Oil & Energy

OGFZ And The Challenges Of FDI In Nigeria

Published

14 years ago

October 10, 2010

The Federal Government of Nigeria recognizes trade as the driving force of the economy. For this reason, it has developed a national trade policy aimed at keeping pace with global trends and standard in the facilitation of commerce and industrial activities across borders.

To showcase its vast potential in the energy sector for investment opportunities in the country, the Federal Government established the Onne Oil and Gas Free Zone Authority (OGFZA), in Eleme Local Government Area of Rivers State, as an investment promotion agency saddled with the responsibility of attracting direct foreign investment into the oil and gas sector of the nation’s economy.

With about 37 billion barrels of crude oil reserves and 187 trillion cubic feet of natural gas reserves, Nigeria has a vast energy resource base. This is why it is seen generally as the single largest market in the Sub-Saharan Africa.

The Onne OGFZ is therefore, a tax-free centre for the processing, manufacturing and assemblage of goods, which ultimately encourage the acquisition of skills, promote transfer of technology, boost local content development, enhance foreign exchange earnings, and facilitate backwards integration of the country.

Indeed, the Onne OGFZ falls under the jurisdiction of the Federal Ministry of Commerce and Industry, and is expected to leverage incentives from the ministry to attain its set objectives. But the question is: Has the Onne OGFZ taken advantage of the litany of windows provided by the various policies of the ministry in a bid to meet set targets?

Well, it was to ascertain the agency’s efforts to realize its mandates that the Minister of Commerce and Industry, Senator Martins Kuye, recently paid an official visit to the headquarters of the oil and gas free zone at Onne, for an on-the-spot assessment of achievements made so far, and challenges facing the free zone. Kuye, who was accompanied by top functionaries of the ministry during the visit, recognized that to unlock the potentials of the country, “strategy had to be added to policy to make it deliverable”.

Perhaps, it was to show the strategic steps taken to add value to government policy, that the Chairman, Governing Board of the Onne Oil and Gas Free Zone Authority, Ambassador Adamu Aliyu, in his address during the visit, listed the fundamental challenges faced by the authority in course of its operations. Although the free zone has recorded scores of achievements within the short period of its existence, the board chairman disclosed that the free zone has faced some basic problems such as confusion over jurisdiction of land.

He stressed that across the globe, the concept of free zone is anchored on the premise that once an area is declared a free zone by the government, powers over management of the entire land mass so declared are vested on the free zone authority. However, he noted that at the Onne free zone, there was confusion on who has jurisdiction over the zone’s land in view of the non-implementation of the provisions of section 7 of the law establishing the authority, and appealed to the minister to wade into the matter, and ensure the justice is done.

Other teething problems faced by the free zone, according to Aliyu, are the dearth of standard infrastructure, such as durable roads and a solid link bridge to Ikpokiri Island, which is a designated part of the free zone. He described the inaccessible Ikpokiri Island as the most suitable site of the free zone for most downstream industrial projects, such as refinery, petrochemical and fertilizer plants. To fully develop the Ikpokiri Island to the desired standard, the chairman said a deal has been sealed with the Rivers State Government, which has also shown considerable interest in the partnership arrangement with the free zone to develop an energy city in the island.

According to the free zone’s chairman, the non-streamlining of the functions of the Nigeria Export Processing Zone (NEPZ) and that of the Oil and Gas Free Zone (OGFZ), is one of the lingering problems impeding effective operations of the authority. To address this conflict, the free zone authority is seeking the interpretation of laws establishing both NEPZA and OGFZA to specifically identify the designated duties of the respective agencies.

“He noted thus: “We wish to inform the minister that despite the interpretation given by the Federal Ministry of Justice, nothing has been done substantially to sort out the issues raised in respect of the distinct roles of the two agencies”. To structure the fee zone to enable it achieve its strategic goals, the board also requested government support in the provision of power supply and telecommunications infrastructure to aid rapid industrialization.

The Managing Director of the authority, Dr Noble Abe, took the session through a thorough explanation of the objectives of the free zone vis-à-vis, the challenges of direct foreign investment. He said the OGFZ, Onne enjoys an unrivalled strategic position in West Africa and the world at large, and stressed that there was need to exploit the comparative advantage of the vast oil and gas resources to attract investment to the zone.

According to the managing director, the free zone, which became active in early 1997, has attracted the major oil field operators, who recognized the apparent advantages and tax benefits associated with the unique facility. From a humble beginning of eight registered companies, the free zone boss explained that the OGFZ now can boast of more than 122 functional companies.

Although the OGFZ has the prospect of being the largest growing and dedicated free zone in the world, Abe said such potentials, which are anchored on the vast natural energy reserves can only yield the desired impact if the necessary logistics and incentives are provided. For him, “the mere use of the term free zone without employing our area of comparative advantage can not lead us to achieving our strategic goals. Nigeria is the largest producer and exporter of oil and gas in Sub-Saharan West Africa. Nigeria is the natural hub for distribution of oil and gas materials in the sub region while in Nigeria; Onne is at the heart of the oil and gas industry, with all necessary facilities in place. The free zone authority has the potential to attract great investments and creating job opportunities for the people”.

