How can the passage of the PIGB change the Nigerian oil and gas industry?
As long as it does not include an independent regulator with full powers over licensing, then it will not be very different from what we have now. The name can change and the entity can change, but at the end of the day you will still have partisan political appointees rather than industry experts acting as regulators.
I see two fundamental problems with the entire Petroleum Industry Bill agenda. One is the issue of power over the most politically sensitive matters, and the second is tax. As long as the oil producing states want a bigger share of the pie, the producers – both Nigerian and foreign – as well as the states that are not oil producing are going to oppose that.
We had an instructive experience with the telecommunications industry. It has grown to be so large and lucrative partly because the politicians did not know there was so much money in it at the beginning. The partisan politicians left the sector alone and now it is making billions every year. It is now too late, the horse has escaped from the stable, and the politicians are not happy about it.
Where in the oil and gas value chain do you see more growth happening?
I have been seeing a renewed interest in the downstream sector. Simply by putting in new technology and being more efficient, they can be far more profitable than they are.
The government controls the prices of most petroleum products, which puts a limit on revenues, but you can improve your efficiencies in inventory control, for example, or avoid real estate cost risks by acquiring a company that already owns the land or has a lease. An operator that does not have petrol stations can concentrate on aviation or diesel, where these are more reflective of the market, so as to benefit from better margins.
How effective have local content policies been?
Many Nigerian oil service companies have benefited from local content policies and are doing reasonably well. Interestingly, this has led to a fair amount of M&A activity. There is perhaps not as much local content as people would like on the marine side of things, but I don’t know if this is a question of the government not giving it a harder push. The work is necessary and the IOCs require someone to do it.
In order to improve local content, you need more clarity about the laws. An example is the litigation on whether an oil rig is a vessel or not under cabotage regulations. In principle, something as basic as that should not be subject to significant doubt.
The other issue, under the Local Content Act itself, is the 51% rule that has always been a big challenge for me as a lawyer. The company has to be 51% Nigerian owned. It is not crystal clear whether that refers to the nominal ownership or the beneficial ownership. Some people believe it is purely nominal, but that goes against the spirit of the legislation. There is still a lack of clarity about that.
It also raises the question of how to know what 51% of the ownership is at any point in time if the company is listed on a stock exchange such that the ownership of shares keeps changing. This is a challenge for a company that wants to grow by getting listed.