Nigeria National Petroluem Policy

2.1. Statement of the Petroleum Policy ............................................................. 19

2.2. Overview .................................................................................................... 19 3. INTRODUCTION AND BACKGROUND ........................................................... 21

3.1. Definition of Petroleum for the Policy ......................................................... 21

3.2. International Background ........................................................................... 21

3.2.1. Historic Prices ..................................................................................... 21

3.2.2. Forecast Prices .......................................................................... A ... 25

3.2.3. Cost of Producing a Barrel of Oil .............................................~ \ .. 28

3.2.4. International Refinery Business .........................................A .: .......... 28

3.3. Structure of the Nigerian Petroleum Industry ························ A ·\ ·········· 34

3.3.1. Nigeria Upstream .......................................................r-,,..'-J.............. 34

3.3.2. Nigeria Midstream Oil Network ······························h.:Y-J .................. 36

3.3.3. Nigerian Refineries ................................................ ~··"-······················ 38 ~:~::: ~~v~!~~~;t~f'r~~~ct~f ·p~i;~j~~;;;-~~-ijf U ~i ;;:: ::::::::::::::: ::::: 11

3.4. Need for a New Petroleum Policy ················v ···································· 44 4. VISION AND OBJECTIVES ......................... ✓-~··············································· 45

4.1. Vision············································~··· ... :, ............................................... 45

4.2. Mission.......................................... .......................................................... 45

4.3. Strategic Policy Objectives ······~ ··· ..................................................... 46 5. GOVERNANCE .......................~··· ... ~ ......................................................... 48

5.1. Legal and Regulatory Fra w k .............................................................. 48

5.1.1. Petroleum lndust~ g ion ........................................................... 48

5.1.2. Main Provisions ·sIation ............................................................ 48

5.2. Institutional Framei.\)rk ............................................................................. 49

5.2.1. Existing Re~ ry Agencies ............................................................. 49

5.2.2. Effect o~ revious Institutional Framework ................................... 49 ~:~:!: :~porti1•~ =~~~~t·P~t~~i~~~.Fi~9~1·~t~·~··c~~~i;~·i~~·:::::::::::::::::::: ~~

5.2.5. P~ hy of the Regulatory Structure .............................................. 51 5.2. ~ ~;;s~~m Institutional Framework ..................................................... 52 5.2. . ational Petroleum Policy Directorate ................................................ 52 ~ . trategic Planning and Policy Research Centre ................................. 53 ~ 9. Investment Promotion Office .............................................................. 53 ~ .2.10. Petroleum Safety Compliance ............................................................ 54 l 5.2.11. Technical Standards ........................................................................... 55

5.2.12. Metering and Measurement.. .............................................................. 56

5.2.13. Cost Monitoring and Control ............................................................... 56

5.2.14. Consumer Protection .......................................................................... 57

5.2.15. Donor Agencies .................................................................................. 57

5.2.16. Civil Society and Consumer Groups ................................................... 57

5.3. Commercial Framework ............................................................................. 57

5.3.1. Introduction ......................................................................................... 57

5.3.2. Access to Offshore and Onshore Networks ........................................ 58

5.3.3. Cost Benchmarking for Infrastructure Facilities .................................. 58 Ministry of Petroleum Resources 4 ====================================== Nigeria National Petroleum Policy

5.4. Fiscal Framework ....................................................................................... 58

5.4.1. Government Fiscal Philosophy ........................................................... 58

5.4.2. Current Fiscal Structure ...................................................................... 59

5.4.3. Fiscal Rules of General Application .................................................... 59

5.4.4. Principles of the Fiscal Framework ..................................................... 60

5.5. Sector Financing ........................................................................................ 60

5.5.1. Main Financing Sources for Projects .................................................. 61

5.5.2. PSC Plus Cost Structures ................................................................... 61

5.5.3. Exit from Cash Call Arrangements ..................................................... 62

5.6. Sovereign Wealth Fund ............................................................................. 63

5.7. Niger Delta ·························································································A ··· 63 6. INDUSTRY STRUCTURE ...................................................................... k .. \.. 64

6.1. A Clean Break from the Past ····················································A ·:·~ ····· 64

6.2. Market Players······································································~ ·\ ·········· 64

6.2.1. Roles of Government and Operators ........................ ·r ,,..V ............. 64

6.2.2. Corporatisation ...................................................... K~J ·················· 65

6.2.3. Restructuring of NNPC .......................................... :-.., ....................... 70

6.2.4. The NNPC / NOCN Subsidiaries ··················:£'-_· -.····························· 73

6.2.5. Nigerian Petroleum Development Company ~ d (NPDC) ............ 74 ~:~:~: ~~fv~~:;:~:~l~~~~~~~=!~~~~.~~~ ~~~~~.~.~.i~~~.~~.~:..I.~.~~.:::: ~ci

6.3. Market Structure.................................... . ............................................... 76

6.3.1. Creating a Markel Driven Oil ~ a ndustry .................................. 76

6.3.2. Ensuring Private Investment s the Value Chain ......................... 76

6.3.3. Move from Oil as Source o~ m to Fuel for Economic Growth ..... 77

6.3.4. Need to Improve the Whole~ ply Chain .......................................... 78

6.3.5. Enabling Nigeria to ~~ a Manufacturing Nati~n ......................... 78

6.3.6. Move from Crude ~ E~ to Gas-Based Industrial Economy ......... 79

6.3.7. Following the Hy bon from Extraction to Destination ................. 79

6.4. Procurement for Pr~ ec ........................................................................... 80

6.5. Asset Managem~ ................................................................................. 80 7. UPSTREAM - D~ OPING RESOURCES ................................................... 81

7.1. Maximising ~ ction of Hydrocarbons within Nigeria ............................. 81

7.1.1. M~ e Existing Production ............................................................. 81

7.1.2. Ma~ 1se Additions to Reserves ......................................................... 82

7.2. D~ ifying Petroleum Resources ............................................................. 83 ~, ~ne~eD;~~~9·h··~·~·d··s~di·~~~·i~~·s~~i~·~··~"i·Nig~~i~::::::::::::::::::::::::::::: :~ ~~ 7eld Developments ................................................................................... 84 l 7.3.1. JVs and PSCs ..................................................................................... 84

7.3.2. Allocation of Oil Licences and Leases ................................................ 84

7.3.3. Marginal Field Awards ........................................................................ 85

7.4. Minimise the Environmental Footprint.. ...................................................... 85

7.4.1. Balancing Utilisation of Petroleum Resources within the Context of Renewable Energy ......................................................................................... 86 8. MIDSTREAM OPERATIONS - INFRASTRUCTURE ....................................... 87

8.1. Definition of Midstream Operations ............................................................ 87

8.2. Nigeria's Midstream Oil Network ................................................................ 87

8.2.1. Security and Pipeline Vandalism ........................................................ 87

8.2.2. Develop Operating Oil Product Midstream Facilities .......................... 87 Ministry of Petroleum Resources 5 Nigeria National Petroleum Policy

8.2.3. Network Code for Access to Midstream Facilities .............................. 88

8.3. Storage ...................................................................................................... 88

8.3.1. Build a Strategic Reserve of Petroleum Products ............................... 88

8.3.2. Need to Audit Existing Storage Capacity ............................................ 88

8.4. Refining ...................................................................................................... 89

8.4.1. Current Situation: Refinery Underperformance .................................. 89

8.4.2. Vision of a Strong Refining Sector: Transition to a Desired State ...... 90

8.4.3. NNPC Refineries become Autonomous Profit Centres ...................... 92

8.4.4. Return Storage Depot Assets to the Refineries .................................. 92

8.4.5. Tolling Structure and Merchant Status ............................................... 92

8.4.6. Non-Performing Refineries will be Divested ·······························7l ··· 93

8.4.7. Strategic Partnerships and Concessions ................................. ~ ·· \ ·· 93

8.4.8. Private Refineries will be Encouraged .............................../\"'·, ····· 93

8.5. Jetties ........................................................................................~"\·········· 94

8.6. Proposed Commercial Framework for Midstream Oil··········· ~ ·············· 94 9. DOWNSTREAM - INFRASTRUCTURE AND MARKETS .. K.~·-················ 95

9.1. Industrialising the Full Value Chain ............................... :-.., ....................... 95

9.2. Commercialisation and Liberalisation of Downstrel"' • ·............................ 95

9.3. Review of Role of NMPC ......................................\._J ............................. 95

9.4. Petroleum Products Pricing Policy ............... / ~······································· 96

9.4.1. Regulated and Unregulated Market~s ···' V···································· 96

9.4.2. Removal of Subsidies.................... . ............................................... 96

9.4.3. Open Market Pricing and Pi blic: tion f Prices .................................. 97 10. DEVELOPING NATIONAL HUMAN RCES ......................................... 98

10.1. Current Nigerian Backgrou .. ......................................................... 98

10.1.1. Some Unique Feature~ c g Nigerian Local Content .................. 98

10.1.2. Local Content in a De s ed Economy ............................................ 98

10.1.3. Nigeria must be a ~ to port Skills .................................................. 98

10.2. Developing ~o al nt. .................................................................. 98 10.3. lmplementin ~ cal ontent Policy .................................................... 99

10.3.1. Summary of isions of the Local Content Act ............................... 99

10.3.2. Route t~ lementation ..................................................................... 99

10.4. Building~ stry Competency ............................................................ 99

10.4.1. C~ nt Worker .............................................................................. 99

10.4.2. Sk111\Development ........................................................................... 100 10.4A ternational Education ..................................................................... 101 ~ :~ !~~~i~~~~u~~~~~~·~·~·1·~~d.Ed·~·~~·;i~~~i·iT~~i·~·i~g·TvET::::::::::::::: ~~~ ~ .6. Supervised Experience ..................................................................... 101 .4.7. Industry Expected to Develop Competency Schemes ...................... 102

0.5. Introducing a Maintenance and a Safety Culture .............................. 103

10.6. Institutional Capacity Building ........................................................... 103

10.6.1. Policy Team ...................................................................................... 103

10.6.2. Proposed Strategies and Action Plan for the MPR ........................... 103 11. COMMUNICATIONS ....................................................................................... 104

11.1. Introduction ....................................................................................... 104

11.2. Internal Communications .................................................................. 104

11.2.1. Ministry.............................................................................................. 104

11.2.2. Other Government ............................................................................ 105

11.3. External Communications ................................................................. 105 Ministry of Petroleum Resources 6 Nigeria National Petroleum Policy

11.3.1. Communication to Stakeholders ....................................................... 105

11.3.2. Industry Involvement and Consultations ........................................... 105 12. ROADMAP AND ACTION PLAN ................................................................... 106

