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Adewale Sanyaolu
If the demand by indigenous oil firms to mop up the stake of the Nigerian National Petroleum Corporation (NNPC) in the various Joint Venture (JV) operations with International Oil Companies(IOCs) succeeds, then Nigeria would have succeeded in freeing up about N1.83 trillion annually that can be invested into Infrastructure and job creation.
According to the NNPC, the country spent about N1.83 trillion in 2018 servicing its funding commitment to various JV partners. It however did so struggling considering that oil, its main revenue earner lost ground in the global spot market.
But commentators on these huge expenditures have left some analysts querying the rationale behind the Federal Government’s commitment to its JV partners, when such funds could have been channeled towards the development of infrastructure.
As a replacement for the JV model, analysts have consistently canvassed the option of Incorporated Joint Venture (IJV) as a solution to help the country exit the older model which they described as one that put Government under pressure whenever it was time to meet their financial obligations to their JV partners.
While Government has made firm commitments to exit the model over 10 years ago, the delay in carrying out such promise or the political will to do so has set tongues wagging.
For instance, at the edition of the Nigeria Oil and Gas (NOG) conference which ended in Abuja last week, with the theme ‘‘ Promoting Investment and Collaboration in Nigeria’s Oil and Gas Industry’’ stakeholders in attendance challenged the Federal Government to take a stand on the decision to sell off its JV stake, as its continued delay was forcing investors to explore other investment heavens.
Impact of JV stake reduction on FG’s finances
According to a former Minister of Budget and National Planning, Senator Udo Udoma, government’s plan to cut its stakes in oil and gas joint ventures with international oil companies, refineries and other downstream subsidiaries such as pipelines and depots to 40 per cent this year comes as part of moves to improve its finances, considering that the Muhammadu Buhari -administration had listed the idea as part of strategies for achieving its Economic Recovery and Growth Plan released in 2017.
Oil companies including Royal Dutch Shell, Chevron and ExxonMobil, operate in Nigeria through JVs with the Nigerian National Petroleum Corporation.
The NNPC owns 55 per cent stake in its JV with Shell and 60 per cent stakes with others, but government is now tinkering with idea of reducing its majority stakes in these joint ventures for more than a decade as its revenue is coming under severe pressure due to inadequate funding for badly needed infrastructure.
Udoma was quoted as saying in a statement that the government would intensify efforts to improve its finances including the “immediate commencement of the restructuring of the joint venture oil assets to reduce its shareholding to 40 per cent.”
Reasons for delay
On why there has been a delay in the sale of the stakes, outgone Group Managing Director of the Nigerian National Petroleum Corporation, Mr. Maikanti Baru, cited the need to do a thorough job as being responsible.
Baru, who was represented by the Chief Operating Officer (COO) Mr. Bello Rabiu, said NNPC is now at a stage where it needs to understand the value of these assets, what it needs to do to go into the Independent Joint Venture (IJV), noting that one of the solutions to achieving the IJV model was not to make it a subsidiary of the NNPC.
‘‘If you have more than 51 percent of an equity, you are definitely a subsidiary of that company. If we now convert all these IOCs JVs into IJVs and incorporate the company, they will definitely become subsidiaries of NNPC.
Part of the solution is also to solve part of the problem that the government has in getting some money in bulk to do other things. So, if at the end of day, we conclude and have the IJVs and they become 49 percent equity interest of NNPC, then they become a model such as NLNG which has nothing to do with NNPC as a subsidiary but just a company that we have shares and government only get dividends from them.
So if that happens, there will only be something to sell. In the process of trying to sell the stakes, some issues came up. The first question is; who will buy the equity, how will you convince Nigerians that this is the right time to sell the equity. How do you confirm that this is the right value you are getting and what do you do with the money because these are interests that we have since the 1960s.
And we have them for Nigerians of today and the future. As long as it can be done transparently, then there will be no problem. But I believe that in a short time, you will hear from government who is the owner on who will buy the asset from them. But before that it is done, Nigerians must know who will buy them..This must be privatised in a way that should be acceptable to all Nigerians.
Indigenous firms, IOCs react
Some of the indigenous firms present at the conference lauded the move of the Federal Government, saying local operators who have developed capacity over time should be given the offer of first refusal when the assets are thrown open for sale.
They argued that the IOC’s should leave onshore and shallow waters operations for indigenous companies to allow them to grow, by moving into the deep water terrain where more advanced technology and financial capability are required.
They argued that crowding out indigenous operators was not good for the sector since it would deny them the opportunity to grow and expand their operations, a move they say was counterproductive to the objectives of the Local Content Act.
For his part, Country Chair and Managing Director of Shell Companies in Nigeria and Shell Petroleum Development Company in Nigeria, Mr. Osagie Okunbor, warned that the country should be wary of selling the stake to just any entity.
Okunbor who was represented by the Managing Director of Shell Nigeria Exploration and Production Company(SNEPCO) Mr.Bayo Ojulari, said the sanctity of the Joint Operator Agreement(JOA) was very important for the benefit and reputation of Nigeria, so that Nigeria can be seen as a country that does things transparently.
