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© Corporate Nigeria 2010/2011 is a Corporate Guides International publication.

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Nigeria| COrPOraTe gUiDeS4

CONTENTS

Country Profile  08  Nigeria at a Glance  10  Nigeria Country Profile  History & Culture  16  History & Culture Overview  20  Nigerian Leaders 1960–2010

Politics  26  Politics Overview  30  Interview: Mr. Odein Ajumogobia (SAN),  

Minister of Foreign Affairs  32  Interview: Mrs. Farida Mzamber Waziri, 

Executive Chairman, Economic and Financial  Crimes Commission (EFCC)

 

Economy  34  Economic Overview   38  Nigeria's Economic Growth  42  Interview: Dr Emmanuel Egbogah,  

P.Eng, (OON), Special Adviser to the  President on Petroleum Matters

Foreign Direct Investment  46  Foreign Direct Investment Overview  48  Interview: Engr. Mustafa Bello (FSNE),  

CEO/Executive Secretary of Nigerian  Investment Promotion Commission (NIPC)

  54  In Focus: Eko Atlantic  60  Incentives for Investors  62  Doing Business in Nigeria  66  Interview: Mr. Mirko Plath, Managing Director,  

Weststar Associates Ltd  70  Interview: Dr. Bamanga Tukur, President of  

the African Business Roundtable (ABR) and Chairman NEPAD Business Group

CONTENTS

5COrPOraTe gUiDeS|Nigeria

Special Investment Destinations  74  Kano State: History and Background  80  Interview: His Excellency Mallam Ibrahim  

Shekarau, Executive Governor of Kano State  82  Bayelsa State: History and Background  90  Interview: Chief Timipre Sylva, Executive  

Governor of Bayelsa State

Legal & Accounting  92  What You Need to Know About  

Doing Business in Nigeria101  In Focus: Kenna & Associates 

Banking, Finance & Insurance102  Banking & Finance Overview 106  Interview: Mr. Stephen Olabisi Onasanya,  

CEO, First Bank of Nigeria111  In Focus: First Bank of Nigeria114  In Focus: Commerzbank116  Nigeria Banking Developments 2010:  

A New Broom Sweeps Clean120  In Focus: Guaranty Trust Bank Plc

Energy124  Energy Overview 128  A New Era for Oil132  Nigeria and OPEC140  Natural Gas in Nigeria142  Nigerian Liquid Natural Gas144  Electricity in Nigeria148  Alternative Energy

Nigeria| COrPOraTe gUiDeS6

CONTENTS

Infrastructure – Telecommunications & IT152  Telecoms Overview156  Interview: Mr. Steve Evans, CEO 

Etisalat Nigeria162  Internet Taking Off164  Mobile Market Matures166  Innovation in ICT

Infrastructure – Transport168  Transport Overview172  Interview: Mr. Michael Druce,  

Managing Director DHL Express Nigeria179  Facts & Figures DHL Express Nigeria180  Aviation in Nigeria184  Investing in Transport188  Firsts in Transport

Industry190  Industry Overview194  Nigerian Sugar196  Beer Industry198  Nigeria’s Trade Relations

Solid Minerals200  Solid Minerals Overview204  Interview: Arc. Musa Mohammed Sada,  

Honourable Minister of Mines  and Steel Development

CONTENTS

7COrPOraTe gUiDeS|Nigeria

Agriculture208  Agriculture Overview212  Cocoa Growing214  Cassava – a Multi-Purpose Plant216  Nigeria’s Food Security

Construction 218  Construction Overview

Tourism222  Tourism Overview228  Interview: Mr. Panos Panayis,  

General Manager Eko Hotel  & Suites, Victoria Island

233  In Focus: Eko Hotel & Suites Lagos

Listings234  States of the Federal Republic of Nigeria235  Good to Know – Nigeria238  Airlines239  Hotels242  Diplomatic Missions Abroad249  Foreign Embassies in Nigeria254  List of the Federal Cabinet255  Weblinks Corporate Nigeria

256  Imprint

Nigeria| COrPOraTe gUiDeS34

economy

Although Nigeria’s economy is still dependant on its oil sector, which pro-vides 97.5 per cent of foreign exchange earnings and roughly 80 per cent of budgetary revenues, the government is beginning to take the necessary steps towards diversification. Despite declin-ing output from the oil sector (which together with gas still accounted for 17 per cent of GDP in 2009), strong per-formance in other sectors kept the over-all growth rate at 6.1 per cent in 2008, a slight fall from 2007.

