PIB Clause: Financial experts kick against monopolistic capitalism, If Dangote Refinery comes on board


Financial experts are clamoring against Dangote refinery not to be allowed to become a monopoly in the manner of the state-run NNPC, if the 65 barrel per day refinery comes on board.

A look at the controversial clause in Nigeria’s long awaited Petroleum Industry Bill, (PIB), that’s still being debated in Nigeria’s parliament.

Barely two weeks ago, the conglomerate proposed a provision in the Petroleum Industry Bill (PIB) seeking to ban the importation of oil by companies without refining licences, which according to the company, will help spur investments in Nigeria’s oil and gas industry.

Dangote also recommended that the volume of fuel imported should be distributed according to what each refinery produces.

Aliyu Suleiman, a chief strategist at Dangote, suggested the anti-competition approach during a visit by members of the National Assembly’s joint committee on PIB to the company’s project site.

The group proposed that only companies with licences to refine crude oil should import fuel whenever demand surpass available fuel or when a refinery is undergoing maintenance.

The recommendation came at the time Dangote Group was on the verge of completing a 650,000 barrels-per-day refinery in Lagos.

This is also evident in the reopening of land borders to Dangote Group in November last year, when it was allowed to transport its products to neighbouring West African countries.

Nigeria had shut its land borders in August to give room for the consumption of home-grown products, but the access granted to the company was said to be based on an authorisation issued by the President Muhammadu Buhari-led administration.

A businessman and founder of Stanbic IBTC, Atedo Peterside, faulted the move.

He asserted that it portrayed Nigeria’s economy as favouring only the well-connected.

“Allowing legitimate exporters and importers to move their goods across the border should be a no-brainer,” Mr. Peterside said in a tweet.

“Why refuse everybody else and allow only one company (Dangote)?”

He added, “This is why some of us argue that the Nigerian economy is rigged in favour of a handful of well-connected persons.”

A spokesman for Dangote Group Tony Chiejina declined repeated requests for a reaction to the damning allegations, insisting instead that our reporter should visit him at the company’s headquarters in Lagos before comments could be provided.

Nigeria’s Petroleum Predicament

Nigeria sits on the largest oil and gas reserve in Sub-Saharan Africa, with crude oil accounting for 90% of its export earnings. Due to the NNPC’s enormous revenues––which can represent more than five times Nigeria’s health expenditure, around seven times its foreign aid receipts, and more than fifteen times the value of country’s sovereign wealth fund––the government’s major budgetary decisions tend toward the oil sector as opposed to renewables or associated public goods.

Yet in the wake of the oil, climate, and COVID-19 crises as well as the Paris Agreement on Climate Change and global commitments to transition to low-carbon energy, the oil industry currently stands as one of the worst-performing sectors on the S&P 500 index. Forecasts are pessimistic about a return to previous price and demand levels.

Nigeria’s reliance on oil and gas therefore puts the country in a vulnerable and increasingly unsustainable position, particularly in the face of heightened economic challenges due to COVID-19. Given the downturn in oil and Nigeria’s uncompetitive production costs, above-average carbon intensity of oil production, and inefficient refineries, the country cannot rely on oil revenues to finance immediate stimulus packages, nor should it bank on them for the future. The fact that Nigeria’s public and private debt is indexed on oil prices further threatens Nigeria’s already downgraded sovereign debt rating and puts the country in a compromised position to borrow money to remediate pressing economic, environmental, and health crises.

Alternative Paths for a Better Way Forward

National oil companies (NOCs) must embrace the low-carbon transition to equip themselves for the future. With demand for oil on the decline, NOCs are in a unique position to help accelerate the realization of the needed transition, as we point out in our report.

Five NOCs in particular––Algeria’s Sonatrach, Brazil’s Petrobras, Malaysia’s Petronas, Norway’s Equinor, and Saudi Arabia’s Saudi Aramco––have seized the opportunity to adapt for a better way forward. Each of them adopts a unique approach, including tactics such as putting the transition at the center of their business strategies; undergoing corporate governance reforms; and supporting their national government’s commitment to the Paris Agreement via reducing carbon emissions and increasing investment and research in renewables, green hydrogen, carbon capture, storage technology, and utilization.

Analysis of the Current Draft of the PIB: Is Nigeria Seizing this Transition Opportunity?

Nigeria has initiated steps to diversify away from oil, and the PIB calls for governance reforms that position the government to better participate in the energy transition. However, the bill does not adequately address climate change, the Paris Agreement, or the energy transition. Further action is needed for Nigeria to capitalize on the transition as a business and sustainable development opportunity.

Using available policy guidance, and looking toward the other NOCs that are leading the path forward, Nigeria too can adapt to turn the current crises into an opportunity. But this requires critical reforms, and the draft PIB has far to go to adequately prepare Nigeria for a successful future.

The PIB Proposes Some Much-Needed Reform on Governance

Nigeria’s petroleum law is long overdue for reform, and certain propositions in the PIB come as much welcomed improvements to the sector. The bill aims to improve the efficiency and strengthen the commercial roles of the state-owned NNPC by transitioning it into a limited liability company, NNPC Limited. According to the bill, NNPC Limited would be constituted within six months of enactment, opening it up to private capital, and making for a more transparent system given the requirement to publish annual reports and audited accounts.

The bill also seeks to limit the power of the Minister of Petroleum Resources––a role currently held by Nigeria’s President––by revoking the Minister’s power to grant, amend, revoke or renew licenses, and removing the Minister’s seat on the board of NNPC Limited. Two proposed regulators, the Nigerian Upstream Regulatory Commission (the ‘Commission’) and the Midstream and Downstream Petroleum Regulatory Authority (the ‘Authority’) would replace the multitude of regulating bodies (the DPR, Petroleum Inspectorate, the Petroleum Products Pricing Regulatory Agency, the Petroleum Equalisation Fund, among others) and must consult each other on new regulations or amendments. Such structural reforms create a clear separation between NNPC Limited’s operations as a commercial entity and the regulatory roles to be exercised by the regulatory authorities, allowing for more transparent oversight.