Excited by what he saw on the ground, the Minister of Commerce and Industry, Senator Martins Kuye, commended the board and management of the free zone for their strategic vision in transforming to realistic terms the objectives of the free zone. He emphasised that the concept of free trade in Nigeria should be made attractive to woe potential investors to not just the zone and Rivers State but also the Niger Delta and the country at large.

The minister lamented the poor state of infrastructure at the free zone, and assured that the federal Government would make provision in next year’s fiscal allocation to revamp the area, and make it attractive for foreign direct investment. He described the oil and gas free zone as a veritable tool for the development of the nation, which must not be allowed to droop into palpable decay and institutional rot.

But in a show of the state’s commitment towards the realization of the goals of the free zone, the Rivers State Commissioner for Commerce and Industry, Mr. Ogbonna Nwuke, assured that the state government would complement the efforts of the federal Government to promote investment drive in the oil and gas free zone, essentially through the creation of enabling environment for business to thrive. Nwuke explained that Rivers State Government’s commitment to make the free zone succeed was reflected in the already existing partnership between the government and the free zone authority in the Ikpokiri Island development project.

However, the extent to which the free zone will succeed largely depends on government determination to fully implement policies that directly fast track the achievement of set targets for the free zone authority. To be seen to have taken a lead in this direction, government needs to take a bold step in providing the desired logistics and incentives to accord the free zone the required international colouration in operations and standards.

Besides, the government needs to address, frontally, the burning question of conflict of duties between the OGFZA and the NEPZA, so that there is a clear cut distinction in functions and duties. The issue of jurisdiction over land also deserves urgent government intervention to remedy the spectre of confusion already enveloping the area, and which, of course, is capable of creating doubts in the minds of stakeholders on the sincere objectives of the free zone.

The issue of upgrading of infrastructure in the free zone to meet international standard is very crucial if the zone is desirous of attracting more foreign direct investment into the area.

This is because companies in the industry are looking for investment opportunities that give them the cutting-edge advantage to rake in quick returns on investments.

And given the competitive zest that the discovery of oil and gas in other parts of Africa, including West Africa provides, Nigeria needs to create and sustain a template that is unique for investors, esepcially by the demonstration of government’s commitment to ensure the safety and security of their investments while guaranteeing stability in economic policies. This way, it is possible to expect the flurry of foreign direct investments to the free zone, and efficient and quality service delivery to Rivers people in particular and Nigerians in general.

Beemene Taneh

Oil & Energy

FG Woos IOCs On Energy Growth

Published

2 months ago

March 11, 2024

The Tide

The Federal Government has expressed optimism in attracting more investments by International Oil Companies (IOCs) into Nigeria to foster growth and sustainability in the energy sector.
This is as some IOCs, particularly Shell and TotalEnergies, had announced plans to divest some of their assets from the country.
Recall that Shell in January, 2024 had said it would sell the Shell Petroleum Development Company of Nigeria Limited (SPDC) to Renaissance.
According to the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, increasing investments by IOCs as well as boosting crude production to enhancing Nigeria’s position as a leading player in the global energy market, are the key objectives of the Government.
Lokpobiri emphasized the Ministry’s willingness to collaborate with State Governments, particularly Bayelsa State, in advancing energy sector transformation efforts.
The Minister, who stressed the importance of cooperation in achieving shared goals said, “we are open to partnerships with Bayelsa State Government for mutual progress”.
In response to Governor Douye Diri’s appeal for Ministry intervention in restoring the Atala Oil Field belonging to Bayelsa State, the Minister assured prompt attention to the matter.
He said, “We will look into the issue promptly and ensure fairness and equity in addressing state concerns”.
Lokpobiri explained that the Bayelsa State Governor, Douyi Diri’s visit reaffirmed the commitment of both the Federal and State Government’s readiness to work together towards a sustainable, inclusive, and prosperous energy future for Nigeria.
While speaking, Governor Diri commended the Minister for his remarkable performance in revitalisng the nation’s energy sector.