By 2009, despite the global economic crisis and weak oil sector, Nigeria had a real GDP growth rate of 4 per cent, projected to rise slightly higher by the end of 2010 and to a respectable 5.5 per cent by the end of 2011. However, the global recession, coupled with ris-ing food prices, and the drying up of lending as a result of the banking cri-

sis, means the inflation rate has held at about 11 per cent for most of 2010, up from 2007’s 5.4 per cent. This is still a significant improvement on 2005, when the rate stood at 17.8 per cent, and December 2008, when the rate was 15.1 per cent. The stability of the naira, which has held steady against the US dollar throughout the year at about NGN150 to USD1, should stop any further inflation increase.

The Organisation for Economic Co-operation and Development (OECD) estimates the country’s GDP as being

USD216.8 billion. Other sources put the 2008 purchasing power parity GDP at USD336.2 billion. GDP per capi-ta remains low, at USD1431, despite Nigeria’s oil wealth. The World Bank estimates that 54 per cent of the popu-lation has a daily income of less than one US dollar.

The Obasanjo regime recognised that wealth redistribution was central to improving Nigeria’s economy and security, resulting in the launch of the National Economic Empowerment and Development Strategy (NEEDS) in 2004.

Economic OverviewDiversification will support sustainable development

£

... stability of the naira, which has held steady against the US dollar throughout the year at about NGN150 to USD1, should stop any further inflation increase.

economy

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Nigeria| COrPOraTe gUiDeS36

economy

The concept behind NEEDS and its suc-cessor NEEDS 2, which replaced NEEDS in 2007, was to introduce an integrat-ed development plan, aimed in part at reducing poverty. The national medium term plan would be co-ordinated with a state-level plan: the State Economic Empowerment Development Strategy (SEEDS), rolled out across the coun-

try’s 36 states. The plan’s other aims were wealth creation, generation of employment and ‘value re-orientation’. These four goals would be achieved by economic empowerment – for exam-ple through better social welfare and education, stimulating private sector growth, privatising state assets where necessary, and enhancing the efficiency of government, in part by reducing cor-ruption and bureaucracy.

NEEDS 2 was designed to achieve two longer-term strategies: the Seven Point Agenda, initiated by former presi-dent Yar’Adua and the United Nations Development Programme’s (UNDP) Millennium Development Goals (MDG), which are intended to be completed by 2015. As the name suggests, the Seven Point Agenda focuses on seven key areas that the president felt were central to Nigeria’s development: energy reform; food security; wealth creation; transport upgrading; land reforms; national secu-rity and education. It also deals with two ‘special interest issues’ – the situation in the Niger delta and the enfranchise-ment of disadvantaged groups.

The ambitious MDGs complement the Seven Point Agenda by setting out specific goals for the improvement of the welfare of the nation’s inhabitants. The three strategies have laid the foun-dation for the Vision 2020 (or 20:2020) plan, which envisages that Nigeria should have a GDP of USD900 billion

and per capita income of no less than USD4000 by the year 2020, putting it in the top 20 economies of the world.

Since its introduction in 2003, NEEDS has made great strides forward in mac-ro-economic stability through stringent fiscal discipline and inflation control but as the World Bank figures on poverty

show, the strategy has yet to benefit Nigeria’s poorest citizens. The govern-ment will have to work hard to meet its 2015 MDGs. There has been progress though – before NEEDS’ introduction, in 2002, GDP per capita was just USD450.

As the global recession began to bite in 2008, a popular theory among Nigerian economists and politicians was that the nation could avoid the worst effects through ‘decoupling’ its trade links from the US and concentrating on links with emerging markets, which make up 30 per cent of the global econ-omy and are responsible for 60 per cent of world growth. It was hoped by cut-ting ties with the West, emerging mar-kets could continue to grow despite the US slowdown. -At first, this appeared to be the case. However, by 2009 the International Monetary Fund (IMF) was predicting that the financing require-ments of low-income countries would need to increase by up to USD25 billion. In the US, the collapse of most major investment banks and rapid drop in both commodity and equity prices was having an indirect effect on emerging markets through declines in remittances, trade

financing, foreign direct investment (FDI) and commodity prices.

In Nigeria’s case the effects were first felt through a steep drop in oil’s export value, where the US is by far the coun-try’s biggest trading partner. The EU, which is closely linked to the US econ-omy and hence to the slowdown, is also a significant partner. As the country is still heavily reliant on the oil sector for foreign earnings and government rev-enue, this in turn led to a sharp fall in the exchange rate, putting the trade balance in deficit. Another consequence was depreciation in share prices and mar-ket capitalisation of quoted companies as both foreign and domestic investors fled from the country’s stock exchange, leading to an estimated 20 per cent drop in remittances. FDI as a whole plum-meted by the end of 2008, and the stock market had lost 40 per cent of its value, compared to its peak.

