Nigeria: Why PIA Implementation Will Reduce Revenues to States, Local Govts By 15% – Kachikwu

A former Minister of State, Petroleum Resources, Dr. Ibe Kachikwu, has urged Nigerians to prepare for the immediate impact of the implementation of the Petroleum Industry Act (PIA), disclosing that it will decrease revenue to states and local governments by 15 per cent in the short term.

Speaking on the topic “Energy Transitions, Revenue Challenges for the Nigerian Federation,” at the recently concluded NBA 2022 conference in Lagos, Kachikwu argued that many people are of the wrong notion that with the new law, there will be more revenue to the federation, noting that the contrary was the case.

“Their (states, local government) take will be reduced by 15 per cent. Many people think that once we have the PIA, you are going to increase income. No, it’s not going to happen. One, because the terms we negotiated for Production Sharing Contracts (PSCs) are slightly less than what it was.

“That was deliberate, because the essence was to encourage investment, but the net effect is that for a governor or local government chairman, looking at what monies are going to come to you, it’s actually going to get worse before it gets better,” he posited

The former Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), decried the increasing fall in almost all the growth indices in the oil industry in the country, stressing that slot still needed to be done.

“High volume onshore production is going down. When I left in 2016, we were at about 2.1 million barrels per day. Today, I think we are about 1.3 million barrels, that’s almost 50 per cent to 100 per cent decline. The costs which ought to be going down are massively going up, that’s not good.

“And then you look at the volume of revenues. Obviously, if your volumes are down and your costs are going up, them it is obvious that your revenues will go down.

“Investments are declining and this affects your survivability as an industry. But more importantly, it’s saying that investors are not happy with you. I would go further to say maybe they were not happy because of the previous law. Will the new law solve this? That’s the big question mark,” the oil industry expert stated.

He stated that out of the $75 billion worth of investment that was available for the sector in Africa, Nigeria got only about $10 billion of it, explaining that it shows that clearly investors are not finding the Nigerian environment good for business.

According to him, since all the indices are declining, the job numbers will also reduce drastically, noting that even in the midstream nothing much is happening, except the Dangote refinery gives Nigeria a reason to celebrate when it comes on stream next year.

In terms of pipeline vandalism, he noted that it had risen sharply, with over a 50 per cent upsurge in the menace over the last two to three years , including an increase in illegal refining.

As a minister, Kachikwu stated that he tried to convert the modular refineries owners into a cooperative, but noted that just about six of the facilities have so far succeeded.

Even the critical gas processing infrastructure, he said, has been declining rather than expanding, even as depot and gas accidents continue to rise.

“So everything that is negative is on the rise, everything that is positive is on the low,” he maintained.

In the downstream, he explained that there had been a growing incidences of truck accidents and massive smuggling of products while import based product market is in the increase amid a lot of contamination.

“Investment is not enough to grow your spend. We have gone from a basically $30 billion worth of investment environment to less than $12 billion. So that’s a picture of the investment that you’ve seen.

“Our crude oil production is zigzag , but at the end of the day, we are probably doing about 1.2 million barrels and that’s coming from 1.8 million barrels and an all time high of 2.2 million barrels,” he added.

He disclosed that more gas is rejected rather than being domestically consumed, which means that investors rather than producing gas, simply just use them as pressure points.

Kachikwu stated that while the associated gas was rising, non-associated gas was declining, stressing that the only good news now is the Nigerian LNG which has been doing well.

“We are a nation that is overspending our income to start with. So if you see the numbers, you see those deficits. If you are an individual that you have a business and you spend more than your business generates, that is a recipe for bankruptcy,” he argued.

He lamented that there has not been any remittances to the federation account this year, stressing that the headwinds being faced by the industry impacted by geopolitics, crude theft, energy transition and regulatory issues remain daunting.

On governance, he stated that a lot of progress has been made, explaining that the separation of policy power from commercial power remains remarkable.

But he stated that the minister ought to remain chairman the boards of the upstream and midstream agencies, so that he can influence policies rather than waiting for them to be made for him.

He also said that while the host community fund must be commended, the oil-producing areas must be engaged in oil exploration through the governors so they can protect the facilities.

He added that the governors won’t put their resources and other stakes in protecting the assets if they don’t feel a part of the process.

Furthermore, he called for full deregulation, including the removal of subsidies which he said is wiping off all the revenues in the sector.

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