12.1. Summary of Philosophy and Key Actions ......................................... 106

12.2. Critical Policy Milestones .................................................................. 106

12.3. Short-Term Activities (Months) ......................................................... 107

12.4. Medium Term Activities (One to Two Years) .................................... 109

12.5. Long Term Activities (Over Two Years) ............................................ 111 Ministry of Petroleum Resources 7 =================================' Nigeria National Petroleum Policy LIST OF FIGURES Figure 1: World Proved Oil Reserves Ranking (2015) ............................................. 19 Figure 2: World Proved Oil Reserves Ranking (2015) ............................................. 20 Figure 3: Historic Nigerian Oil and Gas Production (1965-2015) ............................. 20 Figure 4: Global Oil Price Movements (1861-2015) ................................................. 22 Figure 5: Global Crude Oil Price Movements, Nominal (1976-2015) ....................... 23 Figure 6: Global Crude Oil Price Movements, Real 2015 (1970-2015) .................... 25 Figure 7: Oil Prices and 5, 10, 15, 20, 25 Year Moving Averages, Nominal ............ 26 Figure 8: Frequency Distribution of Oil Prices (1980-2015) ..................................... 26 Figure 9: Oil Price Outlook to 2035 .......................................................................... 27 Figure 10: Comparison of Different Crude Oil Types with Bonny Light.. ..........A ··· 30 F~gure 11 : Y~eld Profil~ ?f Different Crudes .................................................. ·k .. \ .. 30 F~gure 12: Size of R~f1~ing Hubs: ~lobal ················································A: ·~·~ ····· 31 Figure 13: Characteristics of Refining Hubs ....................................~···· ~ ·\ ·········· 32 Figure 14: Capacity and Complexity of Refineries for Nigerian Typ u ............ 33 Figure 15: US and Nigerian Light Crude Production (mmbpd) .... K .. . .................. 34 Figure 16: Map of Marginal Field Operators ................................ ,.., ....................... 36 Figure 17: Nigeria's Midstream Oil Network ........................r ·. ····························· 37 F~gure 18: Nigeri~'s R~~inin.g C~pa?ity :···········:·····:·············\r,J- ····························· 38 F~gure 19: C~pa~1!y Ut1h.sat1on in N1~eria~ .Ref!neries~ .. ....................................... 39 Figure 20: Nigeria s Refinery Capacity Ut1hsatlon~ t World ......................... 40 Figure 21 : Capacity Utilisation and Yields in Nig Re ineries ............................ 40 F~gure 22: Nig~r Delta Political M~P·····:······~··· ..................................................... 42 Figure 23: National Petroleum Polley Direct e .................................................... 52 Figure 24: Options for Petrochemicals fr~ e ydrocarbon Value Chain ............. 78 Figure 25: Nigerian JV and PSC Oil Prod~ n Outlook to 2026 ............................ 81 Figure 26: Nigerian Gas and Liquid~ uction Outlook to 2026 ........................... 81 F~gure 27: Benue Trough:·····:~···. ···1 /································································· 83 Figure 28: Petroleum Basins I e Ia .................................................................... 84 Figure 29: National Daily:e i ole Products Stock (Example), June 2009 ........... 89 Figure 30: Underperform ·n Nigerian Refineries ............................................... 90 F~gure 31 : S!ruc!u~al~ el fo Nig~ria~ Refineries···········:····································· 91 Figure 32: Nigeria s ds earn Refineries and Manufacturing Assets ..................... 92 Figure 33: Com~ Nigerian National Debt and Subsidy Payments .............. 96 <l.<;. ~ Ministry of Petroleum Resources B Nigeria National Petroleum Policy LIST OF TABLES Table 1: Global Crude Oil Price Movements, Nominal (1976-2015) ........................ 22 Table 2: Five Year Moving Crude Oil Prices ............................................................ 26 Table 3: Estimated Cost of Producing a Barrel of Oil, Nigeria ................................. 28 Table 4: Estimated Cost of Producing a Barrel of Oil, Oil Producers ....................... 28 Table 5: Classification of Different Crude Oils .......................................................... 29 Table 6: Characteristics of Refining Hubs ................................................................ 32 Table 7: Where Nigerian Type Crude Can Be Processed ........................................ 32 Table 8: US and Nigerian Light Crude Production (mmbpd) .................................... 34 Table 9: NNPC Refineries in Nigeria ........................................................................ 38 Table 10: Refining Capacity and Utilisation in Nigeria ·····································A ··· 39 Table 11 : Benefits of Corporatisation ················:····:······································k ·· \ ·· 66 Table 12: Roadmap, Sho~ Term (Months), lnst1tut1onal ·························A: ·~·~ ··· 107 Table 13: Roadmap, Medium Term (One to Two Years), Regulatory. ~ ·\ ········ 109 Table 14: Roadmap, Long Term (Over Two Years), Industry ·········~ V ··········· 111 ~ <v(; ~« <:)«; ~<v ~o <l.<;. ~ Ministry of Petroleum Resources 9 Nigeria National Petroleum Policy ABBREVIATIONS AfDB African Development Bank AG Associated Gas AGFA Associated Gas Framework Agreement ANSI American National Standards Institute API American Petroleum Institute ASME American Society of Mechanical Engineers ASTM American Society for Testing and Materials ~ Bal Bank of Industry (Nigeria) BPE Bureau for Public Entreprise Btoe Billion tons oil equivalent ~' CAC Corporate Affairs Commission ~\ CBN Central Bank of Nigeria ~ CCGT Combined Cycle Gas Turbine ~ COM Clean Development Mechanisn,- • CITA Corporate Income Tax '-I CNG Compressed Natural Gas~ CPF Central Processing F~ jty CP&S Corporate Plan~ ~ tegy (Division within NNPC) CSLD Company Seer I & Legal Division (Division within NNPC) CSR Corporate S~ esponsibility DG Distribut~ e'Mation DISCO/ Disco Ele~tr'cit~ ribution company in Nigeria DPR De nt of Petroleum Resources DSO I DGSO ~ me Ic Gas Supply Obligation ECN ~ rgy Commission of Nigeria El EITI Q Energy Institute (UK) Extractive Industries Transparency Initiative ELPS ~ Escravos Lagos Pipeline System EPP n Export Parity Price, a netback gas price from export price SU ~ Environmental and Social Impact Assessment ~ European Union European Union Delegation N Federal Government of Nigeria FID Final Investment Decision FMP Federal Ministry of Power (F)MPR Federal Ministry of Petroleum Resources FEED Front End Engineering and Design FRGA Fiscal Rules of General Application GACN Gas Aggregation Company of Nigeria Genco Generation company GGFR Global Gas Flaring Reduction Ministry of Petroleum Resources 1Q ================================= Nigeria National Petroleum Policy GMP Gas Master Plan GSA Gas Sales Agreement GSAA Gas Sales and Aggregation Agreement GT Gas Turbine GTA Gas Transport Agreement GTLs Gas to Liquids GTS Gas Transmission System IDSL Integrated Data Services Limited (Division within NNPC) IEA International Energy Agency, Paris IFC International Finance Corporation ~ IFI International Financial Institution " IGEM Institute of Gas Engineers and Managers ~ , IMF International Monetary Fund ~'\ IPP Independent Power Producer ~ ISO International Standards Organisatio~ Independent System Operator C , JV Joint Venture LLS United States Louisiana L~ eet Oil LNG Liquefied Natural Ga~ ,; LPG Liquefied Petroleu'\' G~ LRMC Long Run M~r i~ ost MOU Memorandu nderstanding MW/ MWh Mega W~ ga Watt hours MYTO Mu~ti- e~ riff Order NAG No s ciated Gas NAPIMS . ~ tio Petroleum Investment Management Services NBET ~ rian Bulk Electricity Trading Pie NBP NCO Q National Balancing Point Nigeria Content Division NERC ~ Nigerian Electricity Regulatory Commission NETCI') Nigeria Engineering & Technical Company (Division in NNPC) NG~ ~ Nigerian Gas Company Limited ~ C Nigerian Gas Cylinder Manufacturing Company N~ Natural Gas Liquid ~ MC Nigeria Gas Management Company NGO Non-Government Organisation NGV Natural Gas Vehicles NLNG Nigeria Liquefied Natural Gas NNPC Nigerian National Petroleum Company NOC National Oil and Gas Company NPC Nigerian Planning Commission NPDC Nigerian Petroleum Development Company Limited NPMC Nigeria Petroleum Marketing Company (formerly PPMC) Ministry of Petroleum Resources 11 ================================= Nigeria National Petroleum Policy OB3 Obiafu-Obrikom-Oben gas pipeline OCGT Open Cycle Gas Turbine OGGS Offshore Gas Gathering System OK LNG Olokola Liquefied Natural Gas Project OPEC Organisation of Petroleum Exporting Countries Petroleum Industry Bill PPA Purchase Power Agreement PPMC Petroleum Products Marketing Company (now NPMC) PPP Public Private Partnership PPPRA Petroleum Products Pricing Regulatory Authority ~ PRG Partial Risk Guarantee " PSC Production Sharing Contract ~ PTDF Petroleum Technology Development F~ PTFP Presidential Task Force on Power >..."-'.)-- RE Renewable Energy •, SCADA Systematic Control And Data ~ ition set standard cubic feet /,; . SON Standards Organisat~ ·o o~ ria SPDC Shell Petroleum Dev ent Company TCN Transmission Com. any f Nigeria TVET Technical & ~~I and Educational & Training UK United Kingdo~ Great Britain and Northern Ireland US/USA United ~ of America WAGP Wes~ fr~ Gas Pipeline WAGPA We an Gas Pipeline Authority WB ~ Id ank ~o <l. <;. ~ Ministry of Petroleum Resources 12 ================================= Nigeria National Petroleum Policy Units B / Bn billion bet I bet/d I bet/a billion cubic feet/ billion cubic feet per day/ bet per year bcm billion cubic metres bcma billion cubic metres per year bbl barrel GW Giga Watts kg kilogram m million M thousand A MW/ MW/h Mega Watts I Mega Watts hours "\ MM million A' MMbtu million British thermal units ~\ MMscf million standard cubic feet ~ MMscf/d million standard cubic feet per day ~ Mscf thousand standard cubic feet C , mt million metric tonnes mtpa million metric tonnes per ,✓J · 1 set standard cubic feet /,; v t metric tonne ~' Currencies N/NGN Naira ~ <o £ Po~ Mng € $ I US$/ USD ~ led States Dollar ~o <l. <;. ~ Ministry of Petroleum Resources 13 ================================= Nigeria National Petroleum Policy NATIONAL PETROLEUM POLICY 1. EXECUTIVE SUMMARY Statement of the Petroleum Policy This policy document builds on the policy goals of the Federal Government for the gas sector as presented in the 7 Big Wins initiative (www.7Bigwins.com) developed by the Ministry of Petroleum Resources and the National Economic Recovery & Growth Plan (ERGP 2017 - 2020). In this statement of the Policy, the Federal Government of Nigeria itQ.~ ses petroleum issues, articulates a vision for the petroleum (specifically oA s•e& r and sets policy goals, strategies and an implementation plan for the ~ m ij~tion of an appropriate institutional, legal, regulatory and commercial frame t resolve the barriers currently affecting investment in the sector. It is intendEie~ this policy will CJ be reviewed and updated periodically to ensure consistency ifl~ overnment policy objectives at all times. Once issued and gazetted, any policy position set ~ )lerein will bind Government officials unless and until amended or replaced b~ ! o¥ restatement of policy duly gazetted by the Government. ~ Background ~ Definition of Petroleum for the Po ~i ~ oleum is defined to cover all petroleum related products, including crude ii, atural gas, and various gas liquids and condensates. Although a petr~ ~ J cy, this policy document concentrates on oil and oil products, while gas is c' V by the separate and complementary gas policy. a Oil Prices: Three clear ~ prices are that: 1. It has to be les ges for Nigeria from the ongoing slump in crude oil ant on crude oil income; 2. It needs a _rage on its huge gas resources to develop a gas based indu1 ,l~ ~~my; and 3. _R~ e oil sector, Nigeria has to move downstream into the value added ~ lors of refining and petrochemicals. Th~ roleum Policy has derived a most likely average real future oil price of $45/bbl. Nigeria is also one of the highest cost of extraction oil provinces in the world, estimated at $29/bbl. Nigeria has to substantially reduce the costs of production if the country is to be competitive in the modern low oil price world, and if it is to have anything more than a bare minimum government take. Nigeria's export revenues are over-reliant on crude oil. Due to the cyclicality of oil revenues, the country must minimise its exposure to commodity price risk and develop a petroleum industry where the value added in oil streams is realised, combined with a move towards a gas based industrial economy. Ministry of Petroleum Resources 14 ================================= Nigeria National Petroleum Policy It should be noted that the policies outlined in this document are independent of oil price movements; in other words, they are necessary and will be implemented regardless of future oil prices. Structure of the Nigerian Petroleum Industry: The Nigerian upstream sector is the single most important sector of the economy and accounts for 80% of the Federal Government's foreign exchange revenues. The Niger Delta Basin and Benin Basins are the most developed basins and are the source of most current production in Nigeria. Refining: The midstream consists of three refineries, petroleum produ'i!,_4 rage depots, onshore oil and gas pipelines, and four terminals (all governm~ t ~ ld by subsidiaries of NNPC). Despite being one of the leading crude oil pro ·ng nations in the world, Nigeria's refining capacity is one of the smallest. Capacitv\ti ation has fallen to just 14% in 2014, against a global average capacity utilis~ 'e/90%. A strong commercially viable and significant rep ~!;'i;,,,tor is an essential part of the Nigerian Petroleum Po/iv Environmental Impact of Petroleum on the Nige~ ~ +.. : Negative impacts of the oil industry are a major concern in the Niger ! ~.V e causes of environmental damage include sabotage or theft, equipm~ re or human error and failure of operators to operate according to required sta dar of good oilfield practice. Need for a New Petroleum Policy: The~ three main reasons why Nigeria needs a new Petroleum Policy: ~ 1. The Previous Policy has7J ~ d; 2. The World has Cha ~ e~ es have collapsed and the world will be awash in oil for the next few years, 3. New Vision of~ ue dding Activities: The future for oil producers lies in moving develo~ value added refining and petrochemicals industry. The vision of t~ roleum Oil Policy is to move Nigeria away beyond crude oil exports int~ ·~ --- 1. ~ ~ded activities in oil, namely refining and petrochemical industries; 2. ~ anding from oil into gas based industrialisation, based on the as - yet ~ argely untapped large gas reserves in Nigeria. Vision and Objectives Vision: The long term vision of the Nigerian petroleum policy is: "To become a nation where hydrocarbons are used as a fuel for national economic growth and not simply as a source of income" Mission: The mission of the Nigerian petroleum policy, to meet the long term vision, is: Ministry of Petroleum Resources 15 ================================== Nigeria National Petroleum Policy "To maximise the production and processing of hydrocarbons" The policies are to be anchored on the following strategic policy objectives: 1. Create a market driven oil and gas industry; 2. Maximise production and processing of hydrocarbons; 3. Move away from oil as a source of income to oil as a fuel for economic growth; 4. Cost efficient storage, transportation and distribution for petroleum products; 5. Minimise the environmental footprint of oil exploration and production; 6. Managing the balance between depleting oil resources vs renewable ? \gy. The main aspects of the petroleum policy are: A. " 1. Governance (Legal and Regulatory Framework): ~\ a. Institutional Reforms: r'1..'-' i. Policy: National Petroleum Policy Directorate; "1..""J ii. Regulatory: Nigerian Petroleum Regulato; m~ ission; iii. Commercial: Nigerian National Oil Comp y; iv. Commercial: Nigeria Petroleum Asse ~ ement Corporation; b. Regulatory Framework: i. A new single regulatory commis~;,_a ss the petroleum industry; ii. Transparency of operations with~ MPR; iii. Petroleum safety compliancel • iv. Setting and maintaining~ tin I standards; v. Full legal separation of stream from the midstream; vi. Full legal separati" n structure ownership and operations from trading; V c. Commercial Framew~ . i. Rules for~ cev pipelines and networks; ii. Pricing p ·n • les and regulations; iii. Cost Bene rking for Infrastructure Facilities; iv. Tari~ lation for infrastructure segments; d. Fisca~F am\wlrk: i. , transparent, globally competitive; •• parate oil from gas; e. r Financing: All types of financing encouraged, government financing minimal; ii. MPR open to any alternative financing arrangements; f. PSC - Plus Cost Structures: ~ i. Pricing principles and regulations; l ii. Move to modified PSCs or iJVs, but with additional cost control provisions; iii. Target to exit all NNPC JVs cash calls by end of 2017; 2. Industry Structure: a. Clean Break from the Past: New policy will consist of: i. Clear separation of the roles of government and operators; ii. Transparency; iii. Cost efficiency ; iv. Reducing the regulatory burden through smart regulations; Ministry of Petroleum Resources 16 ================================= Nigeria National Petroleum Policy v. Realising the additional value in oil as a motor for industrial development and not simply as an income earner in its own right; vi. Partnership between the public and private sectors; b. Establishment of a new National Oil Company of Nigeria (NOCN) c. Restructuring of NNPC: Into autonomous business units; d. Gain more of the value from downstream export markets; e. Procurement for Projects: Fundamental overhaul to bring efficiency, transparency and cost control; f. Asset Management: Work existing assets much harder, professional and modern asset management methods to be introduced, cost control methods need to improve substantially; ~ 3. Upstream - Developing Resources: " a. Maximising Production of Hydrocarbons within Nigeria; A. , i. Maximise production from existing production block~ \ ■ Reduce Niger Delta insecurity; r'1.. '--' ■ Accountability of production; ""J b. Maximise additions to reserves and future produ~ · n; c. Diversify resource base, and identify low cost re ou es; d. Allocation of Oil Licences and Leases: ~ i. Under a transparent process; ii. Licence renewals based on lice~ ho ers meeting licence targets; e. Minimise Environmental Footprint: "Na and Shame" + "Polluter Pays"; f. Balance Petroleum Resources wi~ ne able Energy; 4. Midstream Operations - lnfrastruc~ transportation and processing): a. Develop Operating Oil Pr~ ~tream Facilities: i. Transportation pip~ , Refining facilities, Storage facilities, Distribution pi~jles; ii. Network~ eV .ccess to Midstream Facilities; iii. Build a c m erc1ally viable Strategic Reserve of Petroleum Products; iv. Aud~ ting Storage Capacity; b. Refini~ : S~ refining sector a basic requirement of Petroleum Policy: i. Refineries become Autonomous Profit Centres; ••. turn Storage Depot Assets to the Refineries; . Tolling Structure and Merchant Status; . Non-Performing Refineries will be Divested; v. Strategic Partnerships and Concessions; vi. Private Refineries will be encouraged; t)....,._ Jetties: Potential areas of risk, physical and commercial: l "' i. Investigate the areas of risk; ii. Investigate opportunities to increase jetty capacity; b. Proposed Commercial Framework for Midstream Oil: i. Separation of whole oil supply and operation of midstream facilities; ii. Regulated pricing for monopoly midstream facility operations; iii. Need to improve the whole supply chain is recognised. 5. Downstream - Infrastructure and Markets: a. Commercialisation and Liberalisation of Downstream: i. Distribution, capacity and safe operations; Ministry of Petroleum Resources 17 ================================== Nigeria National Petroleum Policy ii. Building up strategic reserves; iii. Improved sector logistics; iv. Private sector investment in sector infrastructure; v. Permanently removing all petroleum product subsidies; vi. Unbundling and fundamental restructuring of NPMC; b. Petroleum Products Pricing Policy: i. Move towards unregulated pricing in the Nigerian products markets while regulating safety and quality of service; ii. Remove any remaining petroleum subsidies; iii. Transitional pricing regulation; iv. Price publication and monitoring; ~ 6. Developing National Human Resources: " a. Problems of developing local content in a depressed economi;\ , b. Nigeria must be able to Export Skills; " \ c. Developing local content and implementing Local Cont~ V , d. Install institutional capacity building; ~J e. Introduce a maintenance and safety culture; 7. Communications: Internal and external comm~ ;aU strategy: 8. Roadmap and Action Plan: ~ V a. Action plan for short term (months); b. Implementation Plan for medium ~-r'1 (1- years); c. Implementation Plan for long t~ r two years); d. Critical milestones: .-:Y i. Stakeholder consu~ ns, ii. Approval of thi ej e m policy; iii. Enactment of • lat1 n; iv. Establis~m nt e new single petroleum regulator; v. NNPC r tr tunng; vi. Turnaroun • the refining sector; vii. Sube al progress towards industry wide restructuring. <;.~ ~<;. Ministry of Petroleum Resources 18 ================================= Nigeria National Petroleum Policy 2. OVERVIEW