Problems in the oil sector have ham-pered Nigeria’s economic growth – not only did the price of oil fall, but the insur-gency in the Niger delta also resulted in a drop in output, leading to an estimated production figure of as little as 0.8 mil-lion barrels per day (bpd) by mid 2009, as opposed to an average of 1.94 million bpd in 2008. However, by mid-2010 the future was looking considerably brighter for the troubled sector. Firstly, the price of oil had recovered to about USD75 for one barrel – about the same price as in September 2007, before the 2008 bub-ble and subsequent crash. Secondly, the Movement for the Emancipation of the Niger Delta (MEND), the group respon-sible for much of the oil infrastructure sabotage, declared an indefinite cease-fire on October 25 2009, which continued to hold in 2010. By mid-2010, produc-tion had risen to an estimated 2.3 mil-lion bpd, and was predicted to increase

Non-oil industries including telecoms, financial services and agriculture have performed significantly better ...

NEEDS has made great strides forward in macro-economic stability through stringent fiscal discipline and inflation control ...

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37COrPOraTe gUiDeS|Nigeria

to five million barrels as a re-education programme for former militants was introduced.

While the improvements in the oil sector are undoubtedly good news for Nigeria, the drop in revenues after the bubble burst in 2008 has emphasised the need for the country to diversify its income streams. Non-oil industries including telecoms, financial services and agriculture have performed signifi-cantly better than the oil and gas sector, with a growth rate of 9 per cent from 2004-9. Because of the country’s budg-etary reliance on oil, previous fluctua-tions in oil prices had led to shortfalls in state budgets, resulting in unforeseen delays or even wholesale abandonment of capital projects and delays in salary payment to civil service workers and contractors. The creation of the Excess Crude Account (ECA) in 2003, which saves the difference in oil revenues between the price budgeted for and the market value, alleviates these problems but does not entirely solve them, par-ticularly if the future market price for oil remains low.

In 2006, Nigeria was able to use its oil proceeds to settle its debts with the Paris and London Club groups of creditors to the tune of over USD30 billion – the first African country to do this. However, in November 2009 the Nigerian government borrowed USD500 million from the World Bank to cover budget shortfalls in infrastruc-ture and social programmes, although it was able to use a concessionary terms that included a zero interest rate. By late 2009 the federal government had withdrawn a total of NGN375.035 billion (USD2.5 billion) from the ECA to aug-ment NGN1.377 trillion (USD9.2 billion) in state capital projects funding, leaving about USD7 billion in the account, from a high of USD27 billion. The account was further depleted during 2010 and cur-rently contains about USD3 billion.

President Jonathan has proposed replacing the ECA, which has no legal basis, with a National Sovereign Wealth Fund as a means of providing for unfore-

seeable financial crises. As an interim measure, the president has created an Excess Revenue Account, which will store excess cash accruing above monthly projected revenues for the country. By mid-2010, the ERA contained about NGN40 billion (USD267 million).

The country still needs significant investment in infrastructure to sustain growth – the current administration believes it needs USD10 billion annu-ally for the next ten years. This will be achieved through public private part-nerships in roads, rail, waterways, air-ports and energy. The Nigerian National Petroleum Corporation is being restruc-tured to enable it to compete on a global level. Power cuts are still commonplace. By mid-2010, electricity production was close to 4000 megawatts. The govern-

ment aims to increase production to 10,000 megawatts by 2011 through bet-ter maintenance and construction of additional transmission lines, as well as increased use of renewable energies such as hydropower.

Tackling corruption is an integral part of Nigeria’s growth strategies. In 2005, the country successfully recov-ered USD505.5 million looted by its former leader, the military dictator Sani Abacha. Nigeria signed a 677 mil-lion euro (USD826 million) pact with the European Union in November 2009 to spend on peace and security, including fighting corruption. The battle against

graft has been helped significantly by two 2007 acts – the Public Procurement Act, intended to ensure more transpar-ency in dealing, increased fines for cor-ruption and abuse of public funds and introduced the independent Bureau for Public Procurement to vet government procurement contracts.

The Fiscal Responsibility Act aims to ensure increased accountability and sound management of government finances at all three levels. A major restructuring programme in the bank-ing sector saw the number of banks drop from 89 in 2006 to 24 in 2008, sig-nificantly strengthening it.

