- Good morning distinguished Ladies and gentlemen. It gives me great pleasure to join esteemed industry colleagues to speak on the theme of Unlocking Investment for Africa’s Energy Future: Strategies for Sustainable Growth. I would like to thank NAPE and Energy Institute teams for organizing this session and providing a platform for collaboration and accountability to various stakeholders.
- The theme is very timely. Nigeria needs ever-increasing levels of energy investment to catalyze our economic development. Energy, in its many forms, is a vital path to higher paying jobs, to industrialization, to innovation, and to sustained prosperity, for Nigeria and for all of Africa.
- Over the last eighteen months since my appointment, our team in the Presidency, has worked closely with many of you in this room to deliver our mandate to support the President in designing and coordinating reforms across oil, gas and power, to achieve the vision of repositioning Nigeria as a top destination for investments on the continent and even globally.
- The objective is to attain sustained economic growth, that has a momentum of its own, that has the scale to liberate millions of Nigerians and Africans from poverty. To achieve this, we must explore and mine our abundant resources – first class minds, as well as first grade resources underground.
- Our overarching strategy for achieving the oil and gas vision outlined above is as follows:
a) A disciplined focus on producing oil and gas with the strongest economics and lowest emissions to the market as quickly as possible – the energy transition is accelerating!
b) Greater emphasis on shorter cycle projects and quick payback opportunities
c) Laser focus on capital efficiency, execution and value creation
d) A shift towards gas, for which demand is more resilient through the energy transition
- To implement this strategy, we took very specific and deliberate actions, taking into account the fact that we have two major classes of investors – the domestic independents, and the International Oil Companies (IOCs) – both of which are collectively critical to the success of our oil and gas industry.
- These actions have also very importantly sought to build on the foundation of the Petroleum Industry Act (PIA). The Act has done very well in improving the attractiveness of onshore and shallow water oil and associated gas production, enabling us to further build a new class of independents with technical and financial capacity that will enable their success even beyond Nigeria.
- However, for our longstanding partners and investors, the IOCs, it was clear that we needed to do more to attract their high-powered resilient capital and technical capacity for deepwater oil and non-associated gas to improve the reliability of our supply to export markets.
- We moved first to address the security challenges affecting onshore oil and gas. We worked with the Office of the National Security Adviser (ONSA) and key operators to develop and issue data-driven, targeted security directives. These directly improved the uptime of Trans Niger Pipeline in the east of Niger Delta. Today, all operating companies along the TNP can produce into this major trunkline.
- We also took the decision to immediately clarify the regulatory scope of the two regulators covering our upstream, midstream and downstream sectors to engender a clear and stable regulatory framework for conducive investment climate.
- With the resolution of these issues, we then turned our attention to Nigeria’s cost and fiscal competitiveness. Post-PIA analysis indicated that we needed to be more competitive in deepwater and non associated gas (NAG) – which are critical to our long- term ambition of 4 million barrels a day, securing our position as Africa’s leading LNG exporter, and fueling a gas fired industrialization.
- Through extensive engagements, benchmarking to regional and global competitors, and rigorous analysis – and you recall our intense modelling sessions, we designed fiscal incentives to improve our competitiveness for capital allocation within global portfolios.
- In the development of these incentives, we were guided by four main principles:
a) The incentives were output-based, instead of a cost-based one, ensuring compliance with the fiscal policy direction for Nigeria
b) A careful consideration of government revenues: we were clear that the application of the upstream incentives would not negatively impact existing government revenues
c) Ease of application or implementation of the incentives
d) Flexibility to discriminate between various types of projects – i.e. the ease of targeting incentives to match project size and scope.
- In February 2024, these incentives were issued as Presidential directives aimed at quickly signaling that a new era is dawning in Nigeria, and we are determined to make up forlost time and opportunities:
a) Directive 40: outlines incentives for onshore and shallow water NAG, incentives for midstream gas investments and a directive to introduce competitive tax incentives for deepwater oil and gas. We coordinated the multi-agency implementation in record time while also developing the deepwater incentives. On October 1st, we finalized and issued the Deepwater incentives.
b) Directives 41 and 42: address cost efficiency and project execution timelines by shortening contracting timelines to a maximum of 6 months, eliminating middlemen who contribute to Nigeria’s 40% cost premium, reinvigorating local entrepreneurs who have built capacity, and lifting the threshold at which operators have to seek NNPCL approval from 500 thousand dollars in JOAs and 250,000 dollars in PSCS to 10 million dollars.
