Expected since 2008, the reform of the petroleum sector in Nigeria was finally adopted, Thursday, June 30, by Parliament. A “Historic moment” for the first black gold producer in Africa, which urgently needs to maximize its income. “The two chambers have approved the oil law”Senate spokesman Ola Awoniyi told AFP: “This is an important event for the National Assembly in place, after years of delay. “
Nigeria, a country of 210 million people, is Africa’s largest oil producer with 1.9 million barrels exported every day, but the sector has a reputation for being corrupt and unproductive, with dilapidated infrastructure afterwards. sixty years of operation. And it attracts little investment despite gigantic reserves.
This project, first submitted to the National Assembly in 2008, has been debated and rewritten several times, in particular because of disagreements on its terms between the government and the big oil companies operating in the country, but also between the executive. and previous assemblies. The President of the Assembly, Femi Gbajabiamila, welcomed this “Important victory” : “We must underline how important this day is. We have been waiting for this for almost twenty years ”, did he declare.
Community compensation
This law aims to provide a legal and fiscal framework for the Nigerian oil and gas industry. The changes are taking place around three main axes: a more regulated tax system, a better redistribution of wealth and the transformation of the Nigeria National Petroleum Corporation (NNPC), reputed to be the state slush fund, into a commercial company.
The two chambers of Parliament have yet to agree on certain points, in particular the share of redistribution to the communities living in the extraction zones. The initial text proposed the obligation for oil companies to pay 2.5% of their expenses in the operating area to supply development funds for the benefit of communities. A figure too low, according to them. The two chambers should agree on a percentage between 3 and 5%, according to Senator Ajibola Bashiru.
The adoption of this reform elicited mixed reactions. Bebe Okpabi, the traditional leader of the oil-producing communities of Ogoniland, Rivers State, greeted a ” good news “ for communities, “Finally recognized, appreciated and compensated for the petroleum resources present on their soil”. For Fegalo Nsuke, chairman of the Movement for the Survival of Ogoni People (Mosop) group, the bill does not meet his expectations: “We expected a percentage of 25% for the communities. I think we can do a lot more. “
Mature deposits
Nigeria, Africa’s largest economy thanks to its oil production, has been in difficulty since the start of the health crisis, after having struggled to recover from a first recession in 2016-2017. In April 2020, crude prices had fallen below $ 20; and they may have risen back to around $ 60 since, the future remains bleak for a country that derives more than half of its income and 90% of its income from oil exports. In addition, a large part of the Nigerian fields have reached maturity and are not being compensated by enough large projects.
The lack of income and therefore of foreign exchange has a strong impact on Nigeria’s economy, and in particular on inflation, while the country imports a very large number of its consumer goods. In one year, inflation has passed 18% and pushed an additional 7 million Nigerians into poverty.
It will be difficult to quickly measure the effects of this law, since it will leave the choice to the companies to decide whether their activities will be regulated according to the old or the new regulation, until the end of their license. However, it will put an end to the regulatory uncertainty which for years discouraged investment.
But according to experts, the security situation remains the biggest problem for investors. Armed groups, which dig holes in oil pipelines to steal production, causing ecological disasters, and which increase kidnappings for ransom on land and at sea, continue to thrive. This constant insecurity has a significant impact on the price of operations, and therefore on investment policies.