In 2009, the Central Bank of Nigeria removed the heads of several major banks for granting more than NGN747

billion (USD5 billion) in unsecured loans and for having insufficient capitalisation. After investigation by the Economic and Financial Crimes Commission (EFCC), led by Farida Waziri, several executives faced charges including fraud and share price manipulation. The EFCC secured 74 convictions in 2008-9 and recov-ered assets worth over NGN15 billion (USD100 million), and has recently been involved in several high profile cases – including Chief James Ibori, former Governor of Delta State. ¶

The government aims to increase production to 10,000 megawatts by 2011 through better maintenance and construction of additional transmission lines, as well as increased use of renewable energies such as hydropower.

... to ensure increased accountability and sound management of government finances at all three levels.

Nigeria| COrPOraTe gUiDeS38

economy

Nigeria’s problems in its oil and gas sector have been well publicised. The huge sector, essential to the country’s economy, is responsible for 97.5 per cent of export revenues, 81 per cent of the government’s budgetary revenues – but only 17 per cent of Nigeria’s gross domestic product (GDP). As a result of the 2008/9 global financial crisis and a sharp drop in oil prices, Nigeria’s GDP growth was three per cent in 2009, com-pared with 6.1 per cent in 2008. As oil prices recover, it is projected to rise to 4.4 per cent by the end of 2010 and 5.5 per cent in 2011.

This economic growth has largely been due to developments in the non-oil sector, which has been a strong driver of growth over the last ten years – growing by over nine per cent a year from 2003-7, in marked contrast to the period 1997 to 2000, when it grew by just 3.5 per cent.

This increased growth has been helped by the introduction of the government’s National Economic Empowerment Development Strategy (NEEDS), a medium term plan which, in its second phase aims to drive growth by improv-ing infrastructure through increased private sector participation. On a state level, NEEDS has its counterpart in the State Economic Empowerment and Development Strategy (SEEDS). In the first quarter of 2010, growth in non-oil output increased to 8.15 per cent, com-pared with 7.9 per cent a year earlier.

Two areas of the non-oil sector have excellent potential for future growth. The first of these, the telecoms sector has seen exponential growth, with a more than 30 per cent growth rate from 2006 to 2008 and an estimated 32.54 per cent in the first quarter of 2010, trans-lating to an estimated annual growth rate of over 125 per cent in terms of the number of mobile and fixed line sub-scribers. Despite being the fastest grow-ing communications sector in Africa and 8th fastest growing in the world, attract-ing USD18 billion in private investment

Nigeria's Economic GrowthAre the reforms implemented by the former administration paying off?

... in the non-oil sector, which has been a strong driver of growth over the last ten years –

£

economy

39COrPOraTe gUiDeS|Nigeria

in 2009, the sector only constitutes just under three per cent of GDP at present, although given its exponential growth, there is no way this won’t increase.

With a teledensity of just under 50 per cent – Africa’s highest – there is still plenty of potential for growth. The Vision 20:2020 plan aims for 100 per cent teledensity by 2020. Nigeria cur-rently has six mobile networks: MTN Nigeria, Globacom, Zain, Etisalat, M-tel and Visafone. M-tel is a subsidiary of the formerly state-owned fixed line opera-tor NITEL, currently in the process of being reprivatised after three previous failed attempts.

MTN is currently the market leader, with 33.3 million subscribers in the first quarter of 2010 – believed to be over 50 per cent of the market. Unsurprisingly, given the growth potential, the sector has seen a heavy influx of foreign direct investment (FDI) – nearly all of the net-works are foreign-owned. As the mar-ket becomes more saturated, average revenue per user (ARPU) is starting to decline – most high-income users are already signed up, so the operators are starting to chase lower-income users. In the case of MTN, ARPU dropped to USD13 in 2009, down from USD16 a year earlier. Zain’s ARPU fell from USD10 to USD7 in the same period. The average ARPU in 2009 for Nigeria was USD10.45, a decline of -17 per cent in an intensively competitive market.

The scope for growth in rural areas is hampered by infrastructure issues. At present, only 13 million of the 67.2 million active lines are in rural areas, home to 80 per cent of the population. Mobile coverage only covers about half of the country, largely in urban areas. As operators expand into rural areas, a wave of consolidation, similar to that in the banking sector, is expected to cover the higher costs of new lines and power generation. Many rural base stations are powered independently because the Power Holding Company of Nigeria is unable to supply them. The Nigerian Communications Commission (NCC) is using its Wire Nigeria (WiN) project

and the State Accelerated Broadband Initiative (SABI) to provide a fibre-optic broadband network throughout Nigeria, which should spur further growth.

In 2009, Globacom completed its USD800 million Glo 1 undersea cable, connecting the UK and Nigeria, which should see a drastic drop in broadband prices when it launches. It already faces competition from the Nitel Sat3 cable, MainOne – expected to land in mid-2010 – and a future MTN WACS submarine cable.

