The Minister of State for Petroleum Resources, Chief Timipre Sylva, in this interview speaks on sundry issues affecting the oil and gas sector in Nigeria, including the extent he has achieved his eight-point agenda in the last 10 months of being in charge of the ministry. Joseph Adams was there to presents the excerpts.
How much has COVID-19 impacted the oil and gas industry in the last few months?
There is only one thing everybody is talking about right now – the Covid-19. The pandemic is very devastating, but for us in the industry, we are more concerned about the economic devastation of Covid-19 although we also lend a hand medically. Our main purview is the economic effect of Covid-19. But I don’t like to discuss Covid-19 because it’s too depressing. It has brought the world economy to its knees and the Nigerian economy is lying flat on its stomach, but we will prevail. On inauguration, in August 2019, our ministry was given eight mandate areas.
They included to curb crude oil theft and product smuggling, completion of the gas flare commercialisation programme, increasing crude oil production to three million barrels per day, reducing cost of crude oil production by five per cent, passage of the Petroleum Industry Bill, promotion of inland basin and deep water exploration, collaborating with private sector to increase domestic refining, creating jobs and opportunities. On the first mandate, which is to curb crude oil theft, a lot has been done. We launched ‘Project White,’ which successfully brought down our daily consumption numbers from over 60 million to about 52 million per day, a very significant reduction indeed. DPR launched the crude oil lifting and tracking system (cot)which tracks all crude oil being exported from Nigeria.
Today, losses are not from the terminals anymore. All the crude oil theft is before the crude oil arrives at the terminals. That is from the pipeline system, through the mangroves and the forest, that’s where the losses are being recorded. So, the 60,000 to 100,000 barrels that we lose sometimes is usually from the pipelines system. We confirmed this when we give barging permits to companies to barge crude instead of passing through pipelines, we didn’t record any losses. But unfortunately, it’s much more expensive and has its own problems with too many layers involved in barging which is not something that is sustainable. But we were able to eliminate crude theft to almost zero. On top of all these, on the 19th of March, we completely deregulated the product supply system, so we took out subsidy even on PMS. So at this point, I see some kind of paradox because we started by trying to stop product smuggling, but with the removal of subsidy, I see us getting to a point where we will be encouraging the development of markets outside our borders because now, NNPC is no longer bearing the burden. On mandate one we have done very well.
How successfully have you carried out your mandate concerning the other agenda set when you were announced minister last year?
Another on is the completion of the gas flare commercialisation programme which is progressing very steadily and very encouragingly. A bidders’ conference was held and 200 companies have been pre-qualified to participate in the commercial bid. The response is very encouraging so far. We have released 45 sites and these companies are expected to visit these sites for assessment. Unfortunately, with Covid-19, the site visit is not progressing because of the lockdown. But as soon as we ease the lockdown, this process will rev up very fast. Some early birds were supposed to take final investment decision in June, but because of covid-19, they have not been able to travel to Nigeria.
Between now and June, if everything relaxes, they might be able to come and we will see the take-off of some FIDs on the gas commercialisation programme. But if we are talking about gas, by far the flagship in this sector is the train 7 of the Nigeria LNG. Shareholders have released the EPC and the Final Investment Decision has now been taken and train 7 has taken off completely which is something we should be proud of. Today, we were on the programme with the GMD and some international groups, and they said that train 7 might be the last FID to be taken in a long time in an LNG project. So, we have done very well here.
On gas development, I will not close without talking about the CNG and LPG penetration programme. What we are trying do is to get our people to use it more. We have one of the lowest penetration in the whole of Africa. Some of you will be surprised to know that Nigeria has one of the lowest in Africa, in fact Niger Republic has a higher LPG penetration than Nigeria.
In Nigeria LPG is used mostly in the cities with gas usage almost absent in the rural areas and villages. What we are trying to do is to encourage penetration so that villages and rural areas will begin to use gas and that will safeguard our forest resources and our environment.
How are you going to achieve this?
We are going to achieve this by creating a lot of jobs. One of the things we want to do is to make access cheaper. The reason penetration is low is because the initial capital outlay to using gas is quite high to the ordinary man. You have to invest to buy a gas cylinder which is a couple of thousand aira. And when gas finishes, you refill a whole bottle. And if you don’t have enough money for a full bottle refilled, you are in trouble.
