The Petroleum Industry Act (PIA) 2021 created the Nigerian Upstream Petroleum Regulatory Commission and Engr. Gbenga Komolafe was appointed by former President Muhammadu Buhari as the pioneer Chief Executive of the Commission.
The PIA transferred the extant scope of upstream regulation to NUPRC including the acreage management role and commercial responsibilities like cost benchmarking and frontier exploration.
In this interview with Arise TV, monitored by NewsNGR, Komolafe spoke on the issues around crude oil theft, the supply of crude oil by International Oil Companies (IOCs) to local refineries, and how the Commission is enforcing regulations in the oil and gas industry among other industry issues.
EXCERPTS
A Senior Advocate of Nigeria Dr. Olisa Agbakoba, on this program last week said there is a problem with regulation in the energy sector. He said specifically that crude oil theft has many issues around it. You are the regulator of the upstream sector. What is the truth about crude oil theft?
Let me start from this background that I listened to the position of the learned SAN, the respected SAN, and I want to lay a background by saying that, yes, he made a lot of assertions, but quite frankly, a lot of the assertions do not have validity in law and in truth. Of course, he made allusions to the provisions of the constitution and also the Petroleum Industry Act. But maybe I’ll come to that later. Let me answer your question directly. Actually, Nigeria suffers immensely from the negative impact of crude oil thieves. As a matter of fact, the issue of crude oil theft is affecting us not only in terms of the volume that we lose as a country, but also it is serving as a disincentive to investors.
Of course, we all understand that no investor would want to put this money and invest in a loss in the manner that the investor loses his investment. So, to that extent, of course, we’ve been experiencing divestment recently from the onshore terrains to the offshore. And one of the factors that has led to that is that investors, the IOCs, recognized that it is safer for them to reorder their portfolio and relocate their investment. That is the offshore area where they feel their investment will be protected better than the onshore. So, that is safe. I mean it’s a pointer to the fact that the onshore areas are more prone to crude oil theft. Upon assumption of office, we commissioned a study and that independent study also revealed that we are losing many of our production volumes to crude oil theft.
So, in sum, the issue of crude oil theft is the reality. We are losing in terms of the volume, in terms of the revenue. That is potential revenue to the nation that we could have derived. In the end, we are not experiencing these losses. Crude oil theft is a challenge to the nation; we are losing both in terms of the potential revenue and potential investments arising from the menace of crude oil theft.
Did you commission a report on crude oil theft? If you did, what did you find?
We indeed commissioned an independent study, and that study revealed that we’re losing about, as at the time, we’re losing about 100,000 to 120,000 barrels of crude per day. But the good thing now is that we’ve witnessed a drastic reduction in the volume of crude oil theft that we are experiencing arising from the multi-faceted action being taken by the general security services, the Nigerian National Petroleum Company Ltd (NNPC), and the regulators through their concerted approach by the government in trying to contain and curtail the menace of crude oil theft in Nigeria.
Aside from that, as a regulator, beyond the kinetic approach that is being deployed to deal with the menace of crude oil theft, the Nigerian Upstream Petroleum Regulatory Commission under my watch has been able to come up with a regulation that is termed- the Nigerian Upstream Petroleum Measurement Regulation and the implementation of this regulation has commenced with the support of our President, Bola Ahmed Tinubu who has approved the commencement of phase one of the implementation of the regulation.
That entails that we conduct an engineering integrity audit of all the metering stations that we have in upstream. And that will take us to conduct a metering integrity audit in 187 flow stations. And now, with the approval of the Federal Executive Council, we flagged-off the implementation of phase one of this regulation by ensuring that all the meters that we have in place are checked for integrity compliance in a manner to ensure that these meters are delivering in line with industry allowable specification standards.
In the course of the independent integrity audit, it was revealed that about 40 per cent of what is adjudged as crude oil theft was attributable to what is called metering error or accuracy. So, if this is fiscalized, we realize that the nation will be saving billions of dollars annually. For us, as a regulator, it is quite a very laudable initiative that will help in preventing loss of federation revenue and that is in billions of dollars.
There are concerns around the bidding process for these companies that were given the contract because one of them is Homes and Properties Limited. Can you give some clarity as to the bidding process?
The second question would then be that Dr Agbakoba said that the IOCs had too much control. Doesn’t this justify his statement whereby up until now that the contract was awarded, they were the ones who determined or at least stated how much oil was being produced?
Well, let me say that I’m not a part of the specific case you have just cited, but let me equally indicate that for the bidding process, that’s one of the beauties of the Petroleum Industry Act, and of course, this a departure from the assertion of the learned SAN as to the usefulness and benefits of the Petroleum Industry Act.