Despite providing 36.5 per cent of GDP, Nigeria’s agricultural sector, the second area with good growth poten-tial, is in need of further investment and

reform after years of neglect in favour of oil. The sector has been unable to keep up with population growth and Nigeria now spends USD2.8 billion annually on food imports. Despite this, agriculture grew by an estimated 5.5 per cent in the first quarter of 2010, slightly less than in the previous year. The USD450 million Third National Fadama Development Project (Fadama III), assisted by the World Bank, covers all of Nigeria’s 36 states and the Federal Capital Territory (FCT). Like its predecessor plans, Fadama III aims to push the sector away from subsistence farming towards commercial farming by providing training, funding for market-ing and infrastructure such as irriga-tion, storage and mechanised farming equipment.

The Nigerian Communications Commission (NCC) is using its Wire Nigeria (WiN) project and the State Accelerated Broadband Initiative (SABI) to provide a fibre-optic broadband network throughout Nigeria, which should spur further growth.

Nigeria| COrPOraTe gUiDeS40

economy

Other organisations are also com-mitted to the development of Nigeria’s agriculture sector – in 2008 the African Development Bank (AfDB) provided USD250 million to improve the process-ing and marketing of food. In partner-ship with USAID, development consul-tancy firm Chenomics is attempting to generate agricultural revenues of

USD200 million and create 100,000 jobs by connecting farmers with smallhold-ings in products such as rice, cowpeas, sorghum to international markets and training them in techniques to increase productivity.

Several states offer substantial incentives to attract further FDI to the agriculture sector. In the case of Sokoto, the state charges just one per cent duty on agro-industrial machines, makes no restrictions on capital allowance and offers a five-year tax-free period to agri-cultural produce processors. Kwara has provided land and financing to displaced Zimbabwean commercial farmers, and to Kwara Casplex ltd, a biofuels com-pany producing ethanol from cassavas. The project avoids electricity supply problems by generating its own power from agricultural waste.

Biofuels production is a key driv-er of growth within the sector. Global Biofuels ltd produces ethanol from sweet sorghum and aims to produce biodiesel from safflower and edible oil from soya beans. Plans are in progress to build refineries in Ondo, Oyo, Osun, Ekiti and Kwara, with possible future projects in Kaduna, Kano, Plateau, Benue, Kogi, Nasarawa and Zamfara. The Central Bank of Nigeria is expedit-ing sector growth through the introduc-tion of the N200 billion (USD1.34 bil-lion) Commercial Agricultural Credit Scheme (CACS), which will provide

credit facilities to commercial farms at low interest rates. Together with the government’s Commercial Agricultural Development Programme (CADP) and Guaranteed Minimum Price scheme, which sets a minimum buying price for commercial crops to encourage farm-ers to cultivate them, future growth should be assured.

As in other sectors, notably manu-facturing, related industries to agri-culture such as construction, roads and power will also need investment to allow maximum growth. Even though 90 per cent of goods are transported by road, the Federal Ministry of Transport estimates that only 15 per cent of fed-eral roads are in good condition, while 30 million rural inhabitants are more than 2 km away from the nearest road, hampering increased productivity. In mid-2010 President Jonathan unveiled

a plan for public private partnerships (PPP) as a means of repairing Nigeria’s infrastructure quickly and cheaply. The country requires an estimated 10,000 MW of electricity – presently only 4000 MW are available, and 40 per cent of the population is completely disconnected from the grid.

Gas, despite being closely related to the oil sector, is still relatively underde-veloped. Despite its huge gas resourc-es – estimated at 5.215 trillion cubic metres – Nigeria has only invested in two major projects: Liquefied Natural Gas (LNG) and the West African Gas Pipeline (WAGP). The USD1 billion WAGP has

taken years to come to fruition but was ready for gas deliveries by the end of 2008. It began delivering gas to Ghana in April 2010 from Nigeria’s oilfields, and is the first regional natural gas trans-mission system in sub-Saharan Africa, delivering to Benin, Togo and Ghana. Nigeria LNG ltd was incorporated in May 1989 in order to produce LNG and Natural Gas Liquids (NGLs) for export. However, unused resources and falling global demand means the environmen-tally damaging practice of gas flaring, losing the industry USD3 billion a year, is still widespread. The Nigerian Senate has set a target of December 31 2010 to end flaring, while the Nigerian National Petroleum Company (NNPC) is involved in constructing a trans-Saharan gas pipeline to Algeria in order to exploit the lucrative European market. In mid-2010, NiGaz, a joint venture between the NNPC and Russia’s Gazprom, estab-lished in 2009, was considering pros-pecting the deepwater Nnwa Doro block, which may hold huge gas reserves.