So, we are looking at how people can have access to gas without necessarily investing all that money upfront. We have created micro distribution centres around the country so that people can pay a little token to actually rent the gas bottles, so instead of paying all that money, you pay a token for rent. And we have introduced the fractional filing system. That means if your gas finishes today and you do not have the money to buy a full bottle, you can buy half or even a quarter so that gas will start competing with other cooking fuels because today, the advantage that kerosene has over gas is that if you don’t have the money for a litre, you buy a bottle. If you don’t have money for a full bottle of kerosene, you can buy half.
So, people afford it more. When we roll out this programme, gas will become even more affordable and we believe that a lot more people will enjoy cooking with gas since it’s more efficient fuel and it cooks better. We are also investing in the manufacturing of some of the components. The NCDMB has agreed to fund the training of some youths in Nigeria. We get them across the country on how to produce the gas stoves, that’s what takes the burners, including the sitting for the burners. In the first instance we are training 5,000 youths , so you can imagine the number of jobs we can create. The youths will be given starter packs from the foundries. They will set up small fabrication businesses. So, people can buy or rent their bottles. Gas will become much cheaper , so we can compete with some of the African countries who have no business ranking higher than Nigeria.
You have spoken about Compressed Natural Gas (CNG) project which your team is also pursuing. How will it work?
The CNG (Compressed Natural Gas) is another thing we want to encourage. Today, most vehicles use PMS and if you go to some countries, a lot of people have moved away from PMS because it is too expensive and in some cases, some countries are discouraging it because it’s not a very efficient fuel. Unfortunately, we have abundance of gas in Nigeria but have not explored CNG in Nigeria. So, what we want to do is to introduce CNG in the market. So that if PMS is too expensive, you convert your car to dual fuel and the conversion cost about N100,000 maximum. So, they can run either on CNG or PMS.
So, you can drive to a station and either buy CNG or fuel. Due to the removal of subsidy, if petrol is too expensive, you have an alternative. If you still want to drive on PMS that would be your decision. We are also doing very well with the gas commercialisation programme. With the LNG a lot of flares are taken down, with LPG and CNG penetration, more flares will be taken down and with gas flare commercialisation programme, by the time we finish, there will be no flares again and this can happen in the next few years. Our third mandate is to increase crude oil production to three million barrels per day. Apart from the usual OPEC constraints, Covid-19 has not done us very well because it wiped out completely demand for oil, so the prices came down very badly. So, the only way OPEC could react was to agree on very unprecedented cuts which has affected the necessity to ramp up production.
But nevertheless, we have our eyes on the future because Covid-19 will not be here forever because in many countries of the world, the curve is flattening, in some countries, it’s already coming down, so we are planning for the future. We have our eyes fixed, for example on the Bonga South West project which will add significantly to our country’s production and embarking on the marginal fields programme which will add to production. We are doing very well on this count. We are pursuing the PIB, then we will have a major bid round as expected which will bring some major production nationally.
The cost of production per barrel of crude is still a big challenge in the country. How are you handling this?
Our mandate four is reduction of crude oil production cost. This is a big problem as you all know because it is unsustainable. You have a situation where the average cost per barrel is around $30. Covid-19 has taught us that we cannot continue like this. And the NNPC is doing very well in this regard and looking deeper into the budget of operating companies. Before now, NAPIMS had largely abdicated its responsibility of auditing the cost of production with Joint Venture Companies. They basically became a contracting agency. But u der the leadership of the GMD, that is changing, because it now living more to its responsibility. Contracting circles was a problem, which led to higher cost per barrel, but the regulatory agencies are living up to their billings by shortening approvals and also shortening contracting circles as a result to bring down cost of projects and will soon see a reduction in the cost per barrel. NCDMB, DPR NNPC are involved very largely on this mandate.
We have heard a lot about the Petroleum Industry (PIB). How far have you gone with the preparation?
