‘How to halt dearth of investments in oil sector’

NIGERIA should adopt the Participating Interests Percentage Assignment Memorandum (PIPAM) as an alternate funding arrangement for oil exploration in the country as sources of finance by financial are drying up due to the price of crude oil in the international market.
Speaking the innovative funding arrangement in Abuja yesterday at a book launch titled ‘Structuring of innovative finance schemes for funding of petroleum production in Nigeria: legal and tax issues, a lecturer at Baze University, Dr Perisuo Dema, explained that the powers of the Minister of Petroleum Resources which does not have a limit on the days or months he or she is expected to grant approval as contained in paragraph 14, Schedule 1 of the Petroleum Act 1969 and re-enforced by the courts in the case of Moni Pulo versus Brass Petroleum Unlimited makes this funding arrangement even much more desirable.

He further argued that PIPAM is a structured contractual mechanism and a special purpose vehicle through which a participating interest holder in a petroleum acreage and a shareholder in the licensee company will be able to collaterise its shares as a floating charge, in order to raise the requisite finance to pay for the proportionate work programme commitment, without the fear that its intended financing deal will be frustrated.

Indeed, what the Nigerian petroleum upstream license grants the licensee is a possessory interest and not title to the asset. If the license is to be used by the licensee as bankable collateral, the Nigerian Petroleum Act prescribes that the consent of the Minister of Petroleum Resources must first be sought and received by the licensee. There is no statutory provision of how the Minister may ‘take his or her time’ to act and as such ‘time taking’ could ruin the prospect of such debt financing as the fund provider may have used the earlier allotted amount of money to finance other projects.
He added: “It is not so much of the pedigree of a company’s directors and its non-hydrocarbon assets (petroleum reserves) that is consequential, but more of the volume of crude oil/natural gas in the transaction area and the value of the discount rate and hurdle rate obtainable from future cash flows therefrom that is significant.”

Dr Dema, who is also the author of the book, posited that reserve base finance needs to be deepened in Nigeria through a robust legal framework that take account of the global trends in financing petroleum production.
He therefore recommended the enactment of a reserve base finance law that gives pre-eminence to future flow receivables; classification of bankruptcy laws as it pertains to scrutinizing oil and gas sector and establishment of indigenous credit rating agencies which would reduce the cost of the securitization process.

In her intervention, former company secretary of the NNPC, Prof Yinka Omorogbe lauded President Muhammadu Buhari for appointing himself Minister of Petroleum Resources.

She said: “The peculiarities of President Muhammadu Buhari made him the most perfect person to occupy the position of the Minister of Petroleum Resources. Buhari is not the first President to be Minister but he is the first to openly mention it that he will assume the position. Both former Presidents Obasanjo and Yar’Adua were Ministers of Petroleum Resources during their time in office.”
While calling for the establishment of a structured legal framework for the oil sector in Nigeria, the University of Ibadan Prof of Petroleum law submitted that the country cannot run its oil and gas sector without legal reforms.
She added: “The Petroleum Industry Bill (PIB) is all about legal reform.

Nigerians should not really care about the nomenclature of the document, what we should care about is what is contained in the document. Any legal instrument that allows us to have a strong industry that impact positively on the lives of Nigerians is the most important thing. Legal reform is an intrinsic part of the PIB. There are many aspects of reforms, but legal reform is indispensible. We cannot do anything about the sector without having the law that will serve as the bedrock.”

She said the reform initiated so far by the Buhari administration might likely succeed because of the nature of the President.
Her words: “The first step to begin endurable reform is to have a President that has the political will and I believe that President Buhari has that political will to do that which is right. President Yar’Adua had the political will but it did not move as fast as one would expect but it did lead to the fashioning of the PIB law even though it was not passed into law.”

Omorogbe also said while the restructuring of the NNPC is a welcome development; she said the repositioning must also be legalized.
“Reform has started at the Nigerian National Petroleum Corporation (NNPC) by way of internal restructuring but it is not legal yet. The process though small but is very important of total reform and that first step is very critical,” she explained.