Oil shouldn’t be completely writ-ten off just yet either. A ceasefire in the troubled Niger Delta region declared by insurgents in October 2009, led to a

period of relative peace by June 2010. Increased production as a result of the peace, combined with a rise in the oil price to nearly USD75 a barrel means the sector will soon be contributing more to the nation’s economy, at a time when it is urgently needed. If the secu-rity situation in the Delta continues to be peaceful, Nigeria should be able to utilise money from its oil cash cow to fund infrastructure, allowing the non-oil sector’s continued expansion and fur-ther diversification of the economy. ¶

It began delivering gas to Ghana in April 2010 from Nigeria’s oilfields, and is the first regional natural gas transmission system in sub-Saharan Africa, delivering to Benin, Togo and Ghana.

Biofuels production is a key driver of growth within the sector.

economy

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Nigeria| COrPOraTe gUiDeS42

economy

CN: Dr Egbogah, as Special Adviser to the President on Petroleum Matters you play a key role in shaping the policy for one of Nigeria's most important resources. Can you describe your responsibilities in this role?

Dr Egbogah: I advise Mr President holistically on matters of oil and gas resources planning, exploration, development, exploitation, processing, transportation, management, asset valuation, economics, policy regulation, strategy, governance, legal and regulatory framework, fiscal systems/regimes and petroleum arrangements, financing and all issues pertaining to the orderly development of the nation’s petroleum resourc-es. I have been leading the effort in the comprehensive reform of the public sector of the oil and gas industry resulting in the preparation of the Petroleum Industry Bill (PIB), a bill that coalesces all existing 16 laws into one comprehensive, all-encompassing legislation, which captures all the experience of past more than 50 years in addressing all institutional mat-ters: policy, structure, legal and governance. The PIB is viewed as an integrated, viable, functional, sovereign enterprise with geostrategic capacity and global market understanding equal-ing sustainable economic development.

The PIB which is currently in the National Assembly for pas-sage into law represents a truly unique Nigerian institutional structure for the energy sector with strong, stable legal and fiscal aspects supplemented with built-in mechanisms for transparency and accountability, which, in the aftermath of the near-collapse of the global financial system, have become the essential tools to secure investment and capital flows into Nigeria. It also provides for an open and robust sector, more competitive, technically and scientifically proficient, and ori-

ented to host-community involvement, local content and indig-enous participation objectives as well as local and interna-tional best practices.

What needs to be done to raise the profitability of the natural gas industry in Nigeria?

e The most important thing is the setting up of a commercial framework for gas to power which has resulted in the approv-al of a new gas pricing which has been most welcomed by all the industry players and new investors as a sure way to encourage investment in gas development. The government, in recognition of the impact that the multiplier effect of gas has on the domestic economy has embarked on the reform of the gas sector through the development and implementation of a Gas Master Plan, which provides a structured and holistic framework for enhancing gas availability and sustainability of supply in Nigeria and for export.

The Gas Master Plan aims to address some of the challenges confronting the Nigerian gas sector, notably that of inadequate infrastructure and commercial framework. A gas pricing framework which is expected to form the basis of Gas Supply

Extensive Knowledge

Interview:Corporate Nigeria (CN) talks to Dr Emmanuel Egbogah, P.Eng, OONSpecial Adviser to the President on Petroleum Matters

“It also provides for an open and robust sector, more competitive, technically and scientifically proficient, and oriented to host– community involvement ...”

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43COrPOraTe gUiDeS|Nigeria

and Purchase Agreements has been developed and has been approved by the Government. A key element of the pricing framework is the introduction of sector based pricing and gradual movement towards export parity in domestic gas pricing. The pricing structure requires the establishment of the Strategic Aggregator that should essentially serve as the engine for the implementation of the domestic gas pricing and the realization of commercial pricing and export parity for suppliers.

The framework divides the domestic market into three (3) categories comprising Power, Strategic Gas based Industries (i.e. industries that use gas as feedstock e.g. fertilizer, meth-anol, etc.), and wholesale gas marketers who purchase whole-sale gas for onward distribution to low pressure commercial buyers such as manufacturing industries who typically require much smaller volumes for fuelling their plants.

A pricing approach has been developed for each of these cat-egories as follows: cost-plus for the power sector; netback for gas based industries; and alternative fuels pricing for the wholesale buyers. With this pricing approach, it is expected that the strategic intent of economic growth can be realized.

