Page 8 - DMEA Week 01

DMEA COMMENTARY DMEA
NPDC’s troubles
Yet the news is not all good.
For one thing, NNPC and NPDC continue to
have financial problems. Past reports from Nige- ria Extractive Industries Transparency Initiative (NEITI) indicate that the latter has something of a mixed record. Specifically, they show that the NNPC subsidiary has a bad habit of neglect- ing its financial obligations. As Africa Oil+Gas Report noted in mid-December, NPDC is rou- tinely among the country’s biggest offenders with respect to the underpayment of royalties, profit taxes and other federal income streams.
NNPC has indicated that it hopes the amend- ments to the Deep Offshore and Inland Basin Production-Sharing Contract Act will serve as a new revenue stream. If it is correct, it may end the current year in a stronger position.
Short-term gain, long-term pain
Alternatively, it may be sacrificing its long-term ability to attract and retain investors for gains that are, at best, short-term in nature.
Several industry analysts have expressed concerns along these lines. One of them is Ed Hobey-Hamsher, a senior Africa analyst at Ver- isk Maplecroft who recently told Platts that the amendments to deepwater and inland produc- tion-sharing contracts (PSCs) were likely to raise eyebrows among NNPC’s foreign partners.
Many of these companies are working under PSCs that were signed in the 1990s that will expire soon, he said, and they may not seek to renew or expand now that the law has changed. “No one will want to be [the] last major holding a PSC, and a race to divest will depress prices,” he remarked.
He also argued that Nigeria’s current gov- ernment was not equipped to ride out such a development. President Muhammadu Buhari is determined to follow a state-led economic model, and he sees continued control over oil and gas projects as a means of preserving his own power, he told Platts.
High stakes
Under these circumstances, Hobey-Hamsher said, Nigeria does not have all the resources it will need to address the oil and gas sector’s prob- lems. It is likely to struggle to collect the revenues needed to keep production levels up and invest in high-priority projects, he said.
“The real threat is ageing infrastructure,” the analyst said. “Dilapidated pipelines would exacerbate the production disruption caused by even a minor increase in theft or sabotage by up to 300,000-400,000 barrels per day.”
Other analysts claimed that the problem was not just structural or logistical but also political. For example, Paul Sheldon, a geopolitical advisor at Platts Analytics, wrote recently that the Nige- rian authorities were not doing enough to ensure their ability to keep amnesty payments flowing into sections of the Niger River Delta where sep- aratist sentiment is strong. As a result, he said, the delta area could easily descend into conflict this year.
The stakes are high. Without concerted action on all these fronts, Nigeria is unlikely to achieve its aim of bringing oil production up to 3mn barrels per day (bpd) by 2023. Moreover, it may show that Sylva’s optimism is overstated, especially with respect to securing the rapid pas- sage of the PIGB. ™
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w w w. N E W S B A S E . c o m Week 01 11•January•2020