1.0 PREAMBLE
The reform journey to the Petroleum Industry Act 2021, though tortuous, the clarity of the essence of the journey from start to finish was, however, not notional. The struggle to stay focused on the intentional and governance goals of the industry reform journey, while not surprising, is extremely frustrating. Does the phrase, “new wine in old wine bottle” paint, accurately, the governance and institutions of the oil and gas sector in Nigeria over the last decade? This op-ed aims to offer a pedagogical assessment of the governance of and the institutions in the oil and gas sector in Nigeria within the context of five institutional and governance metrics. The adopted metrics, which are derived from PIA 2021 governance and institutional objectives include: a) the efficacy of governance and institutions; b) commerciality and comportment of the national petroleum company; c) good governance, transparency, and accountability in the oil and gas sector administration; d) conducive petroleum business environment; and e) the extent of the impact of local content in the oil and gas industry for sustainable development.
2.0. EFFECTIVENESS AND EFFICIENCY IN OIL AND GAS SECTOR GOVERNANCE AND INSTITUTIONS
Efficiency fundamentally implies doing things correctly to maximize desired results with minimal waste; and effectiveness means doing things the right ways to reach desired results. Is it then possible to be efficient and not be effective? The Commission, the Authority, and the Minister are the responsible institutions to engineer the desired industry governance with operational efficacy. In the overall sense, the institutional efficiency and governance effectiveness metric are still worse than expected, and the reasons are obvious from Part II of the PIA 2021 (3) hinging on the Power of the Minister.
The de facto Minister of Petroleum being PBAT, the office is necessarily at the presidency with controlled and limited access to public debate and scrutiny. Of course, there is a Minister of State Petroleum for Gas and another Minister of State Petroleum for Oil both with delimited access to competent workforce, making doing the right things the right ways in the oil and gas business muddling. For example, the power of the Minster to formulate, check, and administer public policy in the administration of petroleum industry in Nigeria, which is critical to achieving PIA governance and institutional goals undermined. The power of the Minister seems less likely than not to deliver value with the current political arrangements. Three Ministers and surrogates with a decoupled upstream petroleum operation based on political appointments enable the presidency to drive, with subtlety, the very few major petroleum policies so far with minimal open dialogue before pronouncements. Subsidy removal, presidential order 2024 for NAG development, CNG vehicle fleets are valuable examples.
The current ministerial arrangement in the oil sector diminishes the functional responsibility and power of the Minister to enable institutional efficiency and governance effectiveness. The general supervision of industry operations and forewarning the government of challenges and opportunities is badly delimited. The new wine in old-wine bottle enigma seems to promote the business-as-usual approach, rather than making the twenty-year industry reform journey consequential with respect to institutional efficacy. Ironically, the separation of the institutional roles emphasized in the PIA makes the supervision role of industry operations by the Minister essential for industry policy cohesiveness and consistency. Supervision does not necessarily imply subordination.
Though speculative, what I perceived, so far, seems more like negotiated policy agenda rather than robustly formulated and evidence-based sustainable policy strategic framework. Otherwise, how could one explain that the Minister had no clue that Nigeria is slowly becoming an oil importing country as against its traditional characterization as a petroleum exporting country. Here then is my take, the current ministerial arrangement is antithetical to industry efficacy. If this arrangement remains, the industry governance by negotiation may become plausibly prevalence. There can be no effective regulations from the Commission or the Authority, without a properly fashioned and documented policy framework and directives from the Minister to the Authority and the Commission. Honestly, the separation of institutional roles in the PIA may remain illusional without throwing away the old-wine bottle approach and quickly too.
3.0 COMMERCIALITY AND COMPORTMENT OF THE NATIONAL PETROLEUM COMPANY
The National Petroleum Company in Nigeria is the Nigerian National Petroleum Corporation Limited (NNPCL), incorporated within six months of the commencement of the PIA 2021. The PIA vested the ownership of NNPCL shares in the Federal Government on behalf of the Federation. Thus, the misconception that the Federal Government is the owner of NNPC Limited continues to inhibit the PIA goal for its full commerciality and profit orientation business operations. The intent of Part V (53) is to create a framework that would enable the commerciality of NNPC Limited.