- These reforms are direct enablers of our strategy to bring more energy to markets profitably with speed and efficiency.
- To deliver on our energy security and transition, we also issued fiscal incentives which formalized the presidential directive to remove VAT on the sale of feed gas, LPG, CNG and Mini LNG, as well as the equipment associated with the production and processing of these forms of gas.
- Distinguished guests, ladies and gentlemen, needless to say, we have had a busy 18 months! We are determined to show that status quo can change, and investors are paying attention, and responding favorably.
- The question that would naturally follow any extended discussion of reforms is obvious – What has the administration’s ambitious reform program delivered so far?
- Because the reforms targeted actual bottlenecks and real projects in the investment pipelines, in April this year, FID was reached on the Ubeta Non-Associated Gas project, a half-a- billion dollar project. The Ubeta field was discovered in 1965 and has finally been unlocked to deliver prosperity of multitudes of Nigerian lives and businesses.
- For deepwater gas, We have gone from a total absence of a fiscal framework to now having one for the first time in our history.
- Nigeria’s deepwater oil projects now deliver competitive returns. Nigeria has now moved from bottom quartile of 13 indexed countries to top three.
- We are now positioned to tap into $90 billion in financing that will be available for deepwater projects around the world, by IOCs that are already operating in Nigeria. Accessing 20 percent of this, would be more than enough to bring 5 major deepwater projects on-stream, unlocking 1.3 billion barrels of oil equivalent (boe).
- We are gearing up for our first FID on a greenfield deepwater development since the last one (Egina) in 2013.
- Going into 2025, we expect the investment momentum to quicken, proving beyond any doubt, that President Tinubu’s energy reform agenda is truly revolutionary. Our challenges are addressable, and fixable.
- All these new investments will have major implications for the Nigerian economy. The foreign exchange inflows will help with exchange rate management and macroeconomic stability; local economies will benefit from the increased spending on construction and hiring; skill-building and technology transfer will take place.
- Importantly, with the industry infrastructure being developed, each new investment will ensure that subsequent projects are possible at lower costs and with the guarantee of greater returns – creating a virtuous cycle of new investments.
- It is still early days for our reform journey, but I am an optimist, you have to be one to do this job. So we look to the future with excitement, not fear. We know that when we take the right decisions, we will see the right results.
- I will close with three key insights into the thinking underlining President Tinubu’s energy reform agenda:
One. Vision is everything. It is a great bonus for Nigeria that we have a President who himself has a background in the energy sector, and who innately understands the concept and principles of incentives within business environments. President Tinubu has a very clear vision of the kind of oil and gas industry he would like to leave behind as his presidential legacy, and it is now my job, along with colleagues, to support the realization of that vision. To put in place the building blocks, review the vision and progress regularly, and recalibrate where and when required.
Two. One of the factors that has made a difference is new thinking in the public sector. We needed, and still need, more commercially-minded, long-term thinking, to replace a legacy of short-term approaches. Human capacity makes a great deal of difference, and the president’s energy team is heavy on people who understand the positions and perspectives of investors and how to incentivize investments in a win-win manner.
Three. Communication is essential, and one of the things that I am most keen on in my role is ensuring that we craft clear and credible messaging that is regularly updated and that speaks at all times to the concerns of investors and stakeholders.
- This is the point at which I invite you all to be a part of the unfolding energy revolution in Nigeria. We cannot succeed without you, without listening to you and taking your feedback. As much as we want to attract financing, we also want to work closely with partners who truly believe in our ability to keep our pledges and to ensure that the reform momentum never loses steam.
- I thank you for your kind attention.
Olu Arowolo Verheijen
Special Adviser to the President on Energy
