–Professor Omowumi O. Iledare
PREAMBLE
Nigeria ranked among the top 20 oil producers in the world in 2021 at an approximately 1.5 – 1.7 million barrels per day, on average, and 36 Billion proved reserves. In 2005, Nigeria ranked among the top 10 with production of about 2 million barrels per day, on average, and 35 billion linguists petroleum reserves! The promise nation and most coveted petroleum development bride in the Gulf of Guinea, Nigeria, was projected in 2005 to produce 3 million barrels per day by 2010 with a genuine optimism to produce 4 million barrels per day from a projected estimated proved oil reserves of 40 billion by 2020. These laudable ambitions disappeared to thin air, perhaps, because of rent-seeking, rent sharing, and a transactional leadership mindset rather than a transformational leadership mindset with shared vision. The transformational mindset, which is required to optimize the petroleum value chain for sustainable economic and national development seems to remain elusive. Politics appears to always trump economics in the petroleum sector, as often mentioned in my previous discussions, with no regard for the exhaustive characteristics of petroleum resources with intergenerational implications on availability, affordability and accessibility at any point in time.
Regrettably, transactional leadership mindset has created the pervasive misconception in the society that if you have abundant liquids petroleum reserves, it must translate to extremely low fuel cost at the pump for end users. This comes with a sort of demand for transfer payment or income entitlement, irrespective of the source and cost of petroleum products delivered, domestic refinery or import delivery terminals. The observable unintended consequence of transfer payment predicament in Nigeria is the willingness of the society to sacrifice everything else for product accessibility and affordability even if availability and sustainability are badly constrained. This is evidently reflected in the skewness of the proportion of the total government revenue earmarked, over the years, to subsidize petroleum at all costs at the expense of seemingly more important priority projects in Nigeria. This act alone represents the policy and regulatory quadrilemma underpinning the complexity of the petroleum industry value chain and perhaps, the electric power industry, as well, in Nigeria. The consequences of the quadrilemma on energy availability, energy accessibility, and energy affordability are quite obvious in Nigeria. The purpose of this op-ed is to facilitate good understanding of the dimensions of petroleum sector quadrilemma and the role of PIA 2021 implementation with respect to its regulatory and institutional provisions to offer optimal resolution to the unintended consequences on each of the petroleum quadrilemma dimensions.
PETROLEUM SECTOR QUADRILEMMA DIMENSIONS
For the purpose of this op-ed, the term quadrilemma dimensions simply mean a situation in which an agent has to strategically balance four important goals in order to optimize the desired outcome in an aggregate sense. In order words, a circumstance that required a strategic balancing of four desirable goals, constitutes a quadrilemma. Thus, the conceptual framework underlying PIA 2021 demands something better than the business as usual implementation approach to the resolutions of petroleum sector quadrilemma dimensions in Nigeria. The regulatory and institutional policy provisions in the PIA provide an opportunity for measurable objectives and expected outcomes, primarily, in terms of petroleum availability, accessibility and sustainability to drive its petroleum-dependent economy keeping in perspective the energy transition dynamics. Thus, any implementation strategy of the PIA 2021 provisions must essentially promote industry solutions to optimize each of the quadrilemma components or dimensions, which are industry efficiency, institutional effectiveness, equity and justice, and business professional ethics, to optimize the petroleum value chain for sustainable economic development. Fortunately, these dimensions are not mutually exclusive not swappable but complementary and balancing the four goals constitute a quadrilemma circumstance and the PIA implementation process in Nigeria has to be mindful of this quadrilemma.
Efficiency Dimension of the Quadrilemma: Industry efficiency for the purpose of this op-ed simply means, doing things right with zero wastage and at a minimal conceivable cost. That the industry in Nigeria currently operates inefficiently is not conjectural, even among people without minutest knowledge of the industry. As to getting optimal output with minimally possible combination of inputs in terms of quantity and cost, it is similarly not conjectural that the oil and gas industry is aptly profligate right across the value chain. The plan to bring down the upstream production cost in Nigeria, to at most 10 dollars per barrel, has been in the horizon even before the enactment of the PIA 2021. However, that the Act has provisions to make efficiency a desirable outcome is not contentious at all. There are provisions such as price-cost ratio, the setting of deductible capital allowance limits, tying tax incentives to output rather than efforts to ameliorate gold plating tendency, and of course fiscal responsibility, accountability and transparency are just but a few of these provisions set to enhance efficiency.
