Energy & Technology

Nigeria’s Oil Sector Stifled by Bureaucracy: 20 Agencies Hamper Investment

Gas flaring in Nigeria

Nigeria, home to 37 billion barrels of oil reserves—the largest in sub-Saharan Africa—should be a prime destination for oil and gas investors. However, a complex web of bureaucracy involving up to 20 federal agencies is driving investment away to smaller oil-producing nations.

According to experts surveyed by BusinessDay, overlapping responsibilities and conflicts among regulatory agencies are deterring fresh investments in Nigeria’s oil and gas sector, which is crucial for Africa’s biggest economy. “Rather than an efficient and investor-friendly atmosphere, regulatory disarray prevents Nigeria from receiving much-needed economic advantages by discouraging new investments and impeding the expansion of ongoing initiatives,” a foreign investor familiar with the African market stated.

BusinessDay’s findings reveal that oil and gas investors in Nigeria must navigate business engagements with at least 20 government agencies regulating operations, environments, contracts, and procurement-related matters.

These include the Federal Ministry of Petroleum Resources, Nigerian National Petroleum Company Limited, Nigerian Upstream Petroleum Regulatory Commission, Nigerian Content Development and Monitoring Board, Federal Inland Revenue Service, Nigeria Immigration Service, Niger Delta Development Commission, and Hydrocarbon Pollution Restoration Project (HYPREP).

Additionally, firms in the upstream sector must contend with the Nigerian Petroleum Exchange (NipeX), Nigeria Customs Service, National Maritime Administration and Safety Agency, National Oil Spill Detection and Response Agency, NNPC Upstream Investment Management Service, and Nigerian Ports Authority.

Other involved agencies are the Bureau of Public Enterprise, Nigerian Midstream and Downstream Petroleum Regulatory Authority, Nigerian Nuclear Regulatory Authority, and state-level commissioners of energy and environment. The Nigerian Police Force also issues permits for setting up retail petrol filling stations.

Dapo Akinosun, senior partner at SimmonsCooper Partners, noted that this bureaucracy leads to rampant bribery and corruption, with officials sometimes exploiting the complexity for personal gain, thereby eroding trust and increasing operational risks. “The prolonged processes for obtaining necessary licences and approvals can significantly delay projects, inflate costs, and deter potential investments,” Akinosun explained. “The lack of predictable timelines for regulatory approvals creates uncertainty, complicates project planning, and can discourage long-term investments,” he added.

In contrast, smaller African countries like Angola, Mozambique, and Namibia are attracting growing interest from oil and gas investors due to their streamlined regulatory environments. For instance, Angola’s deep-water discoveries have made it a hot spot for investors. The country’s Ministry of Mineral Resources, Oil and Gas (MIREMPET) and the National Oil, Gas and Biofuels Agency (ANPG) serve as the main regulators. ANPG, established in 2019, ended state-owned Sonangol’s multiple roles as regulator, concessionaire, and operator, allowing Sonangol to focus on research, production, and other activities.

Mozambique’s Ministry of Natural Resources (MIREME) and the National Petroleum Institute (NPI) regulate the oil and gas sector, while Namibia’s Ministry of Mines and Energy’s Directorate of Petroleum Affairs oversees upstream operations and issues petroleum licences.

A senior oil executive, requesting anonymity, stated that many Nigerian agencies are driven by personal interests rather than institutional mandates. “The problem with Nigeria is the rent-sharing and rent-seeking mentality in the oil and gas sector because most agencies know there is money in the sector and they want to be partakers,” he said.

To address these challenges, Akinosun emphasized the importance of executive orders in streamlining bureaucracy within Nigeria’s oil and gas industry. “These directives have the potential to significantly enhance efficiency, promote transparency, and foster investment by simplifying regulatory processes and enforcing accountability,” he said.

On February 28, 2024, President Bola Tinubu signed three Executive Orders aimed at improving the investment climate and positioning Nigeria as a top investment destination for the petroleum sector in Africa.

BusinessDay found that one of these orders legally mandates that the contracting cycle be compressed to a maximum of six months, aligning with global industry standards and significantly reducing delays that previously took up to two years or more.

The Executive Order also mandates NNPC, NUIMS, and NCDMB to implement a single-level approval process for requalification, technical, commercial, and final stages, ensuring approval within 15 days.

This is expected to eliminate redundant multi-stage approvals, foster timely project execution, and reduce compliance costs. Akinosun suggested that additional executive orders enforcing strict penalties for regulatory bodies failing to meet deadlines would ensure adherence to these timelines, thereby reducing delays.

Previous Article

Nigeria Loses N149bn to One-Day Oil Workers Strike

You might be interested in …

Leave a Reply

Your email address will not be published. Required fields are marked *