Written by Macdonald Ziltwe
LAGOS (Reuters) – Nigeria’s decision this week to block Shell’s $2.4 billion sale of onshore assets sent a negative signal to investors that the country urgently needs to strengthen its most important oil sector. analysts said.
As Africa’s most populous country faces a financial crisis, President Bola Tinubu has sought to attract foreign investment, with some success.
But this week, upstream regulators surprised many in the industry by refusing to approve a $2.4 billion deal between Shell and the locally-dominated Renaissance consortium.
The reasons for the decision were not disclosed and Shell has not yet commented. Its relationship with the company goes back more than half a century and it is one of the largest investors in oil, the backbone of Nigeria’s economy and its biggest earner of foreign exchange.
A similar deal by Exxon Mobil to sell 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. said.
“On the one hand, the government says we are open for business. We want to improve the ease of doing business. We want to engage with the world’s largest energy investors. But on the other hand, there are significant delays in approvals,” Wallop said.
“Delays are hampering the success of the Tinubu administration’s major investment drive, with implications beyond the energy sector.”
downward trend
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 insists that increasing crude oil production, which remains below 1.35 million barrels per day compared to the target of 2 million barrels per day, will ease 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.
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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 think the country needs to do more to attract investment to the (oil and gas) sector. One of them is to improve the speed at which regulatory approvals are granted.” said Ayodele Oni, an energy lawyer and partner at the Lagos-based Bloomfield Law Firm. practice said.
But some investors are encouraging it.
Kola Karim, CEO of Shoreline Energy International, a power and energy group with operations in Nigeria, said the assets acquired by Seplat were “low-hanging fruit” and could quickly expand production. He said that it is possible to shift towards
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 long time, there is major alignment between the government and oil companies,” Kola said.
(Reporting by McDonald Zirtuwe; Additional reporting by Libby George in London and Isaac Anyaogu in Lagos; Editing by Barbara Lewis)