Unfortunately, I hasten to say that so far that the industry efficiency goal of the PIA, at this stage of the implementation, needs to be back in focus because time is of essence. It is approximately six months (September 2021 to March 2022) since the enactment of the Act, yet the labor productivity aspects for the PIA institutions, especially the Commission and the Authority, remain inhibited and the business as usual approach continues to carry the day, unabated. Equating the responsibilities mandated by PIA for the Commission and the Authority to the functions of the old regulatory institutions before the enactment of PIA, DPR, PEF, and PPPRA, is unconceivable and a betrayal of the PIA objective to create efficient and effective governing institutions, with clear and separate roles for the petroleum industry. Resolving the efficiency component of the quadrilemma demands the transition team to have been responsible for resource mapping and allocation into institutions if it had been properly constituted. What is going on at the moment, as far as I am concerned, is that the PIA is a new wine in an old wine cloth. I do not see how the inefficiency in the industry could become ameliorated with this business as usual implementation strategy from a reform process, which started more two decades ago. But I might be wrong and time will tell. The implementation committee must do the right thing with industry cost management strategy, which begins with labor productivity management in the two institutions to reduce petroleum sector governance cost and inefficiency.
Effectiveness Dimension of the Quadrilemma: In a generic sense, effectiveness implies doing the right things without compromising doing things the right way. For the most part, it is a lot easier to discern and measure correctly how to do the right things than finding the right way to do the right things, more so in Nigeria than most part of the world that I have lived or visited. This then makes this dimension of the quadrilemma more problematic with unintended consequences on the other components particularly the efficiency dimension. This, perhaps, explains the implementation strategy so far, which informed some of the choices made for the PIA institutions.
Notwithstanding the effectiveness goal of the PIA, leaving desirable inputs out of the decision variable for just the available inputs, more likely than not, makes the reform of the industry less futuristically effective. It is noteworthy that the effectiveness component of the quadrilemma affects the public perception index much more than the other components with the exception of the ethic components. Optics matter a lot, indeed in the petroleum business. Thus, if doing the right things without doing things right is key as anticipated by the PIA framer, then transformational leadership mindset is critical in the Governance Board and Management Team of the PIA institutions. I must have said this before over and over again, that a leadership mindset that transforms the extractive industry with intergeneration implications covets power or authority to serve for posterity and not to inhabit power. Let the leadership in the PIA Institutions adopt this mantra and avoid institutional capture tendencies pervading the societal elites in power. For in the long run, leadership that does not have a transformational leadership mindset, ultimately undermines institutional policy and regulatory effectiveness, which are critical to the PIA goals for the Nigeria petroleum sector.
Equity Component of the Quadrilemma: The equity component of the PIA quadrilemma dimension is evident in Section 2 (d) of Part I in Chapter 1, which states as an objective for fostering a business environment conducive for petroleum operations in Nigeria. In fact, the Act mandated the Minister to promote an enabling environment for investment in Nigeria according to Section 3(e) of Part II in Chapter I of the PIA 2021. Further, in Section 258 (e) of Part I in Chapter 4, a key objective of the PIA 2021 is to promote equity in the petroleum fiscal regime. Meaning fairness in balancing risks and rewards accordingly and to define equitably how costs are recovered and profits are shared among all stakeholders in the petroleum sector. The timing of rent extraction is key to the proper balancing of cash surplus distributions among the stakeholders for justice and mutuality of interest, subject to rent extraction mechanism of choice and fiscal instrument and contract terms combination design.
Here then lies the equity components of the PIA 2022 implementation quadrilemma. The discernment from my point of view on declining revenue, divestment of onshore and shallow offshore assets, and resource depletion trilemma are bothersome. First, the skewness of justice that seems to be perceptively unidirectional in favor of deep-water assets owned and operated mostly by the International Oil Companies. Second, I hasten to say, of course from a pedagogical point of view, that the objectives of PIA 2022 in Section 2 (b) of Part 1 in Chapter 1 with respect to establishing a framework for the creation of a commercially oriented and profit-driven national petroleum company is seemingly miscomprehended after the enactment phase. There is a feeling that the national petroleum company is still a company guaranteed by the federal government for the federal government rather than the federation. I stand to becorrected if perhaps the framework to create a commercially and profit-oriented national petroleum corporation is yet to evolve and business as usual continues to win out in the process.
The equity component of the PIA implementation quadrilemma, especially in respect of the commercialization framework of the national petroleum company, on revenue decline for each of the constituent states of the federation, divestment and acquisition of assets, and resource depletion, must be of concern to all. Is there really a framework? One would have thought that such a framework should have been independently developed and subject to public scrutiny to be effectual and less discordant. Secondly, and again I might be wrong, but having been an active participant in the conceptualization of the need for the creation of efficient and effective governing institutions with clear and clear and separate roles for the industry, I hasten to say the amorphousness of the roles and responsibilities of the PIA institutions is yet to vanish thus far in the implementation journey.
