An aerial view taken on February 5, 2008 120 kms off the coast of Nigeria, south of Lagos, shows the FPSO (Floating, Production, Storage and Offloading) Bonga unit. Far from the Niger Delta and its separatist militants, the 305-meter long ship pumps night and day 225,000 barrels of petrol a day and 150 million cubic feet of gas, which represents a quarter of the daily production of the Anglo-Dutch group Shell.
Authorities rushed to prevent one of Nigeria’s worst recent oil spills from reaching the West African nation’s shoreline on December 22, 2011 with production from a major Shell field also shut due to the leak. Shell, which said the leak has been stopped, has estimated that less than 40,000 barrels of crude have spilled into the sea and was deploying ships with dispersants to attack the slick. Planes were also being mobilised.
Nigeria’s state oil company plans to renegotiate its production-sharing agreements with oil majors as Africa’s top crude producer tries to push ahead with a clean-up of the sector that is the lifeblood of its economy.
“We intend to begin the process of the renegotiation of the PSCs to see what value chain and improvements we can have from these contracts”, Ibe Kachikwu, the new head of the Nigerian National Petroleum Corporation, said in a statement.
The NNPC said it would overhaul its contracts with companies such as Shell, Chevron, Eni and ExxonMobil “in the weeks and months ahead…to extract as much benefit as possible for Nigeria”, according to the emailed statement.
Nigeria, which gets 70 per cent of government revenues from oil, has been hit hard by the plunge in global oil prices and has recently spent billions trying to defend its currency, which the market believes needs to be devalued for the third time in less than a year.
Shortly after Mr Kachikwu was appointed by President Muhammadu Buhari last month, he announced the NNPC would be reviewing all its contracts with oil companies and would be aiming to boost revenues for the government in light of the oil price crash.
Tuesday’s remarks, however, seemed to suggest he intended to push to change the terms of the production sharing agreements the government has with majors.
“Some of the contracts were negotiated over 20 years ago and they have since been overtaken by new realities in the industry,’’ said Mr Kachikwu, speaking on Tuesday in France on a state visit with Mr Buhari.
Shell and Eni declined to comment on the remarks.
Mr Buhari took office in late May, riding a wave of optimism after he made history by defeating incumbent Goodluck Jonathan on a pledge to root out the rot in the Nigerian state.
Nigeria: The big oil fix
Flames flare from a locally made burner as a refiner walks through an illegal oil refinery site near River Nun in Nigeria’s oil state of Bayelsa on November 27, 2012.
Battling corruption and fuel shortages, the President must repair the state-owned group.
Perhaps the best example of state-sponsored industrial theft of Nigeria’s vast resources and potential is the NNPC. In revealing the corruption scandal under the previous administration, which led to his dismissal, former Central Bank Governor Lamido Sanusi estimated the NNPC was diverting more than $1bn a month from state coffers.
Nigeria does not have a good record for quick implementation of intended reforms. The Petroleum Industries Bill (PIB) meant to govern the sector, was stuck in Nigeria’s legislature for six years and not passed under the previous administration, costing the state billions in lost investment. It is not yet clear whether the bill draft will be scrapped and redrafted from scratch by the parliament elected in the spring.
Some experts wonder if it is realistic for the government to attempt to renegotiate terms now.
“Revisiting the PSC terms has been on the government’s to-do list for years, but it will be tough in this low-price context”, said Alexandra Gillies, director of governance programmes at the Natural Resource Governance Institute in New York.
The group released a report last month saying Nigeria needed to overhaul the way the NNPC sells 1m barrels per day “through highly problematic transactions”. But Ms Gillies said a bigger problem than the NNPC’s contracts with oil majors was the way the notoriously opaque institution was run — another problem Mr Buhari has said will be addressed under the leadership of the man he has appointed, previously an executive at Exxon.
“NNPC’s own performance and governance problems are surely a bigger drain on public revenues than the current PSC terms, and hopefully these renegotiation efforts won’t distract from tackling that more fundamental challenge.”
Maggie Fick in Lagos, Financial Times