Our mandate number five is the passage of the PIB and on that, I am happy to tell you that we are almost ready. The general structure of the bill is ready. I will not want to discuss details of the bill now because what remains is for this bill to be discussed with the minister, Mr President and presented to the Federal Executive Council (FEC). I don’t want to discuss details because it is still work in progress because things can still change after the discussion with the president and FEC. So, it is not right to start discussing details of the PIB. But I will talk about the structure. It has 294 sections and is generally in two parts, the Petroleum Industry Bill and the Petroleum Industry Fiscal Bill. The PIB is in four broad parts, the part dealing with governance and the other dealing with administration , then another part dealing with host communities development and the fourth dealing with interpretations. The PIFB deals with the fiscal framework and I must tell you that we believe that when this bill is passed, Nigeria will be one of the most attractive investment destinations in the oil industry. That’s the general overview.
How far with the deregulation programme? Are you saying that the downstream sector has been fully deregulated?
Deregulation was approved on 19 March this year. What we announced was already deregulation. But as we all know, PMS and petroleum products are very strategic commodities, so you cannot allow the price of this commodity to be determined wholly by the marketers. It is government responsibility to protect consumers because anywhere in the world if you want to buy anything, there is the recommended retail price. The consumer protection agency will fix a price so that no one will profiteer inordinately from the people. If we allow marketers to go ahead and be fixing prices as they like, it will not be good for our people because this commodity is very central to the lives of our people. That’s why you have a regulator for that sector that will determine the price bearing in mind what it has cost the marketers to land the product, allowing for some profit for them, making sure the consumer is also protected. It is done everywhere in the world.
If the PPPRA does not work with the marketers, they will profiteer from the people. Look at one problem, we have been having with the marketers, for example, today we have brought down the price of PMS because the landing cost came down. The landing cost also of AGO, diesel should have also come down, but the marketers have refused to bring the price down. We have been having a running battle with them to bring their prices down because their landing cost has also reduced. It is government’s role to protect the consumer. That is the role of the PPPRA. The PPPRA is to protect the consumer. We said they should not announce because it’s not necessarily, after all FAAN determines prices of airline tickets, but they don’t announce it every time.
They just discuss with operators and agree and increase whatever the ticket price is. The Central Bank of Nigeria (CBN) regulates interest rate for the banks. The PPPRA will work with marketers to ensure best pricing for consumers. But as I said, government is also mindful of the fact that prices can go up and will go up. That’s why we are in the race to introduce an alternative fuel for Nigerians, CNG which is a cheaper fuel. If people decide to keep running on PMS, others will migrate to CNG. It has been completely deregulated.
Today is not when we announced it. I have announced it, the GMD has also announced it, but somehow, the issue of price modulation is what is confusing many. What we meant by that is that since it is deregulated, the price will not stationary, because if you station the price anywhere, it becomes regulated all over.
So, if the landing price is cheaper, you get cheaper PMS, if the price goes up, you will see that on the pump. At this price, it is cheaper and at that price you are enjoying that. But there are a few problems I see.
We have reduced pump price, at least lower than what it used to be, but unfortunately, we have not seen any movement in the market place. Garri is still same price or moving up, but if we had increased pump price by one naira, garri will move up by N100. So, ladies and gentlemen, take this into consideration. When the prices begin to up, let the market place not also react inordinately.
There is ongoing talks about the Oronsaye report which focuses on the duplicity of functions by some agencies. Would you support the merger of the DPR, PPPRA and PEF on one hand and PTDF and NCDMB on the other?
The Oronsaye report is a very controversial issue. I don’t want to comment on it. Of course, he recommended the merger of the DPR, PEF NCDMB, PTDF. But you know there are legal issues as well.
These are all bodies and agencies created by law. And if you want to merge, it has to go through that same process, the amendment of laws and so on. It’s not something that can be done by fiat. It’s in progress. A lot of people are discussing it. It’s being discussed at the highest level. But it’s not something that can happen tomorrow, that I can tell you.
The PIB was welcome by Nigerians, what is the position of the bill now?
The only finalising now, is taking it to the President and taking it to FEC. Because when we take it to National Assembly, it becomes a public document and then we can begin to discuss the details of what is contained in the PIB. The PIB is a major mandate given to us to pass, and it is very important to us because I believe as a country, we have lost a lot because of the non-passage of this bill. So, we are doing everything, redoubling efforts. The GMD chaired a committee that midwifed the PIB to this level. Now we are looking at it. It’s all finished. It is now to be presented to the President and then to FEC and then we will have a clear framework, reliable one that investors can bank on. Our hope is that with the passage of the PIB, Nigeria will become one of the most attractive destinations.