The federal government’s recent decision to block Shell’s planned $2.4 billion sale of its onshore assets has raised concerns among analysts, saying it could lead to significant losses needed to strengthen Nigeria’s vital oil sector. It warns that this could hinder investment.
Analysts told Reuters on Wednesday that the government was sending mixed signals on its efforts to attract investment, saying long delays in the approval process were deterring potential investors and slowing economic growth. He expressed concern that this could be a hindrance.
As Africa’s most populous country faces a financial crisis, President Bola Tinubu is trying to attract foreign investment, with some success.
But on Monday, the Nigeria Upstream Petroleum Regulatory Commission refused to approve a $2.4 billion deal between Shell and Renaissance Consortium, which is dominated by local companies, shocking many in the industry.
The reasons for the decision were not disclosed and Shell has not yet commented.
Its relationship with the company dates back more than half a century and it is one of the largest investors in oil, the backbone of Nigeria’s economy and its largest earner of foreign exchange.
A similar deal to sell ExxonMobil’s onshore assets to Seplat Energy was approved this week, after more than two-and-a-half years.
Clementine Wallop, director of sub-Saharan Africa at political risk consultancy Horizon Engage, said the difficulty in obtaining regulatory approval is clashing with the president’s quest to attract outside investment. commented.
“On the one hand, you have a government that says we are open for business. We want to improve the ease of doing business. We want to engage with the world’s biggest energy investors, but on the other hand, we want to improve the ease of doing business. So there’s been a long delay in getting it approved,” Wallop said.
“Delays are hampering the success of the Tinubu administration’s major investment drive. It has implications beyond the energy industry.”
Total foreign investment inflows fell from $5.3 billion in 2022 to $3.9 billion last year, according to data from the National Bureau of Statistics, as Nigeria’s economy failed to recover from the shock of the pandemic and its impact on oil demand.
It continued a downward trend that began five years ago, when investors pumped in $24 billion.
The oil assets Shell is selling are producing below capacity or not at all, but will increase with investment.
The government argues that increasing crude oil production, which is still below 1.35 million barrels per day against a target of 2 million barrels per day, will help alleviate the dollar shortage.
Foreign exchange shortages and the plummeting value of the naira have forced non-oil multinationals such as Procter & Gamble, GSK Plc and Bayer AG to either exit Nigeria or appoint third parties to distribute their products. It has become.
Meanwhile, MTN, Africa’s largest telecommunications operator, and soap maker PZ Cussons blamed Nigeria’s currency crisis for losses.
Analysts say faster regulatory approvals will help win much-needed investment, but other issues such as power shortages and corruption could be more complex to address. Also listed.
“I believe this country needs to do more to attract investment in the oil and gas sector. One such measure is to improve the speed at which regulatory approvals are granted. ,” said Ayodele Oni, a partner and energy lawyer at the Lagos-based Bloomfield Law Firm.
But some investors are encouraging it.
Kola Karim, CEO of Shoreline Energy International, a power and energy group operating in Nigeria, said the assets acquired by Seplat were “low-hanging fruit” and could be put into production immediately. He said it could be expanded.
He also said other measures, including an executive order last month increasing the amount oil companies can spend without bidding to $10 million, will help shorten project timelines.
“For the first time in a while, there is great alignment between the government and the oil companies,” Kola said.