Recognizing the dynamic nature of the commerciality aspirations, the PIA stipulated the process and clarity of purpose for the attainment of the commerciality goal. First, the ownership of shares is well defined. Second the process to transfer shares as stipulated but the timing is very vague contrary to the original intent and specificity on the timing to sell shares of NNPC Limited. Thus, the new wine in old bottle paradox impedes the commerciality noble goal in PIA2021. Third, there is no provision for NNPCL to spend any fund on behalf of the Federal Government or the Federation beyond paying levies, taxis, royalties to Federation account and dividends just as the NNLG as prescribed in Part V (53(8)). NNPC Limited by incorporation ceases to be the “cash-cow” for the Government and/or the Federation and it has no legal basis to not disavow its under-recovery strategy to fund petroleum subsidy.
Is NNPC Limited moving in the direction of the commerciality goal and appropriately so? I am not sure I want to put my emeritus designation on the line to say an affirmative yes, yet. That the intention is there to pursue commerciality not conjectural? However, the nemesis is still the trilemma of agency theory, elite capture and prebendalism. I stand corrected, but NNPC Limited Board composition is much more critical than the composition of the management team. This is why the paradox of new wine in an old-wine bottle looms large in the pursuit of the PIA commerciality mandate for NNPC Limited. Additionally, the theory of the firm, the maximization goal for investors dealing with exhaustive resources demands a dynamic optimization strategy. I hasten to suggest that political expediency is not a determinant, but portfolio assets management helps. Is NNPC-Limited spread too thin with partnership shares in too many petroleum assets? Perhaps!
4.0 GOOD GOVERNANCE, TRANSPARENCY, AND ACCOUNTABILITY
Good governance, transparency, and accountability are critical to enhance public policy acceptability. Easy access to important data and information offers opportunities for independent evaluation of public policy. There must be a way to checkmate, or fact check information that appear for institution. The threading needle of good governance and transparency seems not to be moving fast enough to douse the political uncertainty inhibiting investment flow in the oil and gas sector. The continuous argument for or against the absence of petroleum subsidy is a case in point or when refineries in Nigeria will be fully operative.
There seems to be too many pronouncements without substance, promises without actions, and unsustainable economic populism as a substitute for good governance and transparency. Unfortunately, the hallmarks of a transformational agenda are good governance, transparency, and accountability. PIA naissance experts understand that substituting good governance for economic populism using petroleum wealth is destructive. Venezuela offers good lessons for Nigeria to grasp in that instance. The country used to produce over three million barrels per day of crude oil but barely produced seven hundred thousand barrels per day now despite having the world’s largest proved crude oil reserves, estimated at 303 billion barrels as of February 2024. This represents approximately 20% of global world reserves. Chavez was a transactional leader with economic populism agenda, destroyed Venezuela oil and gas industry and its economy for that matter.
Nigeria came close to governing its oil and gas sector with a purely transactional leadership mindset over the last decade. This was why those who conceptualized PIA emphasized the importance of good governance across the petroleum value chain. To these patriotic Nigerians, transparency and accountability in the oil and gas sector are essential to protect the industry from inept governance practices. People can easily relate to the latest confusion in the news media as to the aggregate oil production per day from Nigeria. Such confusion points to the paradox of new wine in an old-wine bottle inhibiting the transparency and accountability goal of the PIA. Here then lies the importance of the separation of roles of the PIA Institutions—policy, commercial and regulatory institutions. This is my take, without a transformational leadership in the policy institutions, I do not see the possibility of transparency, good governance and accountability in the oil and gas sector appearing. The old-wine bottle is just not good enough for the new wine. Nigeria must do something about it and quickly too.
5.0 CONDUCIVE PETROLEUM BUSINESS ENVIRONMENT
Petroleum resources development calls for continuous investment flow along the petroleum value industry chain. In the emerging global energy landscape and the geopolitics of petroleum supply and pricing, the competition for foreign investment to develop petroleum worldwide is keener than it was in the 1970s. Emerging petroleum producing countries are now in play for risked investment making conducive business environment indicators to matter much more than before despite its subjectivity. PIA 2021 makes this goal of its five prime aims as listed in the preamble.
The missing link is the absence of petroleum wealth management as a necessary condition to promote good governance as well as enhancing conducive business environment in Nigeria in the PIA. Mismanagement of petroleum wealth brought the economy of Nigeria to the kneels lately driving the four key macroeconomic markets–labor, goods and services, money, and resources– to perpetual disequilibrium. Additionally, a well-articulated progressive fiscal framework entrenched in the PIA2021, which would have positioned Nigeria in good light became badly distorted with the old-wine bottle syndrome written all over it.
