Josephine UDONSAK Senior Counsel ACAS LAW

Diversification within the Nigerian oil and gas sector is essential.

Josephine UDONSAK Senior Counsel ACAS-LAW

Boosting investor confidence in Nigeria

May 28, 2021

Josephine Udonsak, senior counsel at ACAS-Law, talks to The Energy Year about how Nigeria’s energy diversification should be rolled out, the importance of domestic investors and how communities and oil companies can deal with conflicting interests. ACAS-Law is a commercial law firm that provides legal and business advisory services.

How should energy diversification be rolled out and what regional advantage can Nigeria exploit in the process?
Diversification within the Nigerian oil and gas sector is essential and should be considered both from the perspective of what resources we supply and who we supply our resources to.
In terms of the resources that we supply, oil clearly continues to be the mainstay of the Nigerian economy. However, it is no secret that the rest of the world is moving away from oil and towards other sources of energy. It is therefore important that we keep an eye on this shift in demand because one effect it would have on the oil and gas industry is that there would be a decline in the willingness of investors to finance the production of oil in favour of an increased appetite for investing in gas production. Putting the focus on natural gas, which the government seems to be trying to do, is therefore necessary in order to inspire investor confidence.
Nevertheless, oil will still be relevant to us for years to come, which means that we should not anticipate or attempt an abrupt transition. Nigeria will not totally abandon oil for gas because oil remains a rich resource and it continues to provide the means through which a great part of our day-to-day life in Nigeria is sustained. Thus, developing both resources at the same time will be important.
Regarding whom we supply our resources to, I will say that one of the lessons that the multifaceted outcomes of the Covid-19 pandemic have shown us is the need to develop the domestic and regional markets; we need to be able to sell our products (both refined and unrefined) to each other within Africa. Thus, while we may need to give attention to gas production so as to keep attracting foreign investors, we also need to carefully consider how we can produce, refine, market, and use our oil for internal consumption (i.e., in Nigeria and across Africa). In the end, it is key that we are able to identify the energy needs of the domestic, regional, and international markets, and respond to them appropriately by engaging in the production and export of products as is required to meet the demands of each of such markets.

How important are domestic investors for boosting the country’s industry?
One thing the government has to consistently do is strive to improve the ease of doing business in Nigeria and boost investor confidence – and it does appear keen to do this. However, in its bid to ensure that the business environment in Nigeria is appealing to investors, it is important that the government is seen to be equally interested in winning over both foreign and domestic investors.
Nigerians, both at home and abroad, have shown themselves to be not only highly talented and resourceful people, but also successful entrepreneurs; this is a high-value resource for the government to leverage. Yet, the government’s efforts at attracting investors often seems to be skewed in favour of foreign investors, whose interests in some cases may very well be at odds with those of home-grown investors.
Therefore, when we speak of promoting investor confidence in Nigeria, the issue has to be addressed with both categories of investors in mind, i.e., foreign and domestic investors.


Could you tell us more about the structural issues within the regulatory environment?
One major setback is the lack of coherence in various sectors and across the different regulations. This, of course, hampers the ease of doing business. Some companies find themselves in a situation where they need multiple approvals from multiple agencies, which can make doing business in the Nigerian oil and gas sector arduous. For example, it is not uncommon to have to engage in endless rounds of back and forth between the NNPC [Nigerian National Petroleum Corporation] and the DPR [Department of Petroleum Resources] in order to obtain requisite permits or approvals in certain matters. A holistic view is therefore required in determining how different regulators and regulations interact, and how their interaction in turn affects the entities that they regulate. The government has to look into this matter carefully as it enacts new laws and amends existing ones so that it does not end up with conflicting laws that put off investors.

How can communities and oil companies address the conflicting interests that emerge between them?
More often than not, the conflicts that ensue between communities and oil companies revolve around perceived inequalities. In other words, such conflicts arise because the oil companies are not seen to be adding value to their host communities in a manner that is deemed commensurate to the benefits they derive from carrying out their operations and business activities in such communities. Value in this instance may refer to contributions to infrastructural developments, or improvements in the basic welfare of members of the said communities or the socio-economic factors that affect them. This situation can also be very easily linked to the failure or inability of the government to provide the basic and most fundamental amenities for its citizens; a role which many companies are then forced to take on. Over time, stakeholders in the Nigerian oil and gas industry have had to approach these issues in different ways in order to resolve them.
From a legal perspective, local content laws have somewhat helped to smoothen the relationship between oil companies and their host communities. Given that these companies set out to make profit (as is typical of commercial entities), they should not be inundated with unending demands for handouts all in the name of giving back to the community.
A possible middle ground can be found where members of the host communities are given the opportunity to play one role or another in contributing to the development of the community, while also being empowered (vocationally and, by extension, financially) to do so.
Members of the host communities may, for example, be incorporated into the workforce in the relevant oil companies and provided the requisite trainings to enable them to satisfactorily perform their roles in the workforce. This principle, among other things, is the essence of the local content laws.
Another approach used to resolve the issue of conflicting interests between oil companies and host communities is having formal agreements between the two parties. Such agreements typically detail specific community development projects that an oil company will implement in exchange for which its host communities guarantee the smooth conduct of the company’s operations and business activities under safe and secure conditions.
Admittedly, these agreements, in many cases, end up being the subject of multiple disagreements due to breach. However, it is imperative that both parties keep working towards a mutual understanding and a common perspective of whether the companies are indeed doing the best they can for their respective host communities, given the circumstances under which they operate and coexist.
In any case, the end goal should be that oil companies and their host communities enjoy a mutually beneficial relationship.

What important steps should the government take to enhance opportunities from 2021 onwards?
Looking ahead into 2021, there is a lot of activity and agitation from investors and companies to do more. This is what the industry needs. From the government’s side, they are taking active steps to make the environment conducive and attractive for business. Nevertheless, efforts should go beyond simply putting regulations on paper – it is also about properly implementing or enforcing them, as these efforts cannot be disjointed.
The government should also take practical steps to engage oil companies doing business in the country and ascertain whether they are able to take advantage of the opportunities or incentives that the government makes available. In the event that there are bottlenecks preventing them from enjoying the benefits that such opportunities or incentives were designed to give them, these should be identified and addressed. With more oil companies being enabled to succeed, the Nigerian oil and gas industry, and – by extension – the economy at large, grows.
Nigeria will always be a place filled with opportunities and, as such, will always remain an attractive investment destination, but it is crucial that the government positions itself to take the best advantage of this by consistently improving the business environment in the Nigerian oil and gas industry so that the said industry remains one where all stakeholders are enabled to thrive.

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