2.1. Statement of the Petroleum Policy This policy document builds on the policy goals of the Federal Government for the gas sector as presented in the 7 Big Wins initiative (www.7Bigwins.com) developed by the Ministry of Petroleum Resources and the National Economic Recovery & Growth Plan (ERGP 2017 - 2020). In this statement of the Petroleum Policy, the Federal Government of Nigeria addresses petroleum issues, articulates a vision for the sector and sets policnoals, strategies and an implementation plan for the introduction of an aierd\r"iate institutional, legal, regulatory and commercial framework to reso~ve ~, arriers currently affecting investment in the sector. It is intended that thi ·cy will be reviewed and updated periodically to ensure consistency in ~ r ent policy objectives at all times. VJ Once issued and gazetted, any policy position set out hej'"'. ~ ind Government officials unless and until amended or replaced by a formal~ tement of policy duly gazetted by the Government. ~

2.2. Overview ~ Nigeria is a major global oil producer and re~ t es holder. At the end of 2015, Nigeria had the 11 th largest proved oil reserves i~ ~ rld, holding 2% of total oil reserves. Figure 1: World Pro~ ' Meserves Ranking (2015) World Proved Oil Reserves Ranking, (billion barrels), 2015 China...Brazil ~HI Mexico_Norway Ecuador 350.0 Qatar 1% 1% mJ£ 1% 0% 0% 300.9 2%Kazakhstan 2% • Nigeria 300.0 266.6 2% Libya us 3% 250.0 3% United Arab Emirates 200.0 172.2 6% 157.8 143.1 Russian I11I Federation 150.0 I 100.0 1° 2 .4il0 1. 5 91.s . . 55 0 48 4 ~ 1 1 1 Ii • : 1.:: ~:!;; ~ ~ ~ 50.0 37.1 30 0 25 7 1 Source: BP Statistical Review of World Energy, 2016; Analysis: MPR Petroleum Policy Team In terms of oil production, Nigeria is the 13th largest oil producer, at approximately 2.2m barrels per day (bbls/d) and 3% of world production. Ministry of Petroleum Resources 19 ================================= Nigeria National Petroleum Policy Figure 2: World Proved Oil Reserves Ranking (2015) World Oil Production Ranking, (thousand barrels per day), 2015 Kazakhstan Algeria Colombia"United Kingdom 14000 12704 12014 :~. "";;:~~., ~ " 12000 M~~co . . 10980 Venezuela •I, -llllll!!!!!!i~ 10000 3 8000 % Un~::ra~ . Emirates , 5% Iran 5% 6000 China Canada 5% 5% 4000 43185 43109 4031 3920 3902 3096 2000 1111 'i'...'f i"i''i"r'i''i ""; ·; Source: BP Statistical Review of World Energy, 2016; ✓,; Y Analysis: MPR Petroleum Policy Team ' As natural gas has been exploited, rese~ ~uction ratios have come down from the nearly 900 years of 1992 but in 201 still a very large 102 years (against a global average of around 40 years)~ Figure 3: Historic Ni¢jp.Mi and Gas Production (1965-2015) Nigerian Oil and Gas Production (million tonnes/oil equivalent) 180 160 140 120 100 80 ~ 60 40 20 ■ Oil: Production (mt) ■ Natural Gas: Production (mtoe) Source: BP Statistical Review of World Energy June 2016 Analysis: Energy Markets Global, MPR Gas Policy Team 2016 Note: Gas production excludes gas flaring, reinjection, gas lift, fuel. Ministry of Petroleum Resources ?0 ====================================#- Nigeria National Petroleum Policy 3. INTRODUCTION AND BACKGROUND