Propensity, for transactional leadership mindset skewed PIA fiscal elements so disproportionately triggering divestments trauma in Nigeria onshore and shallow-water fields. Rather than waiting for the conclusion of the reform journey, assets renewals effected because of election uncertainty, thereby jeopardizing the long-term industry reform goals including improving for investments business environments. I remain vividly convinced of the implausibility of depending on people gaining from a chaotic situation to resolve the situation. This also reflects the new wine in old wine bottle enigma delimiting the impact of PIA 2021.
6.0 CONCLUDING REMARKS
A heartfelt congratulations to the President of the Federal Republic of Nigeria, President Bola Tinubu, for completing his first year in office in good health. Certainly, there are significant marginal positive steps in the right direction despite the obvious enigma of new wine in an old-wine bottle. This paradox has delimited the effective implementation of PIA 2021 for value creation. Nigeria is a complex nation to govern and that brings to question the suitability of the presidency to anchor the PIA policy institution. Further, managing petroleum wealth for sustainable development in Nigeria begins with effective and efficient governance of and institutions in the oil and gas sector with minimal governance cost. No one so far has the courage to address the petroleum wealth sharing mentality in the governance of the oil and gas sector.
The three PIA 2021 anchor institutions must embrace good governance with transformational leadership mindsets, especially the policy institution. The policy institution as envisaged in the PIA owns and directs the industry but being in the presidency constitutes a big challenge. As a result, this engine that binds Nigeria together, oil and gas, keeps wobbling even as its plugs continue to misfire under the yoke of the paradox of new wine in an old-wine bottle.
Certainly, hope must remain rekindled with the lofty expectations for a transformational leadership in the oil and gas sector. Good governance with minimal transnationalism and zero tolerance for propensity for prebendalism is a necessary condition for sustainable development using petroleum wealth. A substantive Minister of Petroleum as designated in the PIA other than the president himself could help to avert the looming Venezuela experience in the oil and gas sector in Nigeria. Time will tell!
Oil, Gas, and Government:
Is the Paradox of New Wine in Old-Wine Bottle Delimiting PIA 2021 Aspirations?
1.0 PREAMBLE
The reform journey to the Petroleum Industry Act 2021, though tortuous, the clarity of the essence of the journey from start to finish was, however, not notional. The struggle to stay focused on the intentional and governance goals of the industry reform journey, while not surprising, is extremely frustrating. Does the phrase, “new wine in old wine bottle” paint, accurately, the governance and institutions of the oil and gas sector in Nigeria over the last decade? This op-ed aims to offer a pedagogical assessment of the governance of and the institutions in the oil and gas sector in Nigeria within the context of five institutional and governance metrics. The adopted metrics, which are derived from PIA 2021 governance and institutional objectives include: a) the efficacy of governance and institutions; b) commerciality and comportment of the national petroleum company; c) good governance, transparency, and accountability in the oil and gas sector administration; d) conducive petroleum business environment; and e) the extent of the impact of local content in the oil and gas industry for sustainable development.
2.0. EFFECTIVENESS AND EFFICIENCY IN OIL AND GAS SECTOR GOVERNANCE AND INSTITUTIONS
Efficiency fundamentally implies doing things correctly to maximize desired results with minimal waste; and effectiveness means doing things the right ways to reach desired results. Is it then possible to be efficient and not be effective? The Commission, the Authority, and the Minister are the responsible institutions to engineer the desired industry governance with operational efficacy. In the overall sense, the institutional efficiency and governance effectiveness metric are still worse than expected, and the reasons are obvious from Part II of the PIA 2021 (3) hinging on the Power of the Minister.
The de facto Minister of Petroleum being PBAT, the office is necessarily at the presidency with controlled and limited access to public debate and scrutiny. Of course, there is a Minister of State Petroleum for Gas and another Minister of State Petroleum for Oil both with delimited access to competent workforce, making doing the right things the right ways in the oil and gas business muddling. For example, the power of the Minster to formulate, check, and administer public policy in the administration of petroleum industry in Nigeria, which is critical to achieving PIA governance and institutional goals undermined. The power of the Minister seems less likely than not to deliver value with the current political arrangements. Three Ministers and surrogates with a decoupled upstream petroleum operation based on political appointments enable the presidency to drive, with subtlety, the very few major petroleum policies so far with minimal open dialogue before pronouncements. Subsidy removal, presidential order 2024 for NAG development, CNG vehicle fleets are valuable examples.