The Petroleum Industry Act, under Section 75, actually made provisions of how the bidding process should be conducted in a fair, competitive and transparent process. So, with that, the era of discretionary award of oil blocks has been democratized in a manner that competent entities are expected to bid fairly and transparently. And as to whether the IOCs allow the regulators that is coming to assess the metering facilities, I think the regulator is empowered as technical and commercial regulators of the upstream to assess the metering facilities of the IOCs.
And what I’ve just said, in terms of the provisions of the Nigerian upstream petroleum metering regulation, is to the effect that the commission now acting on behalf of the Federal Government of Nigeria will engage Original Equipment Manufacturers as third parties to ascertain the engineering integrity of each of the meters that have been installed in Nigeria upstream for the first time in history to ensure that these meters actually deliver in line with the industry standards and their calibrations so that we will be able to avoid what is in the industry called metering inaccuracies. When that is done, the nation will be able to save at least billions of dollars in terms of revenue, which ordinarily, the nation would have been losing. But in terms of this specific company you’re talking about, I have not seen something factual.
Why is Dangote Refinery not getting crude oil, which in the PIA is a direct obligation?
Section 109 of the Act actually provides for domestic enforcement of domestic crude oil obligation and I want to say that the Nigeria Upstream Petroleum Regulatory Commission, as a technical and commercial regulator for the industry, actually proactively came out and brought together the producers and the refiners, including NNPC.
So, what happens in this respect is that the NUPRC receives the volume of the domestic requirement from its sister agency, the Nigeria Midstream and Downstream Petroleum Regulatory Agency and factors this volume to the various producers, and ensures that they make available this obligation to the domestic refiners. And I need to say that there’s a provision of ‘willing buyer, willing seller’ in the PIA. So, the regulator, that is the NUPRC, is guided strictly by that provision of the law.
After the initial engagement, in which, of course, all the refineries in the country, including the representative of the Dangote Refinery, were present at that meeting, the next thing that happened was that the Commission recognized the fact that the parties were not playing according to the rules of the game.
To say the least, crude oil supply follows international principles, and the Commission came out again and, as I speak, we have been able to proactively put in place what we call the rule of engagement between parties that has already been enforced. Again, having done that, we realize that the domestic refineries came up with the issue of pricing, and we reviewed that issue.
I need to stress the fact that the approach, the formula by which the Commission publishes the fiscal oil price as prescribed in the Petroleum Industry Act follows the best practices. We took a review of the approach that other OPEC countries adopt in price setting and we found out that we are in alignment with the market and the best practices. So, one thing we need to avoid as a nation is that in setting product prices in the upstream, we must avoid the pitfall of what had happened to us, the way we manage the downstream aspect of the industry that created what we call under recovery and of course, the subsidy issue. So, we are trying to avert in the upstream, the possibility of having under-recovery in the manner that it will be a disincentive to investment in the upstream.
Dangote used his earnings to build a refinery and the man can’t get crude? Can’t you whip the IOC? How can you sanction these IOCs once and for all?
If you listen to my explanation, I said, yes, in recognition of the provisions of the Petroleum Industry Act that makes domestic crude obligation supply to the domestic refineries as obligatory. I said the Commission has enforced that, and the issue is not that the IOCs or other producers are refusing to make crude available. So, to the best of the knowledge of the Commission, there is nothing like IOCs being too big or not complying with their statutory obligations to make crude available. I think that is erroneous, and I need to make that very clear.
So, the IOCs or other producers, none of them is refusing to comply with the provisions of the law of the Federal Republic of Nigeria and the Commission is in no way shying away from this. So, that needs to be made very clear. I think there’s a wrong perception here. Making the crude available is done at a price, and this price is the provision of the law and it should be done on the basis of ‘willing buyer, willing seller.’ I think it is quite erroneous because it is not as if any producer is refusing. No producer is refusing to make crude available to Dangote refinery or any domestic refinery whatsoever.
The main point that Olisa Agbakoba made was that the PIA is due for review. Do you agree with that?
Of course, I listened to his position and I quite don’t agree with some of the positions, given the fact that some of his assertions are not granted in law as well. For instance, he alluded to the fact that the NNPCL is a regulator and that does not have a basis in law. The Petroleum Industry Act, under Part 3, Part 4 and 5 provided for two regulators, that is the upstream regulator and the mid and downstream. The NUPRC under my watch is the upstream technical and commercial regulator and we have, within our period of inception of office been implementing the provisions of the law.
To date, we have been able to gazette 17 regulations, and these regulations were made under the provisions of the law, and they have been enforced as a rule of uniform application that equally applies to NNPC. So, for us, as a regulator, we treat NNPC the way we treat ExxonMobil or any of the IOCs.
So, to that extent, the position of the learned SAN is not grounded in law. To other issues such as corruption, let me just put it this way that the Nigerian oil and gas industry is endowed with the best of expertise in the country and some of the best of expertise are found in Nigeria’s oil and gas industry.