THE NIGERIAN ECONOMY VS HER NATURAL RESOURCES
Nigeria’s economy remains heavily dependent on its crude reserves, with oil and gas still accounting for 80 per cent of the county’s fiscal revenue and 95 per cent of its export receipts. The drop in global benchmark oil prices over the last few months has therefore seriously impacted government revenues, with the naira losing over a quarter of its value against major foreign currencies in the last few months. This price drop resulted in a significant slowdown in oil transactions and in some cases even put a stop to them. The World Bank recently revised its prediction for the country’s economic growth in 2015 down from 6.3 per cent to 5.5 per cent.
Despite this, the energy industry continues to provide a high level of activity for lawyers, with the second phase of the government’s ambitious power privatisation programme now resulting in international oil companies divesting their interests in Nigerian oil reserves. Total recently completed the divestment of its stake in onshore Oil Mining Lease (OML) 29 to Aiteo Eastern E&P, a Nigerian company, for US$569 million. Since 2010, Total has divested its interests in 11 onshore blocks to Nigerian companies, in line with the government’s aim of developing Nigerian companies in the sector. However, there is a sense of “musical chairs” regarding these long-standing assets, with few new ones coming to the fore.
The Petroleum Industry Bill has been hovering over the oil sector since 2008, and the new government has made a clear pledge to pass the Bill swiftly. It is likely to significantly impact the work of lawyers in the natural resources sector; the Bill aims to restructure the regulatory and commercial institutions in the petroleum industry, change the fiscal dynamics and reform the operational mechanisms of the upstream, downstream and natural gas industries. Among the most extensive legislative changes will be the introduction of production-sharing agreements – private agreements between international oil companies and Nigeria’s National Petroleum Corporation (NNPC) – which will vest a licence or exclusive authorisation in the NNPC to explore, exploit and produce hydrocarbons. However, the Bill is beset with controversies and its slow generation has caused potential investment companies to hesitate, unsure about both how and when it will affect them.
The increasing privatisation of the oil industry is a particularly positive step for Nigeria in the wake of the recent oil crisis, which gathered media attention worldwide. Wholesalers’ refusal to distribute fuel due to a row with the government over the difference between the subsidised pump price and the international market price had a serious impact across the country. The majority of Nigerian businesses and homes rely on diesel-powered generators due to poor electricity infrastructure, and the shortage particularly affected the country’s mobile phone companies, and banking and aviation sectors. The long-term effects of the crisis are still to be seen; however, the ability of one industry to cause a serious rate of standstill across multiple sectors, forcing the government into a US$1 billion payout, has the potential to seriously undermine the attractiveness of investment in Nigeria. Increased privatisation will offer Nigerian lawyers wider opportunities for tailoring their expertise to multiple oil companies.
In 2014 the Financial Times reported a US$750 million project financing agreement towards the construction of an independent power plant, hailed as the first of its kind and a sign of things to come in Nigeria’s power sector. As a result, activity in the project finance market has been growing and is predicted to continue for the coming years.