The current ministerial arrangement in the oil sector diminishes the functional responsibility and power of the Minister to enable institutional efficiency and governance effectiveness. The general supervision of industry operations and forewarning the government of challenges and opportunities is badly delimited. The new wine in old-wine bottle enigma seems to promote the business-as-usual approach, rather than making the twenty-year industry reform journey consequential with respect to institutional efficacy. Ironically, the separation of the institutional roles emphasized in the PIA makes the supervision role of industry operations by the Minister essential for industry policy cohesiveness and consistency. Supervision does not necessarily imply subordination.
Though speculative, what I perceived, so far, seems more like negotiated policy agenda rather than robustly formulated and evidence-based sustainable policy strategic framework. Otherwise, how could one explain that the Minister had no clue that Nigeria is slowly becoming an oil importing country as against its traditional characterization as a petroleum exporting country. Here then is my take, the current ministerial arrangement is antithetical to industry efficacy. If this arrangement remains, the industry governance by negotiation may become plausibly prevalence. There can be no effective regulations from the Commission or the Authority, without a properly fashioned and documented policy framework and directives from the Minister to the Authority and the Commission. Honestly, the separation of institutional roles in the PIA may remain illusional without throwing away the old-wine bottle approach and quickly too.
3.0 COMMERCIALITY AND COMPORTMENT OF THE NATIONAL PETROLEUM COMPANY
The National Petroleum Company in Nigeria is the Nigerian National Petroleum Corporation Limited (NNPCL), incorporated within six months of the commencement of the PIA 2021. The PIA vested the ownership of NNPCL shares in the Federal Government on behalf of the Federation. Thus, the misconception that the Federal Government is the owner of NNPC Limited continues to inhibit the PIA goal for its full commerciality and profit orientation business operations. The intent of Part V (53) is to create a framework that would enable the commerciality of NNPC Limited.
Recognizing the dynamic nature of the commerciality aspirations, the PIA stipulated the process and clarity of purpose for the attainment of the commerciality goal. First, the ownership of shares is well defined. Second the process to transfer shares as stipulated but the timing is very vague contrary to the original intent and specificity on the timing to sell shares of NNPC Limited. Thus, the new wine in old bottle paradox impedes the commerciality noble goal in PIA2021. Third, there is no provision for NNPCL to spend any fund on behalf of the Federal Government or the Federation beyond paying levies, taxis, royalties to Federation account and dividends just as the NNLG as prescribed in Part V (53(8)). NNPC Limited by incorporation ceases to be the “cash-cow” for the Government and/or the Federation and it has no legal basis to not disavow its under-recovery strategy to fund petroleum subsidy.
Is NNPC Limited moving in the direction of the commerciality goal and appropriately so? I am not sure I want to put my emeritus designation on the line to say an affirmative yes, yet. That the intention is there to pursue commerciality not conjectural? However, the nemesis is still the trilemma of agency theory, elite capture and prebendalism. I stand corrected, but NNPC Limited Board composition is much more critical than the composition of the management team. This is why the paradox of new wine in an old-wine bottle looms large in the pursuit of the PIA commerciality mandate for NNPC Limited. Additionally, the theory of the firm, the maximization goal for investors dealing with exhaustive resources demands a dynamic optimization strategy. I hasten to suggest that political expediency is not a determinant, but portfolio assets management helps. Is NNPC-Limited spread too thin with partnership shares in too many petroleum assets? Perhaps!
4.0 GOOD GOVERNANCE, TRANSPARENCY, AND ACCOUNTABILITY
Good governance, transparency, and accountability are critical to enhance public policy acceptability. Easy access to important data and information offers opportunities for independent evaluation of public policy. There must be a way to checkmate, or fact check information that appear for institution. The threading needle of good governance and transparency seems not to be moving fast enough to douse the political uncertainty inhibiting investment flow in the oil and gas sector. The continuous argument for or against the absence of petroleum subsidy is a case in point or when refineries in Nigeria will be fully operative.
There seems to be too many pronouncements without substance, promises without actions, and unsustainable economic populism as a substitute for good governance and transparency. Unfortunately, the hallmarks of a transformational agenda are good governance, transparency, and accountability. PIA naissance experts understand that substituting good governance for economic populism using petroleum wealth is destructive. Venezuela offers good lessons for Nigeria to grasp in that instance. The country used to produce over three million barrels per day of crude oil but barely produced seven hundred thousand barrels per day now despite having the world’s largest proved crude oil reserves, estimated at 303 billion barrels as of February 2024. This represents approximately 20% of global world reserves. Chavez was a transactional leader with economic populism agenda, destroyed Venezuela oil and gas industry and its economy for that matter.
