Upstream Operation: FG Seeks More Favourable Funding Options
From Onyebuchi Ezigbo in Abuja
The Special Adviser to President on Petroleum and Energy Matters, Dr. Edmund Daukoru has said that the search for alternative funding window for the Exploration and Production (E&P;) activities in the Upstream sector of the oil and gas industry would now focus on such conditions that will guarantee higher leverage for the country in the sharing of the accruing revenue.
Speaking in Abuja, Daukoru said the alternative funding 'Carry Arrangement' developed in the late 1990's, have fully run its course and are no longer suitable and sustainable.
"We need to structure a funding model that effectively removes the burden of funding new Greenfield oil development projects from NNPC while leaving government net revenue intact. The alternative funding Carry Arrangement developed in the 90's, though suitable for those times and needs, have fully run their course and are in my view, no longer sustainable," he said.
He said the sustantial reduction in the NNPC's share of the oil production, mostly attributable to capital cost overruns and unfavourable risk/reward balance, are hard lessons for NNPC and Government that has framed the search for alternatives.
He said that NNPC, Upstream oprators and Ministry of Finance would have to work closely to formulate a new alternative funding package that will meet the aspirations of government without dapening the enthusiasm of operators to carry out new greenfield oil projects on their own.
Group Managing Director of NNPC, Engr. Funsho Kupolokun had identified inadequate funding as one of the major inhibiting factors slowing down the operations in the oil and gas industry and threatening the actualization of the Federal Government's goals.
He said that out of the $7 billion is to be provided by NNPC aside from other requirement in gas sector.
Kupoloku said the corporation is faced with the challenge of how to make up the amount from the $3.2 billion approved by the Federal Government in the 2004 budget.
He listed some of the funding options open to the industry to include, re-structuring NNPC assets to make for self-funding (commercialization of the corporation), reduction of government cas commitment by collaborating with Joint Venture companies in the sourcing of funds and scaling down government stake in the joint venture agreement.
Other initiatives involves converting a forward-look CAPEX in JVs to PSC and what he described as a traditional funding formula where the corporation enters into supply agreement with some its reliable consuming countries.
Explaining each option, the GMD said government's stake in the JV operations could either be partially reduced to 51 percent or totally withdrawn but he was quick to add that both options my not be possible as the federal government may want to avoid its experience in 1989 and 1993.
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