At no better time than now does the government of Nigeria need to rethink how it runs its oil-dependent economy and act on the best model for the oil and gas industry.
The country has over the years had the unenviable challenge of adequately funding its petroleum sector despite its enormous contributions to the annual revenue of the nation. This inadequacy of funding brings about many of challenges for the international oil companies (IOCs) operating in the country under joint venture arrangements with the government. The situation had been grave even at a time when a lot of revenue was being made from crude oil as a result of high production and prices. Now that crude oil production and prices are at their lowest, it is not difficult to imagine or indeed, appreciate that funding shortfalls will be more severe as government’s indebtedness trends upwards.
Granting that the current bad situation in that sector could even get worse, it has become imperative that more strategic and enduring approaches be conceptualised and put to use to resolve the huge funding gaps in the joint venture businesses between the government and the international oil companies.
This is where the suggestion to President Muhammadu Buhari by Dr. Emmanuel Egbogah, one of the best in the industry and a former Special Adviser on Petroleum Resources, deserves thorough and urgent consideration by the government.
Dr. Egbogah had proposed “a conversion of all joint ventures (JVs) to Incorporated Joint Ventures (IJVs) which can obtain loans and/or go to the capital market for funding.’’ This, according to him, will align the Nigerian joint venture operational modality to what happens in countries like Oman and Egypt. Dr. Egbogah asserts that converting the existing joint ventures in the oil and gas sector into incorporated joint ventures has many benefits, a key one of which is freeing the ventures from funding uncertainty due to inadequacy of funds deployment by the government.
Clearly, lack of or inadequacy of finance is a big challenge for the realisation of full potentials of the joint ventures. If a sure source of funds flow can be found and tapped, then the headache will not only be removed from the government but the catalytic effect will tremendously impact positively on the sector and hence, the whole economy.
In that regard, Egbogah prescribes turning the existing joint ventures into incorporated business ventures that can independently source funds from the open market for their operations. That way, the companies can operate without having to look unto the government for financing. Thus, the Federal Government will be freed from directly funding the joint ventures from its dwindling finances. The suggested new approach also implies that the government will concern itself with regulating and supervising operations of the incorporated joint ventures as well as enforcement of laws, regulations and established standards. It needs emphasising that incorporating the joint ventures will not have any adverse implications on the ownership of the businesses. As proposed, the parties in the existing joint ventures will retain ownership of the new companies in the proportion of their existing shareholding. Meaning that, the Federal Government will still retain the lion share of 55-60% while the oil companies will hold 40-45%.
When all of these happen, there will be more transparency and accountability in the management of the ventures, especially as providers of funds, will demand good corporate governance and best practices in the handling of affairs of the companies. In other words, an incorporated joint venture that fails to meet market requirements and demands will have itself to blame if starved of funds. This is unlike the current practice where the joint ventures look up to the government for funding the cash calls.
No doubt, incorporation of the joint ventures will end government’s consistent difficulty in meeting its side of the cash call obligations. However, in getting to realise the conversion, there are likely to be some challenges. First is getting the government to situate the suggestion in proper perspective given the realities facing the nation. Second is mustering the needed political will to cause the needed incorporation of the joint ventures. Incidentally, this is one change that should have taken place a long time ago to assist the government to free financial resources and deploy them to other needy areas in the socio-economic space. Third, the subsisting laws will need to be looked into with a view to effecting amendments where necessary so that all legal bottle-necks are removed.
In this wise, consideration must be given to the role the legislature will play to ensure a smooth transition from joint ventures to incorporated joint ventures. Even, in view of the fact that the lawmakers may perceive the move to result to limiting the scope of their oversight functions and accompanying benefits, it will be important to develop and implement effective strategies towards obtaining their buy-in as well as support. The fourth challenge is assuring that the incorporated companies can easily source funds via the capital market. There will also, most probably, be the issue of availability and adequacy of experienced human capital within the country to successfully manage the incorporated joint ventures.
Finally, for the government to embark on incorporating the joint ventures there will certainly be the need to carry along the joint venture partners. Negotiations may be carried out to reach necessary understanding. There is no doubt, however, that the oil companies will appreciate the essence of the incorporation and support same given their usual unpalatable experiences with the government in funding cash calls.
This country needs workable and positively impactful ideas, given the times. Credible suggestions that can turn around our current low productivity and its associated socio-economic challenges, rather than criticisms, are in dire need. The proposal for the incorporation of the joint ventures is one such idea that requires urgent consideration and decision. The government should, therefore, not close its eyes and ears to the proposal. While further evaluation, thereof, should quickly be embarked upon, it is imperative that a detailed framework for its implementation be worked out. The earlier a decision is made on this, the better for the oil and gas sector and the national economy.