Expert Opinion

Nigeria LNG, ‘Sell or No-Sale?’

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Nigeria’s economy is in decline following the downward trend in crude oil prices beginning in July 2014. By the end of Q2, 2016 the country slipped into recession, following consecutive negative GDP growth in the first and second quarters of the year.

Low oil prices, exacerbated by militant attacks on oil and gas facilities in Nigeria’s oil-producing Niger Delta, a lack of competent fiscal measures and adverse macroeconomic policies amongst other factors have combined to make a bad case worse.

Nigerians unanimously agree that the country is faced with the urgent task to mitigate a growing recession, and ultimately guide the economy back to growth; the strategy to achieve this is the subject of diverse opinions.

The Nigerian Economic Council (NEC) recently recommended the sale of state-owned assets to raise much-needed revenues; the Senate President and Nigeria’s most successful businessman, have both supported this view. However, most wholly state-owned assets have almost been run aground, making the literal interpretation of the proposal a reasonable one. But wholly state-owned assets, like the only three refineries in the country, a steel plant, amongst others, which the country would benefit from privatizing or even outright sale are not the assets in focus.

The state-owned assets proposed for sale are government owned interests in joint venture assets with Oil and Gas Companies and the Nigeria Liquefied Natural Gas (NLNG), which are the primary non-tax revenue generating assets for the country.

Should Nigerian Shares in Oil and Gas Assets be sold? ‘Yes and No.’

‘Yes, Sell’: The sale of several oil and gas assets would benefit the Nigerian economy in the mid-long term. All commercial assets in which the state has a controlling and operating interest should be scaled-down. These include assets held by the Nigerian Petroleum Development Company (NPDC), the exploration and production subsidiary of the Nigerian National Petroleum Corporation (NNPC). Competent and efficient operations of several of those assets would lead to an increase in production from the respective fields, which in turn would translate to more national revenues. Many of these fields are currently capped or under-producing.

National assets under the NNPC JV arrangements with the IOCs should also be scaled-down. The NNPC owns 55% of each JV with Oil and Gas companies holding the remaining 45% (there are slight variations).

With these assets, the NNPC reserves the right to become an operator, but a Joint Operating Agreement (JOA) is signed which sets the guidelines for running the operations of the field, with one of the partners designated the operator. All parties are required to share in the cost of operation. Unfortunately, the NNPC is rarely able to meet its funding obligations, and one wonders why in the first place anyone expected the NNPC to be able to do so. This arrangement has also created a loophole for massive graft and an inexplicable waste of government funds at the NNPC through Cash calls

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