told BusinessDay in a recent interview.
Renewal of oil leases and organising licensing rounds which are almost routine processes in other countries have suffered undue complications in Nigeria.
“If a petroleum sector law were in place, the process of licenses would have been clear as we will know who has the authority to issue them, now investors do not know whether to proceed with the previous regime or if something else will happen,” Nwani said.
ISAAC ANYAOGU
