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Economy | Oil & Gas

Analysts Note: Presidential Candidates and Nigeria’s Oil Sector

Feb 25, 2023   •   by Tosin Ige   •   Source: Proshare   •   eye-icon 448 views

The challenges in the oil industry are a critical talking point for presidential candidates in today’s general election. Analysts believe this rests on two footstools. First, the link between the oil and gas industry and economic growth. Second, the scale and impact of Nigeria’s oil revenue and output losses which have caused the sector to stall behind other sectors’ contribution to GDP and federation revenue. 

 

The four leading presidential candidates, Peter Obi of the Labour Party, Rabiu Kwankwaso of the New Nigeria Peoples Party (NNPP), Atiku Abubakar of the People’s Democratic Party (PDP), and Bola Tinubu of the All-Progressives Congress (APC), have made bold promises in their manifestos ahead of today’s presidential and National Assembly elections. 

 

The candidates have promised to address many issues, including Nigeria's deteriorating national security, health, education, and economy, and most fundamentally, restoring the country’s ailing oil industry. 

 

Despite the 2021 presidential assent to the Petroleum Industry Act (PIA), the industry has been plagued by several challenges. From revenue-sapping oil theft to underutilization of assets, aged infrastructure, low new investment, regulatory uncertainty, inefficient pricing, and environmental damages. The Presidential candidates have offered different but closely related models for revamping the oil industry to make it more open, accountable, and sustainable. 

 

Analysts note that there are four priority areas for presidential candidates in the oil and gas industry: PIA implementation, increasing oil production, subsidy removal/petrol deregulation, and domestic petroleum products supply (see table 1 below). 

 

Table 1: 

 

Bola Tinubu, the APC's presidential candidate, appears to have the most comprehensive plan for reforming the oil and gas sector. Analysts' expectations are met by his plan to implement the PIA through agreement and dialogue with stakeholders. With the ongoing large-scale oil theft, his output level forecasts may be unduly optimistic, but his use of contemporary technology and special forces would support his strategy. The APC proposal for domestic refining and full deregulation (subsidy removal) of the downstream oil industry is in line with analysts' predictions of a free market system.

 

As with other economic sectors, a total revamp of the industry is more appealing to the Labour Party's presidential candidate. He aims to establish a culture of properly implementing government policies and objectives and emphasis the environmental sustainability of oil exploration and development without providing any specifics on PIA and oil production revamp. Although it is not unusual to adopt this approach, analysts doubt the political will to push it through within the context of our current political landscape. The Labour Party candidate wants to lessen petrol importation and subsidy by encouraging domestic and international businesses to invest in small and medium-sized boutique refineries. According to analysts, his economic philosophy ought to appeal to foreign investors.

 

The presidential candidate of the New Nigeria Peoples Party plans to advance the current anti-oil theft measures to boost the nation's oil production by apprehending thieves, modernizing the pipelines, and collaborating with host communities while also launching a thorough implementation of the PIA. Analysts say the strategy has few chances of success because the criminal activity of oil theft has expanded into a sizable cartel with supporting security measures. Furthermore, the NNPP's plans to evaluate the subsidy and upgrade the refineries are almost akin to calling for a new Nigeria National Conference. It is essentially reimagining what has already been created, with the risk of it not being adopted.

 

The People's Democratic Party's presidential candidate appears (arguably) to support the implementation of the PIA and intends to adopt contemporary technologies to combat oil theft to improve oil output, although not being particularly adamant about the PIA. Yet his suggestion that the nation would expand oil production to 5 million barrels per day by 2030 is unduly optimistic. Analysts worry that given his pedigree, his intention to embrace a liberalized approach to the downstream oil business, including a wider role for the private sector in local refining, may result in the sales of national assets to his allies.

 

What Lies Ahead

Analysts believe the PIA 2021 is an audacious attempt to overhaul the petroleum sector in Nigeria and its full implementation would arguably improve the fiscal, governance, and regulatory framework of the industry, a recipe for attracting investment to the sector. However, due to greater leakages along the crude oil transit routes, the Act's implementation alone would not necessarily guarantee an increase in oil production.

 

The PIA implementation must be accompanied by a multifaceted strategy to prevent oil theft, vandalism, and illegal oil bunkering. Pricing and operational efficiency in the downstream sector would be influenced by the complete deregulation of the sector, with government intervention restricted to market regulation (not price regulation) and supervision. Given the history of public sector inefficiency, the government's strict control over national refineries might not be tenable. While a private sector model may be appealing, listing the national refineries in the equity market provides higher benefits, including price discovery, increased liquidity, increased disclosure, greater visibility and credibility, and access to finance.

 

A few things are certain with the incoming administration. First, the industry will probably experience a delay in the PIA's implementation regardless of the outcome of the presidential election as the new administration may require time to settle in and understand the state of play. Second, oil production would continue to be disappointing in the short term as the candidate's proposals would take longer to materialise into increased oil output. Third, the elected president is likely to push through with the subsidy removal given the widespread expectation that it will be eliminated by the end of June 2023. Lastly, the expected operations of the National and Dangote refineries by midyear would provide a level playing field for the new administration to expand local refining and supply of petroleum products.

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