How FG plans to restructure oil JVs


November 9, 2017 | 2:15 am
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Nigeria’s plan to fund next year’s budget from restructuring the nation’s shareholdings in joint venture (JV) companies and sale of non-oil assets is a game changer for the oil and gas sector, analysts say.
A top source in government disclosed to BusinessDay that in the JV restructuring plan, the Federal Government is looking to replicate the successful NLNG model where government’s stake is capped below 50 percent across the oil producing joint ventures.
By this arrangement, the joint ventures will run as commercial operations with the ability to raise their own funding, borrow and finance projects without recourse to the country’s budget.
Increased efficiency from these operations would raise revenue and stem rampant borrowings. Nigeria’s national debt has risen to over N19 trillion, with nearly N2 trillion budgeted for debt service in 2018 alone.
In 2018, the Federal Government projects oil revenues of N2.442 trillion, along with N710 billion which would be proceeds from restructuring of government’s equity in Joint Ventures and N306 billion from sale of non-oil assets which together is projected to raise over N1 trillion next year.
Government is said to be looking to achieve the reforms of restructuring JVs and selling non-oil assets simultaneously.
Recall last year, Atedo Peterside, banker and entrepreneur urged the government to form separate Incorporated JVs with the International Oil Companies to sell down its stake from the 55-60 percent that it presently holds to no more than 49 percent in each of the IJVs. Peterside said he favoured a sell down to 40 percent by releasing a further 9 percent to the investing public.
Sources tell Businessday that something along the lines of the Peterside suggestion is the model the Government plans to use for its restructuring of its JVs. A key challenge incorporating the existing JVs between government and the oil majors is due to concerns about abuse of control.
“What happens when FGN dissolves the Board and fails to appoint new directors, thereby leaving the IJV short of a quorum? NLNG works because FGN is not in control there,” according to Peterside.
Dolapo Oni, head of energy research at EcoBank agrees that it is possible for Government to sell down the nation’s JV holding from 60 percent to probably 40 percent which would be similar to 49 percent of the nation’s equity in NLNG. Oni said it may not affect all the JVs.
“The shareholdings in the JVs are likely going to be sold to private investors (companies)” said Oni.
Analysts are optimistic about the model because investors who attain 51 percent of the incorporated joint venture can do without NNPC’s cavalier attitude towards meeting its obligations to its partners.
For this to be successful, “Much will depend on the manner in which it is executed, they have to be done in very transparent manner and in line with established laws,” Taiwo Oyedele, PwC Nigeria’s head of tax practice told BusinessDay by phone.
Through this model, the Federal Government would not need to settle cash calls that have become increasingly burdensome on the annual budget because the IJVs will be able to borrow internationally to finance their investment programmes.
The impact on the economy could be enormous if the IJVs are listed on the Nigerian stock exchange by placing the balance of the 9 percent shareholding in each of the IJVs with the investing public.
Peterside said this will provide added public scrutiny (possibly better than what the Federal Government alone can provide through board representation). He also called for the sale of the refineries which NNPC has never been able to run well.
NNPC’s operations report for August, indicate that Nigeria’s three refineries produced only 46m litres of crude oil which would not meet two day sufficiency.
Analysts say restructuring these joint ventures will be a first step in real reforms in the oil and gas sector. Unlike other producers, Nigeria has been slow to reform its oil sector.
Crude oil exports accounted for 78 percent of international trade at the value of N2.43 trillion in the second quarter of 2017 while non-oil exports was N165 billion according to data from the National Bureau of Statistics, despite economic diversification being the policy plank of government.
Five months after the Senate passed the governance aspect of the petroleum industry bill (PIB), after over a decade, the House of Representatives is yet to pass the concurrent legislation.
“We are still working on the PIB and at the right time, we shall consider it and pass it,” said Akinlaja chairman house committee on Petroleum (Downstream) at the OTL Expo held in Lagos on October 23.
Investors are calling for a fiscal framework that incentivises investments in the oil sector but the national fiscal policy drafted by the Ministry of Petroleum Resources which consolidates royalties is still awaiting action by the Federal Executive Council nearly two months after it has been submitted for approval.
On the contrary, Saudi Arabia, which produces over 8million barrels per day more than Nigeria is planning to build a $500 billion business and industrial zone that links with Jordan and Egypt, to free the kingdom from dependence on oil exports.
In a plan announced recently, the oil rich country will build a 26,500 square km (10,230 square mile) zone, known as NEOM, which will focus on industries including energy and water, biotechnology, food, advanced manufacturing and entertainment, according to Saudi Crown Prince Mohammed bin Salman.
Saudi Arabia is reacting proactively to the trends in the oil sector. China is also making deliberate efforts to move away from internal combustion engine and several European countries have placed bans for fossil fuel cars in less than two decades.
Analysts say Nigeria should be moving fast to reform its oil sector of which a successful restructuring of its JV oil companies is would be a major achievement and first step.





November 9, 2017 | 2:15 am
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