The Ethical Component of the Quadrilemma: PIA 2022, stated in Section 2 (c) of Part I in Chapter 1 of the PIA as one of its five core objectives, the promotion of transparency, accountability and good governance. Simply translated, petroleum business across the value chain in Nigeria has moral obligations to safeguard ethical behavior in business decisions. Unknowingly, perhaps, the PIA inadvertently set petroleum business moral culture in Nigeria. The three important aspects of business ethics in the PIA are transparency, good governance, and accountability. The transparency aspect of an ethical petroleum business culture as prescribed in PIA 2022 presumes easy access to intelligible information and data, which are relevant for specific and useful petroleum business purposes. The PIA mandate, regarding transparency and good governance, demands for proper flow of information on decisions and actions taken by the government to the citizens who would seek to hold them accountable. The accountability mandate implies the willingness of the stakeholders in the petroleum sector to accept responsibility and liability for achieving or not achieving a set of goals. This simply implies that public officers received delegated powers from the society at large and there must be willingness on the former to relate to the latter.
PIA 2022 implementation strategy must be mindful of the consequences of any lack of accountability, good governance and transparency (ethical business culture as defined by the PIA). First, it can promote greed and power struggle among competing elites to control oil and gas revenue that may sometimes lead to instability of government, and can exacerbate systemic fraud and corruption. Second, PIA 2022 will be ineffective and its provisions may be unenforceable with weak regulatory regimes and inefficient business environment if ethical business culture is lacking. Third, lack of good governance and transparency in the implementation of PIA may continue to create public discontent over the lack of national development based only on overestimating the earning potential from the petroleum sector.
In an overall sense, an optimal resolution of the above consequences of the ethical dimensions of petroleum sector quadrilemma has additional benefits such as encouraging competition and competition enhances industry performance, discouraging fraudulent behavior and complementing effectiveness, equity, and efficiency in the petroleum sector. Further, such resolution minimizes systematic favoritism in the allocation of licenses for hydrocarbon exploration rights and midstream and downstream licenses, it also makes the bidding process for major oil and gas industry projects or contracts viable, and eliminates multiple bottlenecks and inefficiencies in stakeholders’ relationships, including the petroleum host communities.
SUMMARY AND CONCLUSION
The op-ed aims to facilitate good understanding of the dimensions of petroleum sector quadrilemma and the role of PIA 2021 implementation with respect to its regulatory and institutional provisions to resolve the unintended consequences on each of the petroleum quadrilemma dimensions. Thus, the implementation strategy of the PIA 2021 provisions must essentially promote industry solutions to optimize each of the quadrilemma components or dimensions, which are Industry Efficiency, Institutional Effectiveness, Stakeholders’ Equity & Justice, and Business Professional Ethics. The consequences of the quadrilemma on energy availability, energy accessibility, and energy affordability are quite obvious in Nigeria.
Resolving the Efficiency component of the quadrilemma demands that the transition team ought to have been responsible for resource mapping and allocation into institutions. What is going on at the moment in the transition phase of PIA implementation, as far as I am concerned, is putting a new wine in an old wine cloth. I do not see how the inefficiency in the industry could become ameliorated with this business as usual implementation strategy from a reform process, which took more than two decades to evolve. But I might be wrong and time will tell.
Regarding Effectiveness dimension, it is noteworthy that this have more effects on the public perception index than the other components with the exception of the ethical components. Optics matters a lot, indeed in the petroleum business. Thus, if doing the right things without doing things right is key as anticipated by the PIA framer, then transformational leadership mindset is critical in the Governance Board and Management Team of the PIA institutions. I must have said this before over and over again, that a leadership mindset that transforms the extractive industry with intergeneration implications covets power or authority to serve for posterity’s sake and not to inhabit power for personal prosperity.
The equity component of the PIA implementation quadrilemma, especially in respect of the commercialization framework of the national petroleum company, on revenue decline for each of the constituent states of the federation, divestment and acquisition of assets, and resource depletion, must be of concern to all. Is there really a framework? One would have thought that such framework should have been independently developed and subject to public scrutiny to be effectual and less discordant.
Finally, the implementation of the mandated ethical business culture in PIA 2022, which is anchored on transparency, accountability, and good governance provides a nippy way to eliminate the undue politicization of appointments to key industry governance institutions, regulatory agencies, and related commercial subsidiaries under government control for the good of the petroleum sector. In addition, the resolution of the ethic dimensions of the petroleum sector quadrilemma offers a pathway to end the obvious and prevailing misappropriation of the guaranteed constitutional and statutory funding for the three levels of the Federation from petroleum sector revenue stream of the petroleum resources development in Nigeria, at least for the time being.
OMOWUMI O. ILEDARE, PhD, DFNAEE, SFUASEE, SPEiARD is a GNPC Professor & Chair in Petroleum Economics & Management, UCC Institute for Oil and Gas Studies, Cape Coast, Ghana.