3.1. Definition of Petroleum for the Policy Detailed definitions of petroleum and the parts of the value chain will be set out in legislation. Although the definitions set out in this policy are therefore indicative, the policy is clear that there will be a clear separation between upstream, midstream and downstream. Petroleum is defined to cover all petroleum related products, including crude oil, petroleum products and other derivatives of crude oil, natural gas, and var~ s gas liquids and condensates. Although a petroleum policy, this policy '1?c"'1ent concentrates on oil and oil products, while gas is covered by the ,r~~ e and complementary gas policy. ~\ The parts of the petroleum value chain, for the purposes of the defined as follows: ~ P~~ Policy, are Upstream: Activities related to: CJ. • Exploration for, development and production ~ j-Jde oil and gas; • Drilling and operation of oil and gas producing¥ ; • Construction and operation of crude oil fl~ ~ es and gas gathering pipelines; • Crude oil and gas separation and tre~tr e~ cilities and operations; • Transportation of personnel and ~ nt to and from upstream petroleum locations and facilities. ~ Midstream: Activities related to: ~ • Construction and opera~i o~ e oil and gas transportation pipelines, in general after the flow st • • • Oil refineries and gas \ roe ssing facilities; • Oil and gas bulk st~ facilities; • Shipping of oil ~ as, and related products; • Other bulk tran\QgA methods, such as rail, barge and trucks for transporting oil and g~ related products, on a wholesale basis; • Who~ l~ arketing of petroleum products. Downi cXActivities related to: • struction and operation of facilities for distributing petroleum products and g to retail customers; ~ -etail stations for petroleum products; } City gate reception terminals for gas; • Distribution of petroleum and/or gas products; • Marketing, retailing and sale of petroleum products and/or gas.

3.2. International Background

3.2.1. Historic Prices The figures below show oil and gas price movements over the last approximately 100 years and the last approximately ten years. Ministry of Petroleum Resources 21 Nigeria National Petroleum Policy Figure 4: Global Oil Price Movements (1861-2015) Cru de oil prices 1861-2015 us do -il"S pe· bi!ll""el 'lbmlCipourwar \or'.dl!!VCT.S Fc.,., ofshor1ac;;;e 111 US ?bsl...-.-arreQOr\11J'uetJOn IIanianrO'JOlu".ion G,....-.l> ofV.,.,=~• ~oduc'- ~~.;"-" .,i,.,i.a..,,. mu oducco l""'"'"""""'a•• ":"-~~ ""=• Su-n.atia °"""""'of I EastTcusrJOtd I Suez alSsS no invasioo ;,,.,ac ' "'~ -· oilCICOOf t S D'OOUC'l.on Somcle100. 1"""'" T=• """"""" invadec Kit.var. ol haq Spr,ng' 130 120 ~ , 110 100 ,., \ \ ll) ' 70 .J 60 V'\ so tu ii\ NI\ . V <O . r \,.A vr . . "'-v~ ..,........... ' \ /1,,. I JV "' I \ v_\i V 30 .., V y---, VV w vv j - V' ~ /1 ..) 20 P- -- J 10 186 1-69 1870-79 1880-89 1890-99 1900-09 19 1().19 1920-29 1930-39 1940-49 1950-59 1960-69 1970-79 1980-89 1990-99 2000-09 201 0-19 0 ■ S 2015 (deflated using the Consumer Price Index for the US) 1861-1944 US average. ■ S m oney of the day 1945-1983 Arabian Light posted at Ras Tanura. 1984--2015 Brent dated. Source: BP Statistical Review of World Energy, 2016 ~,; V The table below shows historical crude oil pri~ s ~ vements (1976-2015). They are shown for four major pricing setting poinl i ~pes of crude. Of these West Texas Intermediate (WTI) and Brent Crude are v ,ajor global reference prices. Table 1: Global Crude Oil ~ Movements, Nominal (1976-2015) Dubai s/bbl * <~ ,M/bblt Nigerian Forcados West Texas Intermediate 1976 ... \11.63 12.80 s/bbl 12.87 s/bbl =I= 12.23 1977 l J 12.38 13.92 14.21 14.22 1978 13.03 14.02 13.65 14.55 19z9 ~ 29.75 31.61 29.25 25.08 1980 35.69 36.83 36.98 37.96 ~ 19'lia. 34.32 35.93 36.18 36.08 .. 1982 1983 31.80 28.78 32.97 29-55 33.29 29.54 33.65 30.30 1984 28.06 28.78 28.14 29.39 1985 27.53 27.56 27.75 27.98 1986 13.10 14.43 14.46 15.10 1987 16.95 18.44 18.39 19.18 1988 13.27 14.92 15.00 15.97 1989 15.62 18.23 18.30 19.68 1990 20.45 23.73 23.85 24.50 1991 16.63 20.00 20.11 21.54 1992 17.17 19.32 19.61 20.57 Ministry of Petroleum Resources ?2 ====================================#- Nigeria National Petroleum Policy 1993 14.93 16.97 17.41 18.45 1994 14.74 15.82 16.25 17.21 1995 16.10 17.02 17.26 18.42 1996 18.52 20.67 21.16 22.16 1997 18.23 19.09 19-33 20.61 1998 12.21 12.72 12.62 14-39 1 999 17.25 17.97 18.00 19.31 2000 26.20 28.50 28.42 30.37 2001 22.81 24.44 24.23 25.93 2002 23.74 25.02 25.04 26.16 2003 26.78 28.83 28.66 31.0,- ... 2004 33.64 38.27 38.13 41.49 2005 49-35 54.52 55.69 { s\~ 2006 61.50 65.14 67.07 66.02 2007 68.19 72-39 74.48 1'._ - 72.20 2008 94-34 97.26 101.43 100.06 2009 61.39 61.67 ..63.~ IJ 61.92 2010 78.06 79.50 81.05 79-45 2011 106.18 111.26 /. ~ 65 95.04 2012 109.08 111.67 114.21 94.13 2013 105.47 108.-a,l 111.95 97.99 2014 97.07 98.95 101.35 93.28 2015 51.20 - 5~ 54.41 48.71 Source: BP Statistical Review of ~ nergy (2016) Figure 5: Global Cr d* rice Movements, Nominal (1976-2015) 120.00 - Dubai 100.00 - - 80.00 ::i:i - Brent .c 1 1). VI 2. 60.00 "' Cl.I u "i: Cl. 40.00 - Nigerian Forcados 20.00 - Wes.Texas 0.00 ._,. c.o 00 0 ._,. c.o 00 0 ._,. c.o 00 0 ._,. c.o ,.._ ,.._ 00 0 N N N N Intermediate 00 00 00 00 00 CTI CTI CTI CTI CTI 0 0 0 0 0 .-I .-I .-I CTI CTI CTI CTI CTI CTI CTI CTI CTI CTI CTI CTI 0 0 0 0 0 0 0 0 .-I .-I .-I .-I .-I .-I .-I .-I .-I .-I .-I .-I N N N N N N N N Source: BP Statistical Review 2016; Analysis: MPR Oil Policy Team Ministry of Petroleum Resources ?3 ====================================#- Nigeria National Petroleum Policy The figure above shows that crude oil prices have been fluctuating since the 1970s. A major surge of high prices started around 2005, reaching a peak of the highest levels experienced during the period of 2008-2014. Since 2014 however, crude oil prices have been steadily falling with Dubai having a yearly average price of $52.20/bbl, Brent Crude at $52.39/bbl, Nigerian Forcados at $54.41 and WTI at $48.71 in 2015. There are two key messages: 1. Period of High Prices Now Over Oil and gas prices over the last 5-10 years have been the highest they have e~ ~een since the modern petroleum industry first started in around the 1860s. Pri~ _l vels have now fallen substantially from those levels and there is a possibility ~~y may not reach those levels again. ~\ As oil supply reduces there may be a window of oil prices of ar~ 5/bbl in the period 2020-2030. Prices are forecast to fall again after that . ~ ~ d then stay low. At the same time, while oil supply increases dramaticu as ~ shale oil comes back onstream, demand growth will markedly soften, exce t f the petrochemicals sector which is likely to be the main market for oil~ es I price movements will affect gas prices as well. V 2. Recent Extreme Price Volatility ~ There has also been extreme volatility levels not seen since the 1860s. Pri ~~d gas prices since around 2005, at ent down dramatically as US shale production took off. Two clear mess~ fo Nigeria are that: 1. It has to broaden the eco ~ n~ ards a gas based industrial economy; and 2. Within the oil secto~~t as to move downstream into the value added sectors of refining ~ etr chemicals. The International En~ gency (IEA) in the preview of the Medium Term Oil Market Report 2016, crude oi~ es for WTI and Brent were seen to continue to fall to a value below $30/bbl f<l1b.first time since 2003. It would be expected that such a rapid fall in crude prices ~ Id result in production cuts, as was the case in the previous four decades. l~ d however, producers have continued to produce and sell crude oil allowil e~ rket to set the price. The IEA further considered that unless the heavily overs ed oil market can return to balance, oil prices cannot rise to the levels ne~ a to support investments in new production from higher cost resources. Thif phenomenon should give major short-term benefits to consumers and provide a boost to demand growth. However, contrary to expectations of the last four decades, economies globally have not responded to the low oil prices. For various reasons (declining demand from China, continuing Euro crises in southern Europe, Brexit etc.), global demand has remained muted and, according to some forecasts, the world may be entering another recession in 2017. Ministry of Petroleum Resources ?4 ==================================- Nigeria National Petroleum Policy