Despite Nigeria's vast reserves of oil and gas [36.2 billion bar-rels of proven oil reserves, OPEC 2006], fuel shortages and power outages are still common in parts of the country. How does the government plan to address these issues in the coming years?

e With about 38 billion barrels of oil reserves, Nigeria has the tenth largest proven oil reserves in the world, and accounts for about a third of Africa’s oil resources. The volumes are contained mainly in the onshore Niger Delta and the offshore deepwater basins of Nigeria. However, significant upsides still exist in deeper geological plays and in Nigeria’s ultra deepwater.

Nigeria is also endowed with huge gas reserves and it is believed that Nigeria is more a Gas than an oil country. Current estimate of proven gas reserves is about 187 trillion cubic feet, which makes Nigeria the world’s 7th largest gas reserves holder in the world. However, a US Geological Survey (USGS) study estimates that the gas reserves potential in Nigeria could be as high as 600 trillion cubic feet. To date, there has not been dedicated exploration for gas and all the proven gas reserves were incidental to oil exploration. It is therefore not unlikely that with focused gas exploration, the USGS estimate of gas reserves can be realized. This will easily put Nigeria in the league of top 4 gas reserves holders in the world. Of par-

ticular interest is the fact that Nigerian’s gas is rich in natural gas liquids. This large resource base has positioned Nigeria as one of the key players in the global energy supply and demand mix for now and in the future.

Unfortunately, these huge hydrocarbon resources have not translated to availability of petroleum products in Nigeria. Part of the problem is due to the fact that the existing refineries

either do not or have never functioned to full capacity, thereby leaving the country to depend on imported products. Also, the downstream retail sector is highly regulated with the result that private investors lack the necessary motivation to invest in refineries and petrochemical projects where the margins are extremely tight. Government has therefore continued to subsidize the importation and distribution of some of the prod-ucts at great cost.

A long-term solution to the problem lies in deregulating the downstream sector in order to provide a level-playing field that will encourage private investors to invest in the downstream sector of the economy. A number of private investors have already signified interest in investing in refineries and petro-chemical projects in different parts of Nigeria. These new refineries could deliver up to 900,000 barrels per day of refin-ing capacity. Government is currently looking at the issue of deregulation and consulting with all the different stakeholders to insure that an amicable solution is found. Meanwhile, Government is continuously making efforts through the NNPC to ensure that the existing refineries are rehabilitated and functional.

In addition, government has embarked on efforts aimed at addressing internal inefficiencies which have been militating against effective petroleum product distribution in the country. These include reducing the time it takes for the approval of vessels carrying petroleum products to berth at Nigerian ports and effective monitoring of product distribution.

The government's Vision 20-2020 plan has as one of its goals the production of 40 billion barrels of oil reserves and a daily production of 4 million barrels by 2010. Are you confident this target can be achieved?

e The Government’s aspiration for 40 million barrels of oil reserves and 4 million barrels of daily oil production in 2010 can not possibly be realized due to protracted restiveness and militancy in the Niger Delta, which restricted oil and gas oper-ations. However, with the amnesty program now in place, activities have picked up, with production currently at 2.5/2.6

“With this pricing approach, it is expected that the strategic intent of economic growth can be realized.”

“Of particular interest is the fact that Nigerian’s gas is rich in natural gas liquids.”

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million barrels per day and lends hope to the realization of the aspiration probably by 2012.

Vision 20-2020 also aims to address the environmental issues associated with gas exploitation. Can you give some details of the measures being undertaken to protect Nigeria's unique natural environment?

e The Federal Government will continue to take all necessary measures to preserve and protect our natural environment especially from the effects of the exploration and utilization of fossil fuels which account for a significant portion of the envi-ronmental challenges we have in Nigeria.

In particular, the Government will, through the Petroleum Industry Bill introduce and enforce integrated Health, Safety and Environmental quality management systems to ensure compliance with local and international standards and obliga-tions. This includes investment in routine flares out projects. In the past investors complained that projects to stop flares were not profitable.

However, with the new gas pricing, this is no longer so. The Domestic Gas Obligation policy is another policy which is aimed at encouraging operators to eliminate routine gas flares in their areas of operation. The ability of the Federal Ministry of Environment and other regulatory institutions to make and enforce regulations and directives are to be strengthened.

Corruption and ongoing disputes in the Niger Delta have had an adverse effect on both the productivity and image of the Nigerian oil and gas industry. What is your view of the current security and management of the oil and gas industry?

e Federal Government of Nigeria, through a comprehensive reform agenda, wishes to reposition the industry for greater effectiveness and efficiency which will serve as a bedrock upon which the Nation’s Vision 20-2020 will be anchored. Priority areas would be anchored on appropriate reforms, well-planned programs and relevant trade policies with dedicated resources for the creation of an overall growth-inducing and people-oriented development environment.