Nigeria came close to governing its oil and gas sector with a purely transactional leadership mindset over the last decade. This was why those who conceptualized PIA emphasized the importance of good governance across the petroleum value chain. To these patriotic Nigerians, transparency and accountability in the oil and gas sector are essential to protect the industry from inept governance practices. People can easily relate to the latest confusion in the news media as to the aggregate oil production per day from Nigeria. Such confusion points to the paradox of new wine in an old-wine bottle inhibiting the transparency and accountability goal of the PIA. Here then lies the importance of the separation of roles of the PIA Institutions—policy, commercial and regulatory institutions. This is my take, without a transformational leadership in the policy institutions, I do not see the possibility of transparency, good governance and accountability in the oil and gas sector appearing. The old-wine bottle is just not good enough for the new wine. Nigeria must do something about it and quickly too.
5.0 CONDUCIVE PETROLEUM BUSINESS ENVIRONMENT
Petroleum resources development calls for continuous investment flow along the petroleum value industry chain. In the emerging global energy landscape and the geopolitics of petroleum supply and pricing, the competition for foreign investment to develop petroleum worldwide is keener than it was in the 1970s. Emerging petroleum producing countries are now in play for risked investment making conducive business environment indicators to matter much more than before despite its subjectivity. PIA 2021 makes this goal of its five prime aims as listed in the preamble.
The missing link is the absence of petroleum wealth management as a necessary condition to promote good governance as well as enhancing conducive business environment in Nigeria in the PIA. Mismanagement of petroleum wealth brought the economy of Nigeria to the kneels lately driving the four key macroeconomic markets–labor, goods and services, money, and resources– to perpetual disequilibrium. Additionally, a well-articulated progressive fiscal framework entrenched in the PIA2021, which would have positioned Nigeria in good light became badly distorted with the old-wine bottle syndrome written all over it.
Propensity, for transactional leadership mindset skewed PIA fiscal elements so disproportionately triggering divestments trauma in Nigeria onshore and shallow-water fields. Rather than waiting for the conclusion of the reform journey, assets renewals effected because of election uncertainty, thereby jeopardizing the long-term industry reform goals including improving for investments business environments. I remain vividly convinced of the implausibility of depending on people gaining from a chaotic situation to resolve the situation. This also reflects the new wine in old wine bottle enigma delimiting the impact of PIA 2021.
6.0 CONCLUDING REMARKS
A heartfelt congratulations to the President of the Federal Republic of Nigeria, President Bola Tinubu, for completing his first year in office in good health. Certainly, there are significant marginal positive steps in the right direction despite the obvious enigma of new wine in an old-wine bottle. This paradox has delimited the effective implementation of PIA 2021 for value creation. Nigeria is a complex nation to govern and that brings to question the suitability of the presidency to anchor the PIA policy institution. Further, managing petroleum wealth for sustainable development in Nigeria begins with effective and efficient governance of and institutions in the oil and gas sector with minimal governance cost. No one so far has the courage to address the petroleum wealth sharing mentality in the governance of the oil and gas sector.
The three PIA 2021 anchor institutions must embrace good governance with transformational leadership mindsets, especially the policy institution. The policy institution as envisaged in the PIA owns and directs the industry but being in the presidency constitutes a big challenge. As a result, this engine that binds Nigeria together, oil and gas, keeps wobbling even as its plugs continue to misfire under the yoke of the paradox of new wine in an old-wine bottle.
Certainly, hope must remain rekindled with the lofty expectations for a transformational leadership in the oil and gas sector. Good governance with minimal transnationalism and zero tolerance for propensity for prebendalism is a necessary condition for sustainable development using petroleum wealth. A substantive Minister of Petroleum as designated in the PIA other than the president himself could help to avert the looming Venezuela experience in the oil and gas sector in Nigeria. Time will tell!
Omowumi Iledare, Ph.D., Snr. Fellow
USAEE, Fellow NAEE, Fellow EI, Fellow
NIPetE, Professor Emeritus in Petroleum Economics and Executive Director,
Emmanuel Egbogah Foundation, Abuja,
Nigeria.