3.2.2. Forecast Prices This section draws upon research and analysis which members of the Petroleum Policy Team in the MPR and NNPC carried out in 2016 on likely scenarios for crude prices in the future. The analysis is based upon the concept that historic experience of oil price movements over time can give a good indication of future oil price behaviour. Historically, crude oil prices in the international market have reacted to a variety of geopolitical and economic events. The figure below highlights some recent key historic events that influence the prices of crude oil. A Figure 6: Global Crude Oil Price Movements, Real 2015 (1970-~~ \ Global Crude Oil Prices, ($/bbl , Brent), Real 2015 140.00 120.00 100.00 80.00 9/11 attacks 60.00 40.00 Ira nian Revolution 20.00 Asia n financial crisis 0.00 R ~ ~ ~ ~ i s i ~ i ~ ~ ~ ~ ~ 8 s ; ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Source: BP Annual Statis~ ;~ 2016; Analysis: MPR Petroleumo Team 2016 In an attempt ~ out a relatively realistic forecast on the future prices of oil therefore, t~ o~ ing factors, among others, must be considered: • ! n~ s in the expectations of economic growth; • nges in global oil consumptions in relation to economic growth; ~ nges in non-OPEC production; J;:hanges in non-OPEC supply expectations; • Changes in Saudi Arabia crude production; and • Growth in global inventory levels. Taking these factors into consideration coupled with the historical trends of price fluctuations, the study was carried out into likely scenarios for crude prices in the future. Looking at historical trends of crude oil prices, the moving average prices of crude for an interval of five years to 25 years were determined as tabulated below: Ministry of Petroleum Resources ?5 ====================================#- Nigeria National Petroleum Policy Table 2: Five Year Moving Crude Oil Prices Years Moving Price (Slbbl) 5 97.36 10 86.27 15 68.92 20 56.64 25 48.88 Source: MPR Petroleum Policy Team, NNPC CP&S From the moving average prices, a plot of the moving average prices ag~ t the historical prices since 1980 was obtained as shown below. : \ Figure 7: Oil Prices and 5, 10, 15, 20, 25 Year Moving Averages o~ al OIi Price and 5,10,15 20 25-YrMA (Nominal Pri 120 - Oil Price 100 ..... s-Year MA J5 .0 80 - + - - - -----~- o...¥ear- M., ___ _ _ _ _ _ _ _---c-_ _ ,__ __,_---t-----,-. - -- - , ----t-- ;. OJ~ - • 15-Year MA V 60 ·;:: = = 20-Year MA c.. 0 40 20 0 0 r-1 ~ \.D co CO 0 r-1 ~ \.D co 0 r-1 co co co co co en o 0 0 0 0 rl rl en rl en rl en en en rl en o 0 0 0 0 0 r-1 0 r-1 rl rl rl r-1 r-1 r-1 r-1 r-1 Source: MPR Petroleum Policy_T, m, C CP&S The next chart show~ ~ tribution of each range of oil prices and the relative frequency of each rav oil prices. Fig~ requency Distribution of Oil Prices (1980-2015) Frequency Distribution Of Oil Price (1980 - 2015) 0 .3 >-- u c:: 0 . 25 w => er 0.2 ..... w ...... w 0 . :15 .:.:: +-' ..!!;! w 0 . :1. 0::: 0.05 0 20 60 So 100 120 Oil P r ice ($/bbl) Source: MPR Petroleum Policy Team, NNPC CP&S Ministry of Petroleum Resources ?6 ====================================#- Nigeria National Petroleum Policy The above analysis shows that on most occasions, oil prices historically have been below $40/bbl, nominal. An analysis of the plot shows that oil prices exhibit log-normal distribution showing 67% of price frequencies being at most $37.45/bb (in other words since 1980 the oil price has been below $40/bbl for more than two thirds of the time). • $41. 76/bbl is the mean average price since 1980; • $57.25/bbl is the upper quartile price. Based on the earlier established trends and the frequency distribution of the prices of crude, a forecast to 2035 of real prices was developed with: ~ $35/bbl minimum; A" $45lbbl most likely; ~\ $55/bbl maximum price. C:::::, r,,.._ Figure 9: Oil Price Outlook to 2035 ~J - Hir . ~: I Oil Pr~ bl) 120 «- •.,; • ~ -Oil Price Outlook ~Most Likely Oil Price 100 o-..' t - - • MaxOilPrice :a - ..c 111 80 (J).. ....,,.,. __ .. ---- .--- __() V ----- . - ........ ---· . - . -·- 60 V ·;: C. 0 40 • I -~ ••••••••••••••• ...... . • • • • • 20 ~ 0 o~ ~ ""n \.0 r1 00 r1 0 r-1 N r-1 "" \D N N CX) N 0 rr, N rn .,_j- rn 0 0 0 0 0 0 0 0 0 0 0 0 0 N N N N N N N N N N N N N a rce: MPR Petroleum Policy Team, NNPC CP&S e: Most likely price is $45/bbl real (2016) and in the chart is escalated each year from that ~ nominal terms Based on the foregoing, the reality may be deduced that crude oil may never again reach the highs experienced in the period 2008-2014. This will become more so as renewable energy continues to gain market share rapidly. In conclusion, the most realistic line of action for any nation with oil as the backbone of its economy is to diversify, because indices strongly point to the possibility that the era of oil booms may be over for good. Ministry of Petroleum Resources ?7 ====================================#- Nigeria National Petroleum Policy The MPR central case long term crude oil price forecast is $45/bbl (forty-five US Dollars) real.

3.2.3. Cost of Producing a Barrel of Oil Some analysis has been carried out into the cost of producing a barrel of oil. The estimated cost for Nigeria of producing a barrel of oil (2016 costs) is: Table 3: Estimated Cost of Producing a Barrel of Oil, Nigeria Cost Item Cost/ bbl % of Total $4.11 14.2% $13.10 45.2% Production costs $8.81 30.4% Admin / trans art $2.97 10.2% Total $28.99 100° Source: Rystand Energy UCube Nigeria is in fact among the most expensive oil provinces inG>orld. Costs per barrel of leading oil producers are: /,; . Table 4: Estimated Cost of Producing a r~ Oil, Oil Producers Oil Producer ~~-~ Producing a ~ el ( /bbl) Saudi Arabia $8.98 Iran $9.08 Ira $10.57 $19.21 $19.71 $20.99 $21.30 $23.35 $26.64 $27.62 $28.99 $34.99 ~ Source: Rystad Energy UCube $44.33 ~ 3.2.4. International Refinery Business Types of Refineries There are different types of refinery, carrying out different sets of refining activity. Topping: The topping refinery just separates the crude into its constituent petroleum products by distillation, known as Atmospheric Distillation. A topping refinery produces naphtha but no gasoline. Ministry of Petroleum Resources ?8 =================================- Nigeria National Petroleum Policy Hydro-skimming: The hydro-skimming refinery is equipped with Atmospheric Distillation, naphtha reforming and necessary treating processes. This type of refinery is more complex than a topping refinery and it produces gasoline. Cracking: The cracking or hydro cracking refinery, in addition to the hydro-skimming refinery, is equipped with vacuum distillation and catalytic cracking. The cracking refinery adds one more level of complexity to the hydro-skimming refinery by reducing fuel oil by conversion to light distillates and middle distillates. Coking: The coking refinery is equipped to process the vacuum residue into high value products using the Delayed Coking Process. The coking refinery add~ rther complexity to the cracking refinery by high conversion of fuel oil into distill_cff9\ and petroleum coke. 1' Integrated: The integrated refinery is equipped to upgrade its LP~ ~ htha into basic petrochemicals by way of aromatics production of benzene, xene, meta xylene, ortho xylene, para xylene and toluene or naphtha cracki~ Make Up of Nigerian Crude Oil CJ Nigeria produces a very light sweet variety of cru~ ~ L not requiring a relatively complex refining process compared with other ty~ i ~~ e. The makeup of different types of crude oil is shown in the following table ~ figure. Table 5: Classification ~erent Crude Oils Type of Vacuum Vacuum • Low Gas Kerosene High Crude Residual Gasoil ii Oil Vacuum Na htha ALBA 42% 10% 16% 5% 0% BRENT 8% 15% 11% 17% Statfjord 8% 16% 13% 17% Sleipner 27% 7% 10% 40% BONNY Light 15% 26% 16% 21% Source: MPR Petrole <l. <;. ~ Ministry of Petroleum Resources ?9 =================================- Nigeria National Petroleum Policy Figure 10: Comparison of Different Crude Oil Types with Bonny Light 0 ii:l 100% ► t ■ High Vacuum Naphtha 5 0 80% ■ Kerosene ai:: Cl. w ■ Low Gas Oil ~ 60% ■ High Gas Oil zw u ■ Vacuum Gasoil ffi Cl. 40% ■ Vacuum Residual 20% 0% ALBA BRENT Statfjord Sleipner BONNY Light TYPES OF CRUDE OIL Source: MPR Petroleum Policy Team Global Refining Hubs <(, Figure 11: Yiel~ ile of Different Crudes . . /~ . Refinery Yields are a function of Yield Profile Of Differ n~ s the 1) Characteristics of crude 100% feed; and 2) Refinery Complexity. 80% The Refinery value of crude is dependenton1)The characteristics of the crude feed; 2) 60% Refinery complexity; and 3) Value I Gasoli ne of refined products. I Mid-Distillates The different types of crude oil are I Fuel Oi ls shown in the following figure. Bonny Light has a very low sulphur content and an API in the mid 30s. The nearest other type of crude to Bonny Light is US Louisiana Light Sweet (US LLS). 24 °API 37°API 47°API Source: Kaase Gbakon, NNPC CP&S, SPE Dubai September 2016 Ministry of Petroleum Resources ~O ===================================:d.J Nigeria National Petroleum Policy Figure 12: Size of Refining Hubs, Global A study within NNPC has considered Size Of Refining Hubs 70 the four main refining hubs or markets around the world: Asia Pacific, North West Europe, US Gulf 60 Coast (USGC) and Middle East.

9.00 The study considered refinery 50 complexity and capacity, ~ oduct prices and regional marker des. The first two are discusse~ . ~ 40 ■ Mid East ■ USGC The figure on the~e the total refining capacity· of the hubs 30 ■ NW Europe and the total WJ(la fining capacity ■ Asia Pacific (59.34 mmbbl/da~ . 20 Beca~ e "1ria's Bonny Light is a very • t crude, most of the ne around the world are able 10 refine Bonny Light. However, l plex refineries tend to refine , complex crudes and light less 0 complex crudes are refined by less Refin ery Ca pacit y (MM BBLS/day) complex refineries. Source: Kaase Gbakon, NNPC CP&~ ; ~; September 2016 The figure below shows the c\PM (left hand chart) and complexity (right hand chart) of the refineries in the f~ bs being considered. For each hub, the bottom line shows the lowest quai of the range (capacity or complexity), the (yellow and blue) boxes show the seco d d third quartile, with the line across each box showing the mean capacity ~ p exity. The top line shows the highest quartile of the range and the little boxes ~ ve show outliers, Asia Pacific for example showing a very large outlier refin~ The figlr) shows that NW Europe tends to have smaller refineries and less complex ones. ~ s is probably a consequence of NW Europe having taken the conscious de~ in recent decades to cease taking heavy dirty fuels and deliberately close do~ those facilities that used to take them. The Middle East has even less complex refineries (but larger ones). Ministry of Petroleum Resources 31 Nigeria National Petroleum Policy Figure 13: Characteristics of Refining Hubs 900 18 □ □ □ 800 16 700 X 14 Q) 600 ~ 12 ~ 500 ~10 0... ~ 400 ] 8 c.. 300 § 6 200 (.) 4 100 2 0 +----~--~--~--- 0 +----~--~---~-- As ia Pacific NW Europe USGC ME Asia Pa cific NW Europe USGC ME Source: Kaase Gbakon, NNPC CP&S, SPE Dubai September 2016 Table 6: Characteristics of Refining Hubs ME 210 197 53% 60% 8% Source: Kaase Gbakon, NNPC CP&S, SPE~fJ•li/it ptember 2016 Refineries in NW Europe are p~ b~ best placed to take Nigerian crude, because of their characteristics and °V5e of their relative proximity to the Nigerian production. ~ Refineries for Nigerio pes of Light Crudes Nige~ian Type ~ s typified by an API of 33.42°-38.11 ° and sulphur content of 0.151/owtS - 0.331\'MS. _ ~ hie 7: Where Nigerian Type Crude Can Be Processed ~ egions Total Capacity (kbpsd) Regional Complexity ~ L:atin America 48.40 5.03 l Africa* 285.00 1.07 North America 1,922.63 8.00 Middle East 302.00 6.95 Asia Pacific 1,074.87 5.19 Europe 1,696.20 6.81 FSU 3,050.63 4.28 TOTAL 8,379.73 Source: NNPC CP&S Ministry of Petroleum Resources ~2 ==================================.dJ Nigeria National Petroleum Policy After the Former Soviet Union (FSU) / Eastern Europe, North America has the highest capacity to process Nigerian Type crude (around 2 mmbpd). In total there is a global capacity of 8.4 mmbpd to process Nigerian type crude. Figure 14: Capacity and Complexity of Refineries for Nigerian Type Crude . Where Nigerian • Type Crude can be Processed Where Nigerian-Type Crude Can Be Processed 3,5° 0 8.00 9.0 3 , 000 •--6.95 8.o ~ ].O X QJ co 2,500 20 % ■ Latin America :,,: 6.o ] ■ Africa* ~ 2,000 5 .0 ~ ■ North America ·.::; ·x A.. ra ■ Midd l e East g- 1,500 4.0 ~ a. 36% ■ Asia Pacific u 't 1 , 000 3.0 § ■ Europe ~