The greatest effort and investment in planning of the reforms have been made through the launching of the National Content Policy and the Petroleum Industry Bill, PIB. The PIB, is the legislative vehicle that will be the basis for what many, includ-ing myself, believe will be the resolution to Nigeria’s many problems particularly that of the Niger Delta. It is Nigeria’s modern blueprint for sustainable long-term development.

This strategy of comprehensive reforms is to ensure greater efficiency and effectiveness such as to meet the aspirations of Nigerians and all the stakeholders, and also to ensure global competitiveness.

The Petroleum Industry Bill (PIB) on the other hand is a com-prehensive, all-encompassing piece of legislation given the significant role of oil in our National economy, the size of capital involved and the level of emotions and controversies surrounding the industry. It captures all the experience of past 50yrs in addressing all institutional matters: policy, structure, legal and governance. Most importantly and significantly it also endorses clear separation of roles and responsibilities across various directorates, companies and agencies.

The PIB incorporates the emergence of gas as a key element of the value chain, and accordingly, considers new fiscal frameworks that are more robust to withstand changes.

How is the PIB perceived by the international community, whether it be multilateral institutions, sovereign jurisdictions, international oil companies (IOCs), lending institutions and influential media? In my assessment, it is viewed as an inte-grated, viable, functional, sovereign enterprise with geostra-tegic capacity and global market understanding equaling sus-tainable economic development. The PIB represents an investor-friendly environment with greatly enhanced business investment opportunities.

The PIB will serve to promote transparency in the operation of the oil and gas industry in Nigeria. Transparency, good governance and accountability will be promoted through the removal of confidentiality, which in a way encourages corrup-tion. With the passage of the PIB, Petroleum Prospecting Licenses (PPLs) and Petroleum Mining Leases (PMLs) can only be granted by the Minister through a truly competitive bid process. Such process will be open and accessible to all qual-ified companies. The details of all licenses, leases and con-tracts, and any of the changes to such documents will no longer be confidential.

It is therefore the expectation of Government that the new law will transform the industry from “the most opaque” to “one of the most open and transparent in the world”. To that extent, PIB has the prospects of bringing to an end the age-long decadence and orgy of exploitation and corruption in the industry.

“It is Nigeria’s modern blueprint for sustainable long-term development.”

“... the expectation of Government that the new law will transform the industry from “the most opaque” to “one of the most open and trans-parent in the world”

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45COrPOraTe gUiDeS|Nigeria

The aim of Corporate Nigeria is to inform the global business community about business, trade and investment opportuni-ties in Nigeria. Why should foreign investors consider investing in the oil sector Nigeria? What, if anything, should be done to further open up the sector to foreign investment?

e The Petroleum Industry Bill awaiting passage into law in the National Assembly is an integrated, viable, functional, sover-eign enterprise with geostrategic capacity and global market understanding equaling sustainable economic development. The PIB represents an investor-friendly environment with greatly enhanced business investment opportunities.

Opinion has been divided on whether the proposed reforms of Nigeria’s oil and gas industry will stimulate or endanger investment due to the structural, regulatory and fiscal provi-sions of the PIB. Government’s objective in carrying out the reform is to reposition the industry for better performance, and to also bring the industry in line with modern day oil and gas industry standards of efficiency, effectiveness and trans-parency. To achieve the reform objective, the industry will require legal, structural, regulatory and fiscal changes, hence the need for an all encompassing piece of legislation called the PIB. Government believes that these changes will not only encourage investment, but will also protect and safe-

guard investment in one of the most prolific hydrocarbon provinces in the world today.

Investments in the Nigerian oil and gas industry offer some of the most attractive returns in the world. For example, the proposed terms of the deep PSC terms in Nigeria’s PIB provide for an overall government take that is much less than in Angola under most conditions. Due to the fact that in Nigeria opera-tions can be consolidated for Companies Income Tax and Nigerian Hydrocarbon Tax purposes, the profitability of the operations is significantly in excess of Angola for companies already operating in Nigeria under comparable cost condi-tions. Also, the PIB provides for the highest regulated rate of return in the world on gas pipeline and gas processing invest-ments where the taxation terms are among the most favour-able in the world. ¶

“... the PIB provides for the highest regulated rate of return in the world on gas pipeline and gas processing investments ”

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Corporate Nigeria 2010/2011 is a Corporate Guides International Ltd. publication, produced in collaboration with the Nigerian Investment Promotion Commission (NIPC).

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