Kachikwu, Baru, governance structure and reforms in the Oil industry

Ogho Okiti | Wednesday, 18 October 2017 11:24am | opinion

Temidayo Johnson / The BusinessPost

In the last two weeks, the news cycle has been dominated by the fallout from the leaked letter of the Honourable Minister of State for Petroleum Resources, Ibe Kachikwu, to President Muhammadu Buhari.Since the letter leaked, I have painstakingly followed the majority of the responses in the dailies, twitter and Facebook, and I realized that most of us failed to see the broader implications and underlying questions. This article is an attempt to highlight some of them.

First, Kachikwu said that he has made several attempts to see the President, but to no avail. There are many questions there: Who is preventing the HMS from seeing his immediate boss, both as Petroleum Minister and President? If the Petroleum industry is so important and sensitive to Nigeria’s economic progress, is it not odd that the Minister of State cannot see the President / Minister? Why is the President so keen to see Kachikwu only after the letter has been leaked? Did the President see the letter before it was leaked to the press? And if the President had seen the letter before it was leaked to the press, why did he not call the Minister? These questions are very important because they raise the fundamental question of who is in charge. In the end, what has followed by the Presidency is public relations crisis management rather than a response to the content and spirit of the letter.

Second, section 14(3) of the 1999 Nigeria constitution states that all states should have representatives in the government of the Federation. In some governments since then, not only have we had 36 Ministers, we have also had 6 ministers representing each of the geopolitical zones. This arrangement is fraught with too many dangers, especially because most of our Presidents have failed to understand the pitfalls in relation to the delivery of their mandates. For instance, contrary to public opinion, all these ministers are “equal” and they all report to the President. 42 ministers reporting to the president is unwieldy, unprofessional, and definitely bad corporate practice. This definitely affects the speed at which the government works, and particularly bad because the ministers are always second-guessing the president as virtually everything requires presidential approval. They call it “prayers” in Nigerian government parlance. If the 42 are not enough, the President will have his Chief of Staff, and some other personal staff report to him also. In addition, the principals of most key and critical agencies willingly and routinely, for very obvious interests, bypass the ministers and go directly to the President.

Consequently, both Ministers and Ministers of State report directly to the President. No President so far has understood the organizational fitness required to get things done, so some ministers become “super” ministers by virtue of their pedigrees and the ministries they supervise rather than the ideas they have. Now, go to all the ministries with two ministers, they don’t get along. Its free information, and I will not send you any bill. We run a dysfunctional government and it did not start today. To make matter worse, it so happens that when the President appoints someone close to him or an “heavyweight” to head a parastatal or agency that is under a ministry, as the NNPC’s case as shown, they often report directly to president and not the minister. Other agency candidates include NIMASA, NCC, NPA, Customs etc. And in a million times, the President does not see anything wrong in that.

Meanwhile, consider for a moment that, while the impasse in the oil and gas industry goes on due to ego bruises, it has taken us 17 years to pass a fraction of a bill related to the management of the lifeblood of the Nigerian economy. Some will argue that this demonstrates the lackadaisical approach to policy changes in Nigeria, but I argue that it is a deliberate stalling. The most naïve person in town is someone who thinks policy makers want reforms in the oil and gas industry. At least not the kind of reforms that will ensure more transparency, the adoption of more business like decision making process, and the reduction in the discretionary powers of the President. Indeed, it is not in the interest of any current President to oversee reforms because they reduce the discretionary powers of the President.

The bill passed on the 25th of May 2017 by the Nigerian Senate christened the Petroleum Industry Governance Bill (PIGB), still subject to passage by the House of Reps, will create a Nigeria Petroleum Regulatory Commission (NPRC). This will replace the Department of Petroleum Resources (DPR), the Petroleum Inspectorate and the Petroleum Products Pricing Regulatory Agency (PPPRA). NNPC will also be split into the Nigeria Petroleum Asset Management Company and the National Petroleum Company. The Nigeria Petroleum Assets Management Company shall manage the Production Sharing Contracts while National Petroleum Company shall be responsible for all other assets such as Joint Ventures.

While the Nigerian government dithered over the passage of the PIB, the oil and gas landscape has changed markedly. The biggest change has been the rise of shale oil; in 2000 when the PIB was introduced in NASS, America’s shale output was about 360,000 barrels per day now it is over 4.5 million barrel per day. The rise of shale contributed to the drop in oil prices starting in 2014, which saw global crude oil prices fall from over $100 per barrel to below $30 per barrel in two years.

In addition to threats to oil and gas prices on the supply side, there are also significant threats on the demand side. Although global oil demand is forecast to continue increasing for the foreseeable future, the pace of this increase could be slower than in the past. This is as a result of improvements in electric cars, increased energy efficiency, government regulations aimed at fighting climate change, ride-sharing services and autonomous cars. The UK and France have both announced plans to ban fossil fuel cars by 2040. Although it is far from settled that these will have a significant impact on oil prices, now is the time for any serious country to start preparing for the possibility that its primary source of foreign exchange and government revenue will face downward price pressure. Of course, here in Nigeria, we are more concerned about bruises to our egos, perpetuation of pecuniary interests, and the expansion of the State. But the world is not waiting. And while we were fiddling our poor fingers, investments in oil and gas have stalled, and we can only imagine how much of that we lost to dithering in the last 17 years.

Many major oil-producing nations and companies have already begun planning for a world where oil demand is stagnant or falling. Shell and BP are shifting their portfolios to focus more on natural gas, which emits less CO2 than oil while Statoil is going even further by committing to devote 15% to 20% of its capital spending to renewable energy by 2030. Even Saudi Arabia, which does not foresee a peak in oil demand, is planning for a future beyond oil. Saudi Arabia’s deputy crown prince Mohammad bin Salman has ambitious plans to end Saudi Arabia’s dependence on oil by 2030. As part of the kingdom’s plans to end oil dependence, Saudi Arabia has commenced plans for a flotation of part of Saudi Aramco and has created the world’s largest sovereign investment fund, which will invest in a wide range of industries. Norway has created a massive sovereign wealth fund from the proceeds of its oil wealth and the UAE and Qatar all have sovereign investment vehicles that invest their oil wealth in non-oil industries.

In conclusion, I can understand the fixation on the parties in the shenanigans in the oil industry today, but that is not where our interest lies. Our interest as a nation lies in extensive reforms that reduces the discretionary powers of the President, reduces vested interests in the oil and gas sector, and provide a platform for the prosperity of Nigerians. Nothing in the last two weeks has done that.