2.0 U ■ FSU 500 1.0 0.0 ~ t: u Q) :::, :3 :3 ~ Cl. ·.:: :3 ·.:: "' UJ e V) LL ~ "' Q) Q) Q) ::, E E ,5 0.. UJ Source: NNPC CP&S <( C <( ..c "~ "' ~ -~ t:'. *Exdudes Nigeria 0 _J z ■ Total Ca p acity(kbpsd ) ■ Regional Complexity "-" Bonny Light and US LLS ~ One of the consequences of the growth in ~ ~ ii production has been the rapid growth in production of US Louisiana Light et oils (LLS). These oils are of a very similar specification to Nigerian Bonn~ li . Nigerian Bonny Light crude that traditionally was sent to the USA and r • in US refineries is being increasingly replaced by US LLS. US LLS produ~ fo 2016 has shot up from 5.7 to 9.1 mmbpd from 2011 to 2015. The conse~~c~ e: • Replacing imported ligh1V3 of similar quality to US light crude oils; • Increasing overall ~~ ry utilisation (they use more of everything including US light crude ~ • Replacing ligh~ sulphur and medium gravity imports with US LLS; • lnvestin~ ery changes to use more US light crude oil. Bonny Li,.Lt).rude from Nigeria therefore will find less and less usage in the USA. < i ~ ~ Ministry of Petroleum Resources ~3 ===================================:d.J Nigeria National Petroleum Policy Table 8: US and Nigerian Light Crude Figure 15: US and Nigerian Light Crude Production (mmbpd) Production (mmbpd) US Crude Nigeria Crude Production Production Year (mmbpd) (mmbpd) ■ US Crude 2011 5.7 2.47 Production (Mbpd) 2012 6.5 2.43 ■ Nigeria Crude 2013 7.5 2.32 .................... .-1 0 N 0 rtl 0 "St 0 1/'l 0 Production (Mbpd) 2014 8.5 2.38 N N N N N 2015 9.1 2.35 Year

3.3. Structure of the Nigerian Petroleum Industry

3.3.1. Nigeria Upstream (J As would be expected for one of the largest reserv :i hu_..._ and petroleum producers in the world, Nigeria has a large and active petr ~ or, with a large number of operators and oil services companies. Th~!~~~ ~ ing Nigeria is not one of bringing expertise into the country, but of how to ~ he best use of the expertise that is already here. <(, The Nigerian upstream sector is th~ e most important sector of the economy and accounts for 80% of the Feder~ o~ ent's foreign exchange revenues1 . The Niger Delta Basin an~ ~ sins are the most developed basins and are the source of most current p tion in Nigeria. For many years, petroleum has been dominated by lnterni al ii Companies (IOCs) operating Joint Venture (JV) agreements or PSCs it the government through NNPC. However, in recent years, Nigeria has bee~ mg its experiences from Sole Risks (SR) and Marginal Fields Operations. Th~ now indigenous companies also operating JV agreements . .r. From the very beginning of oil exploration in Nigeria in 1937 until early 1993, virtually all exploration and production activities were restricted to land and swamps. Where prospecting ventured offshore, it was in areas not greater than 200m water depths. The Federal Government opened up a new frontier in oil and gas exploration, heralding the bright prospects of a promising future, by allocating some offshore blocks in water depths reaching 2500m. These deep-water depths and plans for 1 Source: National Bureau of Statistics; 2016 National Budget Ministry of Petroleum Resources ~4 ==================================,d.J Nigeria National Petroleum Policy depths even greater than 2500m will undoubtedly impact positively the country's production and reserves. Although these deep-water operations are technically challenging and very capital intensive, experienced multinational companies have been awarded some deep offshore blocks and even ultra-deep concessions. Contract types in the Upstream Sector The main contract types in the Upstream Sector are: Joint Venture Agreements (JVs): These are the standard basic agreements between NNPC and operators. Under this arrangement, both NNPC and ~ rator contribute to the funding of operations in the proportion of their equity hol~ifi9\ and generally receive the produced crude oil in the same ratio. 1' Product Sharing Contracts (PSCs): Under the PSC arrangemen~, t e~ ession is held by NNPC (acting for the government) who engages the oper a contractor to undertake petroleum operations on its behalf. The operator be~ "ti financial risks. If the operation is successful , the contractor is entitled ~ ~coler its costs upon commencement of commercial production. If not, the conb e bears all the loss. Sole Risks (SR): Under this model, the Cont✓~ .. undertakes exploration, development and production activities for, and o~ h~ , NNPC or the concession holder, at its own risk. The concession ownersli remains entirely with the NNPC/ holder, and the Contractor has no title ~ e ii produced. The Contractor is reimbursed cost incurred only from pr~ of oil sold and is paid periodical remuneration in accordance with the ulae stipulated in the contract. The Contractor has the first option to buy~ t crude oil produced from the concession. Marginal Fields: To further p~ ~ ~ igerian participation in the sector, Marginal Fields are allocated in thei st~ Sector to Nigerian indigenes. A marginal field is any field that has produc alj reserves booked of less than 10,000 bbls/d and has remained unproduced for o 10 years. IOCs 0 There are ';i'~ Cs active in Nigeria: 1. i l~ PDC); 2. onMobil; C vron; otal; ENI; 6. Addax. Indigenous Operators There is a large number of indigenous operators in the Nigerian oil and gas sector. These players either operate marginal fields and sole risk concessions, whilst a few have recently acquired assets from some of the oil majors and now participate in joint venture with NNPC and NPDC. Ministry of Petroleum Resources "5 ==================================~.) Nigeria National Petroleum Policy Figure 16: Map of Marginal Field Operators Map ofm,, Marginal Fields \-~-- OP!.206 OMW6 Ondo &"G'O'N Tsekelewu + =~• . ) <:::/? Ororo + A~!A~: ; :Amoj;/ lgbolo + 0 ~ 1 Egbaoma (Asuok~ mutu} o;illf!1 ~ - ~a E~ndo (formerly Obodogwa}/Obode d /"'J OPl.D7 usa ( , , , OMl12, ofa useti/ lgbuku o,..At a Ofo! o,.i1.20 Cross River c lapla o ~ Akepo Ogedeh \ + $-OO'N Atala Cl Bayelsa "' ~ riri Ekeh Okwok c:c Ebok + + t + Kiorneters 25 50 100 Source: DPR Annual Reporl 2014 --- ~ • In addition to the IOCs, indigen~ ~ ~ ors and marginal field operators there is also a large number of oil service\ c¥ nies operating in Nigeria.

3.3.2. N~ ~dstream Oil Network The Nigerian m~id treU i1 segment comprises refineries, product storage depots, terminals, crud ransportation pipelines, petroleum product pipelines, pump stations an~ pots. Facilitn X the midstream network in Nigeria consists of: ~~r refineries with a combined capacity of 445,000 bpd; l ~1 petroleum product storage depots; • Over 5,120 km pipeline network; • 24 pump stations; • Nine LPG depots with a total combined capacity of 12,000 MT of LPG; • Terminals at: o Atlas Cove; o NPMC Escravos; o Bonny Export; o MT Oloibiri / MT Tuma. Ministry of Petroleum Resources ~6 ===================================:dJ Nigeria National Petroleum Policy Figure 17: Nigeria's Midstream Oil Network r ~ ~ ~ /Ibafon ~ Distribution Depot Booster Station Bight of Benin :-\ « Product Pipeline Butanisation Depots Refineries Source: MPR Petroleum Policy Team The Nigerian midstream oil ne~ rkQ originally designed for equalisation of end - user prices throughout the co nd was to be operated as a regulated network. However, in practice, i~ ~ s as a non-commercial unregulated monopoly embedded within the NN~ • The system ~ ts of a crude oil transportation system from crude oil terminals to re~ es (Port Harcourt, Warri, Kaduna); • The refin~ cessing system was linked to the pipeline transmission network and n~~ -depots; • ~d~ imports augmented domestic refining through Atlas Cove terminal ~ ch was linked to the pipeline transmission and distribution system; As~ most networks, the tariffing mechanism for transportation was based on equi- dist~ t- average network pricing (the so-called postage stamp tariffing model). Even this model described above has not been effectively implemented, leaving a network whose maintenance costs are not fully recovered from the tariffs. As result, the network is in a state of disrepair and plagued by systemic inefficiencies and vandalism across critical areas. Ministry of Petroleum Resources "7 =====================================dJ.) Nigeria National Petroleum Policy

