Nigeria’s government will permit the mainly international oil companies with whom it has joint venture arrangements to borrow from the market to fund their operations, as a way of resolving the perennial cash call challenge which has held down oil production in the country.
The government will not be selling down its holding in the joint ventures, according to Vice President Yemi Osinbajo.
Osinbajo also says the Petroleum Industry Bill (PIB) will be withdrawn from parliament, split into two and returned to the legislature before the end of March next year.
He said, “we think that we are able to resolve some of the cash-call difficulties that we have experienced.”
The partners may be allowed to “borrow even on behalf of the Federal Government and will be able to introduce their own capital,” he explained in an interview with Bloomberg in Abuja.
However, the government isn’t considering selling its stakes in ventures with oil companies as some have suggested.
Breaking up the Petroleum Industry (Bill) or PIB, into smaller laws focused on fiscal and regulatory measures in Nigeria’s energy industry would make it easier to pass through parliament, he said. The bill, first presented to parliament in 2008, will now be resent to lawmakers in the first quarter of 2016.
“Separating the PIB, breaking it up, obviously is the way I would think that we’ll proceed,” Osinbajo said.
“That’s really what the market has been waiting for.”
The proposed law has been held up largely by political wrangling and objections by international oil companies, which say the government is demanding too big an increase in its share of revenue. The delays have caused uncertainty and is costing $15 billion a year in lost investments, Emmanuel Kachikwu, head of the state-owned Nigerian National Petroleum Corporation (NNPC) told the nation’s senate last week.
Nigeria depends on crude exports for about two-thirds of state revenue and more than 90 percent of export earnings. A drop in crude prices in the past year has put pressure on public finances, while the naira has declined 7 percent against the dollar this year.
While the government isn’t planning to sell its four refineries, which are running at a fraction of their capacity because of poor maintenance and aging equipment, Osinbajo said his administration wants to encourage private plants to cut the country’s dependence on imports.
More than 30 licenses for refineries have been granted and private refineries will be allowed to build near the state-run units, so they can “benefit from the available infrastructure,” he said, without explaining how the petrol pricing bottleneck will be cleared.
The country of about 180 million people subsidises fuel and relies on imports for more than 70 percent of its supply. “In the medium term, we will be able to get cheaper pump-price oil because we will be importing far less refined petroleum,” Osinbajo said.
Soon after assuming office four months ago, President Muhammadu Buhari fired the board and management of the NNPC, which has been dogged by allegations of losing billions of dollars of revenue since the 1970s.
The NNPC has started publishing monthly accounts and is reviewing contracts with joint venture partners to improve transparency at the national oil company, which had the worst disclosure record of 44 energy companies analyzed in a 2011 report by anti-corruption nonprofit organisations Transparency International and the Revenue Watch Institute.
The NNPC’s divisions will be “unbundled” to make them more efficient and the corporation will become a more regulatory body “as the private sector takes most of the downstream,” Osinbajo said.
Set up to look after Nigeria’s interests with foreign oil companies, the NNPC controls an aggregate 55 percent share in joint ventures with companies including Royal Dutch Shell Plc, Exxon Mobil Corp. and Chevron Corp.
