Back to business as usual with Buhari
The Nigerian president is likely to remain a difficult partner for oil firms in his second term in office
Muhammadu Buhari's victory in February's presidential elections reinforces the incumbent's control over the development of the Nigerian hydrocarbons sector. But those hoping that stability at the top for another four years could enable long-gestating radical reforms within the industry finally to be enacted may be disappointed.
The size of 76-year-old Buhari's win surprised some Nigeria watchers who had expected the main opposition candidate, the 72-year-old businessman Atiku Abubakar, to run him closer. Buhari, representing the All Progressive Congress (APC), took around 56pc of the vote, while Abubakar, leader of the People's Democratic Party (PDP), came second with 41pc.
As is customary in Nigerian elections, the vote was split on a regional basis, with Buhari taking the populous north and most of the west of the country — including Lagos state — while Abubakar won in the south and east. As is also the norm, there were allegations of vote rigging and intimidation in some polling centres.
Abubakar said the vote had been subject to "malpractice", calling it "a sham", promising to challenge the result in court. On 18 March, Abubakar launched a legal challenge over the election result. The court could take up to 180 days to produce a judgment on the case, which could then go to the Supreme Court if there is an appeal. No legal challenge to a Nigerian presidential election has ever been successful.
One of the more significant electoral statistics was the 35.6pc turnout — a record low for a presidential election. Turnout for state and governorship elections that took place in early March was even lower.
These figures underscore popular disillusionment with the political class, which has long failed to win public confidence or stimulate the economy of Africa's most populous country. GDP growth in the fourth quarter was a modest 2.4pc, which was still the fastest for two years, as Nigeria struggles to recover from the effects of the post-2014 downturn in the hydrocarbons industry. This sector provides around 90pc of export revenues and well over half of state revenue.
While political stability ought to be positive for implementation of oil and gas sector reforms, which appeared to have Buhari's backing early in his first term, the omens are not good. Promises that the regulatory framework would be overhauled, including the break-up of state oil company Nigeria National Petroleum Corporation (NNPC), have largely remained unfulfilled and little has been done to dilute central control of the licensing process.
A Petroleum Industry Bill, which had failed to get into law for a decade, was split into several more manageable pieces of legislation in the hope that agreement among lawmakers could be reached more readily on those. But that process has been glacial in pace.
56pc — Buhari's share of the vote
Buhari's absence from Nigeria for more than a year until mid-2017 to receive treatment for an undisclosed illness did not help, especially given his notorious reluctance to delegate responsibility. Then, when the first tranche of the legislation, the Petroleum Industry Governance Bill (PIGB), did manage to pass both houses of the Nigerian parliament in 2018, Buhari refused to put his signature to it and has yet to sign it.
His team said his objections stemmed, in part, from concerns over the share of oil revenues to be allocated to a proposed new oil regulator. The underlying reason may be concern that the bill would diminish the power over the industry held by the petroleum minister, a post which Buhari currently holds, in addition to the presidency.
Analysts do not expect a radical change of approach now. Nigeria specialist Matthew Page, an associate fellow at think tank Chatham House, says there are two likely scenarios for oil sector legislation. "The first is that we will see about as much movement in his second term as we saw in his first term — there will be a lot of talk, but also inertia and friction in terms of getting consensus and agreement. The other possibility is that he could eventually reluctantly sign the [PIGB] legislation and then not fully implement it, or slow-roll it in other ways."
Gail Anderson, a sub-Saharan Africa analyst at consultancy Wood Mackenzie, says she also remains to be convinced of Buhari's appetite to weaken his control over an industry that accounts for the lion's share of the country's export revenues. "Fiscal reforms are still at senate committee reporting stage in the current National Assembly, which runs until 9 June. This makes for a long transition period… when little progress is likely." Anderson adds that when the new assembly opens in June, all bills will need to be re-tabled, from first reading onward, contributing to what is likely to be a legislative roadblock.
Legislation aside, the foreign investment climate looks far from ideal, given the less-than-tranquil relationship between international oil companies (IOCs) and the government.
Just prior to the elections. the government sent letters to IOCs operating offshore demanding a total of around $20bn in what it said were unpaid royalties and taxes owed to Nigerian states, according to media reports. Companies that had commented by mid-March, including Shell and Norway's Equinor, said they believed the claims had no merit.
Meanwhile $1bn-plus of international legal cases against Shell and Eni rumble on in Italian, Dutch and UK courts, relating to funds allegedly misappropriated for bribes and kickbacks during the acquisition of offshore block OPL 245 in 2011. While this relates to an eight-year-old deal, it draws attention to Nigeria's long-standing reputation as a hotbed of corrupt business practices, which it has yet to shake off.
Uncertainty over the future investment climate is not an ideal backdrop for negotiations with the IOCs over new production-sharing contracts (PSCs) for licences up for renewal over the next five or so years, some of which are already under way.
Chatham House's Page does not expect the government to make life easier for the IOCs by charting a clear course towards new agreements or being generous in the terms on offer. "I don't see a lot of proactive policymaking taking place to give the sector and outside investors certainty, because that just is not how the Buhari government has operated thus far," he says. "There may be some sort of eleventh-hour decision. The administration's governance style in general is reactive and ad hoc, and does not seem to involve a lot of forward planning."
Given that Nigeria's oil production costs remain relatively high compared to rival producers globally, despite some success in lowering them in recent years, government brinksmanship over the terms of future PSCs risks deterring IOCs from operating in Nigeria, rather than boosting export revenues, analysts say.
Delicate Delta diplomacy
The potential for further unrest in the volatile Niger Delta, where the onshore oil industry is centred, is another area of uncertainty. Militant groups in the region —whose states voted heavily in favour of Abubakar in the presidential elections — threatened to increase attacks on oil installations if Buhari won.
However, the political stability that Buhari's victory brings may yet prove an advantage in maintaining what peace process there is in the region. After a deterioration in relations between the federal government and local communities early in Buhari's first term, underlined by an increase in attacks, the atmosphere has since become calmer.
"Sinewy and symbiotic relationships have developed between government officials, militants and ex-militants, the security forces and even the petroleum companies in the Niger Delta. These people have stakes in the process and will continue with it as they did before," Page says.
For the IOCs in Nigeria, it is back to business as usual for the next four years — a period that could be a make-or-break for the industry. By the next election, due in 2023, it should be clear whether enough will reinvest to realise the country's ambitions to boost oil production substantially above 2mn bl/d.