3.3.3. Nigerian Refineries Nigerian refining capacity is: • OPHR: 1963/1972: 60,000 bpsd; • WRPC: 1978: 125,000 bpsd; • KRPC: 1979: 110,000 bpsd ; • NPHR: 1989: 150,000 bpsd; • Total today, nameplate capacity: 445,000 bpsd. Despite being one of the leading crude oil producing nations in the world, fjteria's refining capacity is one of the smallest. On a per capita basis, Nigeri8'( r~ ning capacity (theoretical maximum capacity which is far higher thanca?rt~~ urrent operational capacity) is one of the lowest, even among other African s:)., ies: • Libya: 6.17 bpsd/capita; ~ • Algeria: 1.37 bpsd/capita; ~ • • South Africa: 1.11 bpsd/capita; Egypt: 0.96 bpsd/capita; C, • Nigeria: 0.3 bpsd/capita. ~ / ... ~ city Refining Capacity Current NNPC Supply & Distribution Infrastructure -== r=- r- NPHR • 5,120 kilometers Of Pipeline Network ~ l~ OOOBPS ojlllll • 21 Petroleum Products Depots ~:.CoooBPS~ r 979 =- OPHR .... • 9 LPG Depots 1978 • Atlas Cove Terminal I mm&m • • • •• • • IM+i+ifrl • • PPMC Escravos Terminal Bonny Export Terminal Be(inina capacity Pee Cqqita 26 • MT Oloibiri/MT Tuma 10 0 - - i 1.37 Algeria 0.96 Egypt Libya 0 .3 Nigeria - 1.11 S/Africa - -----------------------------~ Downstream Infrastructural Growth Plateaued In The Early Nineties. FGN Is Re Strategizing To Face Current Consumption Challenges & Preparing For Additional Product Volumes From Envisaged New Refineries Sou e: MPR Petroleum Policy Team There are three Government - owned refineries in Nigeria, one of which, Port Harcourt, has two installations. They are all government owned and part of NNPC. The existing refineries and their characteristics are: Table 9: NNPC Refineries in Nigeria SINo. Refinery Ownership Configuration Feedstock Product 1 Port FG (NNPC) Hydro- Bonny Light Fuels Harcourt, skimming (PMS,AGO, DPK) Ministry of Petroleum Resources ~8 ===================================:d.J Nigeria National Petroleum Policy Old PHRC, Rivers State 2 New PHRC, FG (NNPC) Conversion Bonny Light Fuels Rivers State (PMS,AGO, DPK) 3 Warri, FG (NNPC) Conversion Escravos a. Fuels WRPC, (PMS,AGO, DPK) Delta State b. Petrochemical (Polypropylene & Carbon Black) 4 Kaduna, FG (NNPC) Conversion i. Escravos a. Fuels (PMS, KRPC, ii. Ughelli AGO, ~ K) Kaduna Blend b. PJ ot emical State iii. Basra c_A3. s Oil ~· 5 NDPR, NDPR Topping i. Urals ~ ~ el Rivers State ii. Ogbelle~ source: DPR Annual Report 2014 Table 10: Refining Capacity and Utilisati KRPC WRPC PH NE NDPR TOTAL Design Capacity, 110,000 125,000 60,000 1,000 446,000 BPSD Crude Oil Processed, 2010 21,987 19,345 94,677 BPSD 2011 31,853 2012 24,531 1,000 92,382 20,925 44,937 1,000 99,315 44,937 23,537 1,000 81,635 Source: DPR Annua eport 2014 _ q .igure 19: Capacity Utilisation in Nigerian Refineries 160,000 150,000 140,000 ! !!. 120,000 - - 125, j; 100,000 _ 110 Designed Capacity, BPSD ::5 80,000 ■ Crude Oil Processed 2010 ■ Crude Oil Processed 2011 z 0 60,000 ■ Crude Oil Processed 2012 6 :::, Q ■ Crude Oil Processed 2013 0 40,000 ... a: ■ Crude Oil Processed 2014 20,000 1,000 KRPC WRPC PH NEW PH OLD NDPR REFINERIES Source: MPR Petroleum Policy Team Ministry of Petroleum Resources ~9 ===================================:dJ Nigeria National Petroleum Policy The following figure shows how the capacity utilisation of Nigeria's refineries have underperformed by such a large extent. Globally, refining is a very low margin business and refineries have to be kept working very efficiently 24/7 in order to make any profit. The Nigerian refineries however are performing well below capacity. Figure 20: Nigeria's Refinery Capacity Utilisation vs Rest of World Nigeria's Refinery Capacity Utilization vs Rest of World 100% ~ 80% C: 0 -~ 6oo/o .!::! ~ ::::, i:-- 40% · ;:; "' 0.. \.J "' 20% oo/o - Total Asia Pacific - Nigeria Source: MPR Petroleum Policy Team, NNPC CP&S f" - Across the three refineries, capacity utilisation has fallen fr~ igh of just under 60% in 2002 to just 14% in 2014 (left hand chart below). To~ _Je any chance of succeeding commercially, Nigerian refineries need to ope::,! globally acceptable cost 'V structure and need to operate at 90% utilisation ~ ore. In addition, the yields from the Nigerian ref"J ies are not optimum. The yield is the proportionate mix of each type of refine~ ~ a refinery can produce. The optimal yield for a refinery takes into account th_e ~ acteristics of that refinery and the value of the value added products that~ be produced. The Nigerian refineries are producing less of the value add~ J ~ ts than is optimal. Figure 21: Capaci ~ ion and Yields in Nigerian Refineries - - Yield consistently below optimal levels Refineries combined capacity utilisation Refineries combined yields @Optimal-Actual, % % %, 2014 100% = 445 KBD 100 International benchmark capacity utilisation 14 12 CD Other1 -------------------------------------------------------- ◄ 80 80 20 LPFO CD 22 ,// 13 Kero CD 51 Increasing 15 value AGO G) 40 25 32 21 30 20 PMS GD 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Actual Optimal Yield 2 Yield 3 1 Includes other products 2% (e.g. LPG), intermediates 2.5% (e.g. PMS intermediates), refining fuel & loses 12.5% 2 From CPD 2012 data for each refinery 3 Optimal yield result from LP model Source: NNPC CP&S Ministry of Petroleum Resources 40 ====================================== Nigeria National Petroleum Policy It is important to describe these sub-optimal performances of the Nigerian refineries because (as is shown in the following sections of this Policy), a strong commercially viable and significant refining sector is an essential part of the Petroleum Policy.

3.3.4. Nigeria Downstream The downstream sector of Nigeria involves the distribution and marketing of petroleum products such as fuels (PMS or petrol, AGO or diesel, Aviation fuel, DPK or kerosene) and lubricants products. Distribution and marketing is largely undertaken by Total Nigeria, a local affiliate of international oil company, and by four domestic co~ ies: 1. Forte Oil (formerly BP); ~" 2. Oando pie; 3. Conoil ~ 4. NIPCO. ~ There are also some 750 other marketing independents w~ ar~ ensed by DPR to market ~etroleum products. This means that the downst a is controlled by local companies. ~ / ... NNPC is also engaged directly in the wholesale ~jeWc,f refined products through NPMC (formerly PPMC) and retail marketing thro~ NNPC Retail ltd.

3.3.5. Environmental lmp~ ~etroleum on the Niger Della The Niger Delta is home to some 3:; l~ eople. It occupies a total area of about 75,000 km and makes up 7.5% of N r" 's land mass. The Niger Delta region consist of nine oil-producing states (~~. -A wa-lbom, Bayelsa, Cross-River, Delta, Edo, Ondo, Imo and Rivers) an~ 5~ government areas. The region cuts across more than 800 oil producing co nities with an extensive network of over 900 producing oil wells and several petrole production-related facilities. Negative impac~ s f tO industry are a major concern in the Niger Delta threatening not only the he cal communities, but also the livelihood they depend on. These include the~ ir ental, health-related and social effects of oil spills, gas flares and illegal refin· the employment opportunities offered or lost and the wider economic implic~ · s the sector; the extent to which the oil industry has contributed to the confli • oil-producing regions, and the extent and consequences of oil theft. G~ nt is determined to address these impacts through regulatory measures, co11( '11u11ity engagement, and the enforcement of standards. Key Messages • Negative impacts of the oil industry are a major concern in the Niger Delta threatening not only the health of local communities, but also the livelihood they depend on; • While oil companies are implementing certain measures to address these impacts, corporate social responsibility activities largely remain piecemeal and short-term, community engagement is inadequate and requirements for accountability and transparency are either insufficient or not enforced; Ministry of Petroleum Resources 41 ====================================== Nigeria National Petroleum Policy • The main challenges relate to lack of political will and capacity to implement and enforce national regulations, highlighting underlying governance challenges that need to be addressed; • Current efforts to promote greater revenue transparency are important but need to go hand in hand with a push for better revenue management and a greater emphasis on preventing trade in oil sourced illegally or from conflict areas; • There is a need for increased cooperation and coordination to mitigate the impacts of oil industry activity among all stakeholders. Government, oil companies, civil society and communities must positively engage and work more closely together. A Figure 22: Niger Delta Political Map ... 1'. \ litical Niger Delta l CROSS RIVER STATE N A Atlantic Ocean Source of Map: N SRDA I] Source: NAS~ Envir~ ental and Social Impacts of Oil Companies on the Niger Delta M~ f the literature on the negative impact of the oil and gas industry in Africa is to~l ed on the Niger Delta. Since Nigeria's return to democracy in 1999, the situation in the oil-producing region of the Niger Delta has rapidly evolved and altered, with social protest turning to violent protest, and militancy and criminality on the rise. There are many layers of interest in the Niger Delta, making it difficult to find objective efforts to diagnose or treat problems. The damage from oil and gas operations is chronic and cumulative, and has acted in combination with other sources of environmental stress to result in a severely impaired coastal ecosystem, which has compromised the livelihood and health of the region's residents. Ministry of Petroleum Resources 42 ====================================== Nigeria National Petroleum Policy Environmental Issues Associated with Petroleum Exploration and Production Some of the environmental problems associated with oil exploration and production activities include the following: • Oil spills; • Gas flaring and venting; • Discharge of petroleum derived chemical waste; • Contamination of controlled water sources; • Contamination of soil and sediments; ~ • Destruction of marine environment and farmlands. Oil Spills: Oil spills have a major impact on the ecosystem into w~ h~ y are released and may constitute ecocide. An estimated 1.5 million to~ s ( o\ has been spilled in the Niger Delta ecosystem over the past 50 years. for pe t e, this is 50 times the estimated volume of oil spilled during the Exxon ValdEi._ <,i ill in Alaska in 1989. ,, Impacts of Spills CJ • Oil spills pose major direct risks to the envir~ ~t and human health while also undermining livelihood security in the~ ; ' K; • Pollution resulting from oil spill tends ~ ~ e difficult to manage in the Niger Delta environment than in others; • The environmental impact of petro~ operations on the Niger Delta also have economic ramifications. En2· ~ al degradation eliminates sources of income (e.g. fishing and farm1 hich displaces local population which in turn causes the collapse of l~ co omics; Extent of Oil Spills ~ Data on the quantity ~ pilled in the Niger Delta caused by equipment malfunction, sabotage and ~m II-~ theft for local refining are highly contested. Of the IOCs operating in Ni r" nly Shell Petroleum Development Company of Nigeria (SPDC) publishes ri lar ports on the number of spills in its operations. Disagreements over the causes extent of oil spills are in part due to the fact that companies may track and r~ pi line losses but these figures do not necessarily correlate to the quantity of oil s~ due to the burgeoning industry in oil theft in Nigeria. W~ ajor oil spills have been reported over the years, it is the minor oil spills that ar~f oil~ctively probably a greater danger to the environment and people of the delta. Operators will be required to pay for damage to the environment and to communities from oil spills caused by negligent or poor oilfield practices. Ministry of Petroleum Resources 43 ====================================== Nigeria National Petroleum Policy

3.4. Need for a New Petroleum Policy There are three main reasons why Nigeria needs a new Petroleum Policy:

3.4.1. The Previous Policy was Not Designed for Development The previous petroleum policy encourages rent seeking through a crude oil export for cash business. It is the only OPEC country without effective oil refining capacity. Investments in mid-stream infrastructure (storage, terminals, transportation and processing) have lagged behind upstream investments. Even the upstream crude oil export business has suffered because of ~ 4,urity. Nigerian production has not risen in line with its potential or its peers j\ tn, rlddle East or Africa. ;.,. \

3.4.2. Dominant State Ownership ~ {)_) The petroleum sector has been dominated by state owne~ ·p ~ dominant market power in the upstream and mid-stream. Consequently, t p wate sector has been constrained. There are fiscal disincentives to new p ~ cip s; a lack of regulatory rigour and absence of governance in cost efficiency. suit, state control and rent seeking by government has limited the growth of~ -s aining industries. Despite having large energy resources, . N'1eria has become energy insecure exhibiting multiple dependencies on: 1) ~~ exports; 2) product imports; and 3) hydrocarbon based electric power indust' V

3.4.3. The World hasQ nged The oil world has now ch~n d~ amentally and the old policy is no longer relevant to Nigeria's future. The • ice has crashed and is forecast by the Petroleum Policy Team to rem~ a edian $45/bbl real for the foreseeable future. Production arou,1 , ih~ld remains high, combined with large inventories in storage and even in tan~ ound the world. The reality is that the world is awash in oil. ~ 4. New Vision of Value Adding Activities There d~ a forecasts that the world is now starting to enter a post-oil period. Oil 1~ rowth is expected to be slower in the future than it has been in the past, and wit • e next twenty years, demand for oil may show absolute declines. The future for ii producers lies in value added refining and petrochemicals. The intention of this Petroleum Policy is to move Nigeria away from crude oil exports into: 1. Value added activities in oil, namely refining and petrochemical industries; 2. Expanding from oil into gas based industrialisation, based on the as yet largely untapped large gas reserves in Nigeria. Ministry of Petroleum Resources 44 ====================================== Nigeria National Petroleum Policy 4. VISION AND OBJECTIVES

4.1. Vision The long - term vision of the Nigerian petroleum policy is: "To become a nation where hydrocarbons are used as a fuel for national economic growth and not simply as a source of income" This vision contains some important elements: 1. Moving the Nigerian economy away from the current situation where d.de oil is exported and no further uses are made of the hydrocarbon opport~ & ; 2. Oil is not simply exported but is refined and further processi d ~ ! Nigeria; 3. Nigeria becomes a regional and international centre for cru • fining ; 4. A vision of a diversified industrial nation where Nigeria ~ • nificant petro- chemical and other petroleum based industries; 5. Diversifying the petroleum resource base within Ni~ to ensure security of supply; / ~ •. 6. Operate a petroleum industry with a clear ? JsM roles between the private and public sectors: ~ o Public sector policy making a~ ulation; o Private sector implementat~ vestment and operations; 7. Provide an enabling envir~ nt for increased Nigerian private sector participation in the petro ~ e m~ r; 8. Complementarity with t • n of the National Gas Policy of a diversified gas based industrial ec~ y.