Oil & Energy

Your Investment Is Safe, FG Tells Investors In Gas

Published

2 months ago

March 11, 2024

The Tide

The Federal Government has assured investors in the nation’s gas sector of the security and safety of their investments.
Minister of State for Petroleum Resources (Gas), Ekperikpe Ekpo, gave the assurance while hosting top officials of Shanghai Huayi Energy Chemical Company Group of China (HUAYI) and China Road and Bridge Corporation, who are strategic investors in Brass Methanol and Gas Hub Project in Bayelsa State.
The Minister in a statement stressed that Nigeria was open for investments and investors, insisting that present and prospective foreign investors have no need to entertain fear on the safety of their investment.
Describing the Brass project as one critical project of the President Bola Tinubu-led administration, Ekpo said.
“The Federal Government is committed to developing Nigeria’s gas reserves through projects such as the Brass Methanol project, which presents an opportunity for the diversification of Nigeria’s economy.
“It is for this and other reasons that the project has been accorded the significant concessions (or support) that it enjoys from the government.
“Let me, therefore, assure you of the strong commitment of our government to the security and safety of yours and other investments as we have continually done for similar Chinese investments in Nigeria through the years”, he added.
Ekpo further tasked investors and contractors working on the project to double their efforts, saying, “I want to see this project running for the good of Nigeria and its investors”.
Earlier in his speech, Leader of the Chinese delegation, Mr Zheng Bi Jun, said the visit to the country was to carry out feasibility studies for investments in methanol projects.
On his part, the Managing Director of Brass Fertiliser and Petrochemical Ltd, Mr Ben Okoye, expressed optimism in partnering with genuine investors on the project.

Oil & Energy

Oil Prices Record Second Monthly Gain

Published

2 months ago

March 11, 2024

The Tide

Crude oil prices recently logged their second monthly gain in a row as OPEC+ extended their supply curb deal until the end of Q2 2024.
The gains have been considerable, with WTI adding about $7 per barrel over the month of February.
Yet a lot of analysts remain bearish about the commodity’s prospects. In fact, they believe that there is enough oil supply globally to keep Brent around $81 this year and WTI at some $76.50, according to a Reuters poll.
Yet, like last year in U.S. shale showed, there is always the possibility of a major surprise.
According to the respondents in that poll, what’s keeping prices tame is, first, the fact that the Red Sea crisis has not yet affected oil shipments in the region, thanks to alternative routes.
The second reason cited by the analysts is OPEC+ spare capacity, which has increased, thanks to the cuts.
“Spare capacity has reached a multi-year high, which will keep overall market sentiment under pressure over the coming months”, senior analyst, Florian Grunberger, told Reuters.
The perception of ample spare capacity is definitely one factor keeping traders and analysts bearish as they assume this capacity would be put into operation as soon as the market needs it. This may well be an incorrect assumption.
Saudi Arabia and OPEC have given multiple signs that they would only release more production if prices are to their liking, and if cuts are getting extended, then current prices are not to OPEC’s liking yet.
There is more, too. The Saudis, which are cutting the most and have the greatest spare capacity at around 3 million barrels daily right now, are acutely aware that the moment they release additional supply, prices will plunge.
Therefore, the chance of Saudi cuts being reversed anytime soon is pretty slim.
Then there is the U.S. oil production factor. Last year, analysts expected modest output additions from the shale patch because the rig count remained consistently lower than what it was during the strongest shale boom years.
That assumption proved wrong as drillers made substantial gains in well productivity that pushed total production to yet another record.
Perhaps a bit oddly, analysts are once again making a bold assumption for this year: that the productivity gains will continue at the same rate this year as well.
The Energy Information Administration disagrees. In its latest Short-Term Energy Outlook, the authority estimated that U.S. oil output had reached a record high of 13.3 million barrels daily that in January fell to 12.6 million bpd due to harsh winter weather.
For the rest of the year, however, the EIA has forecast a production level remaining around the December record, which will only be broken in February 2025.
Oil demand, meanwhile, will be growing. Wood Mackenzie recently predicted 2024 demand growth at 1.9 million barrels daily.
OPEC sees this year’s demand growth at 2.25 million barrels daily. The IEA is, as usual, the most modest in its expectations, seeing 2024 demand for oil grow by 1.2 million bpd.
With OPEC+ keeping a lid on production and U.S. production remaining largely flat on 2023, if the EIA is correct, a tightening of the supply situation is only a matter of time. Indeed, some are predicting that already.
Natural resource-focused investors Goehring and Rozencwajg recently released their latest market outlook, in which they warned that the oil market may already be in a structural deficit, to manifest later this year.
They also noted a change in the methodology that the EIA uses to estimate oil production, which may well have led to a serious overestimation of production growth.
The discrepancy between actual and reported production, Goehring and Rozencwajg said, could be so significant that the EIA may be estimating growth where there’s a production decline.
So, on the one hand, some pretty important assumptions are being made about demand, namely, that it will grow more slowly this year than it did last year.
This assumption is based on another one, by the way, and this is the assumption that EV sales will rise as strongly as they did last year, when they failed to make a dent in oil demand growth, and kill some oil demand.
On the other hand, there is the assumption that U.S. drillers will keep drilling like they did last year. What would motivate such a development is unclear, besides the expectation that Europe will take in even more U.S. crude this year than it already is.
This is a much safer assumption than the one about demand, by the way. And yet, there are indications from the U.S. oil industry that there will be no pumping at will this year. There will be more production discipline.
Predicting oil prices accurately, even over the shortest of periods, is as safe as flipping a coin. With the number of variables at play at any moment, accurate predictions are usually little more than a fluke, especially when perceptions play such an outsized role in price movements.
One thing is for sure, though. There may be surprises this year in oil.