4.2. Mission Q The Mission of ~ erian Petroleum Policy, which will meet the long term Vision, is: •~ ~ mlse production and processing of hydrocarbons" Within6 Mission statement, there are various aspects: ~~ a clear petroleum policy; l' - a. Establish a clear legal and regulatory framework; b. Realign the public sector to provide policy, legal and regulatory support to the industry; c. Communication of the vision to government, local and international stakeholders; d. Providing an attractive environment for investment; Ministry of Petroleum Resources 45 ======================================= Nigeria National Petroleum Policy 2. Maximise long term hydrocarbons production through: a. Establish an institutional regulatory and fiscal regime that encourages efficient development of resources; b. Ensure growth in reserves and effective production / reserves ratio; c. Diversify reserves and production to offshore and inland basins; d. Introduce international best practice in operations and in governance; e. Operate in an environmentally clean manner; 3. Maximise the processing of hydrocarbons through: a. Take measures that lead to a large and commercially viable pk ~um refining industry; .. , b. Broaden the economy and bring focus to gas; ~~ c. Move away from oil as a source of income to oil as ~"MJr economic growth. ~J

4.3. Strategic Policy Objectives CJ The Mission statement for the new oil policy is to ~ x~ production and processing of hydrocarbons. The policies are to be ancho n the following strategic policy objectives: _ \ 1. Create a market-driven oil and ga~ ~: • Create an effective funding ~ ture for the National Oil Company; • Ensure private invea _t across the upstream, midstream and downstream seg~jl;_¥t;e value chain; • Separate and ~ a~ e roles of the state as policy maker, regulatory and investo~ 2. Maximise prod~ n and processing of hydrocarbons; 3. Move aw~ oM as a source of income to oil as a fuel for economic growth; 4. Create v e through processing of oil into significant end products for ind~ s ( ,versification and backward integration strategies): / )• ' chieving a competitive supply of petroleum products; , . Making Nigeria a refining and petroleum based industrial hub; Expanding and integrating product slates, in other words extracting the ~ - value from the additional chemical processes from an oil stream; 5. Following the Hydrocarbon molecule from extraction to destination markets; • Securing primary and secondary markets outside Nigeria through collaborative ventures with third parties; 6. lncentivise investments in a cost-efficient storage, transportation and distribution system for petroleum products in Nigeria: • Manage supply and distributions interruptions; Ministry of Petroleum Resources 46 ====================================== Nigeria National Petroleum Policy • Apply non-discriminatory regulatory oversight; • Promote non-discriminatory open access into midstream infrastructure; • Pursue diversified supply and distribution options; 7. Promote competition in the industry; 8. Minimise the environmental footprint of oil exploration in Nigeria through strict enforcement of environmental laws; 9. Manage the balance between depleting oil resources vs renewable energy. The rest of this policy document now expands the objectives into policies fore~ part of the industry and value chain: "\ • Governance; ~~ • Industry structure; ~'-' • Actions along the value chain: )Ii..~J o Upstream; •, o Midstream; o Downstream; C, • Developing national Human Resources; /,; . • Communications; L.; V • Roadmap and action plan for implementa.~ <c~ <v<:) ~ ~o <l. <;. ~ Ministry of Petroleum Resources 47 ======================================= Nigeria National Petroleum Policy 5. GOVERNANCE

5.1. Legal and Regulatory Framework

5.1.1. Petroleum Industry Legislation The existing petroleum industry legislation in Nigeria dates back to 1969. There are also several other disparate pieces of legislation on petroleum, some of which are no longer relevant or applicable to Nigeria's circumstances. Significantly, the Petroleum Act 1969 did not legislate sufficiently for gas as a hydrocarbon and industry in its own right, nor for a mid and downstream gas industry. ~ The government will promote new legislation to overhaul and modernj1se ~ gerian petroleum sector by addressing a broad range of issues including se r overnance and institutional framework, fiscal regime, corporate structure ~ t e - owned enterprises, transparency and accountability, environmental iss" VJ

5.1.2. Main Provisions of Legislation r t New legislation, the Petroleum Industry Reform BY,j~~ is proposed by the X Government. The main provisions of the proposed Bi" VB) are: • Institutional Reforms o Policy Institution: A National Patl,leum Policy Directorate (a technical "Back Office" responsible ~ ~ting the Minister in the formulation, monitoring and ensuring th~ lementation of petroleum policies); o Regulatory lnstitution£ rian Petroleum Regulatory Commission (a new single regr!2 t~~ y governing all sectors and segments of the petroleum indust o Commercial - l~ titu ions: Nigerian National Oil Company (an incorporated~ lic entity which manages all petroleum assets of the FGN, w~ uity to be listed on local and international markets); and N~ "8J~1eum Asset Management Corporation; • Clarity o~ ives, roles and responsibilities of each institution; • SepQ on of powers and autonomy of the institutions from the Minister; • ~ o~ ability (audits, reporting standards); ~ ~ nsparency (codes of corporate governance); l International Best Practices (recruitment, qualifications and expertise); • Stakeholder engagement (consultative processes, newspaper/website publications requirements); • A clear strategy for long term sustainable development (competition and market regulations, host communities). Ministry of Petroleum Resources 48 ====================================== Nigeria National Petroleum Policy

5.2. Institutional Framework The government is aware that while there are many benefits in consolidating into a single petroleum regulatory commission (and reducing the current number of disparate and sometime overlapping regulatory agencies), there are also some challenges. The main challenge is likely to be in building institutional capacity and a strong and effective corporate culture within the new institutions, to ensure effectiveness of the institutional framework and sustainability of the policy.

5.2.1. Existing Regulatory Agencies Currently there is a number of agencies covering the petroleum industry i ~eria. They are: ~' • Ministry of Petroleum Resources: ~ This Ministry is responsible for oversight of the petroleum e including all government agencies directly involved in petroleum sec~ agement. The Ministry is headed by the Minister, who is char~ with responsibility for petroleum matters. Policies for the orderly develo e and management of the sector are developed by the Ministry and i~ he Minister; • Department of Petroleum Resources (D/fj): The Department of Petroleum Re~ ~ (DPR) exercises the regulatory powers of the Minister of Petroleum ources on his behalf: o Oil and gas licensing and ~ r g; o Downstream petroleum pro~ licensing and monitoring; • NNPC: <> o This is the nation✓gt! company. It has extensive operations in several areas; ...._ \ V • Nigeria Conte~ ~on (NCD): o lmplem~ on of Nigerian content policy; • Petrole• . a _ducts Pricing Regulatory Agency (PPP RA): ~ e~ ;~m products price regulation; • ""r~ um Technology Development Fund (PTDF): , o Petroleum industry manpower training; ~ etroleum Equalisation Fund o Agency responsible for the equalisation of pricing of petroleum products countrywide.

5.2.2. Effect of the Previous Institutional Framework The institutional and regulatory framework is largely ineffective and inefficient, arising from: • A number of single-issue agencies; Ministry of Petroleum Resources 49 ====================================== Nigeria National Petroleum Policy • Overlaps in regulation; • Gaps in regulation; • Mixture of policy, regulation and operations; • Ineffective Regulation. Although the agencies generally work well together, their roles sometimes overlap and there are significant information gaps within the Government as sometimes one institution is unaware of what the other is doing. At the same time, policy making capacity has been weak, resulting in NNPC and its subsidiaries setting policy and regulation as well as conducting operation,-tn the petroleum sector. "\ The result is an ineffective and inefficient institutional environment in..A.~etroleum sector in Nigeria. S:) ~

5.2.3. Reporting Practice "~ There has been incomplete reporting and a lack of trat;¼ency throughout the petroleum industry. There is a lack of contract transp~~c~ incomplete reporting on most aspects of the petroleum industry. For ins~ the MPR publishes little information on: ~ • The upstream licensing process; ~ • Fiscal and production arrangeme~ • Contracts; "1 • Environmental impact asses~ s; • Operational data; <v'./ • Revenues; • Production volumes; \ • Prices; ~ • The value of r~ ce exports; • Estimates of in~ ents in exploration and development; • Producti~ s; • Cos~s f ~ sidies; • Pro on stream values; • i al s; • government's share in PSCs; ~ fl government's share in production JVs. The Petroleum Policy proposes transparency of declarations and operations. As such the MPR intends to reform its own reporting practices.

5.2.4. Single Independent Petroleum Regulatory Commission The Federal Government is determined that there should be a new single regulator for the petroleum sector in Nigeria which will replace the existing regulatory agencies. Ministry of Petroleum Resources r::o ===================================.dJ;J Nigeria National Petroleum Policy A new and single regulator will therefore be established, which will cover the whole petroleum sector, upstream, midstream and downstream. It will incorporate the activities of the existing petroleum regulatory authorities and also cover some new regulatory activities not currently covered. The following Divisions, Departments or functions are envisaged to form parts of the petroleum regulatory commission, among others: 1. Upstream oil and gas licensing; 2. Midstream licensing and economic regulation; 3. Downstream petroleum products licensing and regulation; 4. Downstream gas licensing and regulation; A 5. Health and safety compliance; ~ \ 6. Environmental compliance; A ", 7. Consumer protection; ~\ 8. Compliance monitoring. ~ Details relating to the establishment, governance and operati~ ~ lhe regulatory commission will be set out in legislation. r •

5.2.5. Philosophy of the Regulatory ~c~ There will be a strong single independent r! responsible for the technical and economic The role includes minimising and where i a¥ commission that will be n of the whole petroleum sector. sibl eliminating market distortions, licensing, monitoring, investigations, and~ ·on powers. The licensing regime will cover eve~ ti¥ ncluding, but not limited to, licences for exploration, production, construct nd operating petroleum refining plants, constructing and operating ga~ ~ oce sing plants, liquefaction plants, constructing and operating gas storag~.f ~~ oil or gas transportation pipelines, distribution networks, undertaking the~ ly of natural gas including gas trading. All regulatory and ps~ egulatory activities will be removed from corporate entities and taken ove~ b th\-Jgulator. In addition, a network code will be introduced to provide conditi s non-discriminatory access for third parties to all infrastructure along the 0;·1 d s supply chain. Supply se ent: The regulator's role is to calibrate the supply segment such that it beco~ pe to as many players as possible in order to foster competition for the market~ ongst licensed entities. Mi~ am segment: The policy objective for the midstream is to attract as much investment as possible into petroleum refining, gas processing, transportation and storage in order to bridge Nigeria's hydrocarbons abundance with growing demand and to better position Nigeria in international markets. The petroleum policy envisages that producers will increasingly focus on exploration and production activities and the entry of midstream investors that will specialise in refining, processing, transportation and storage of oil and gas. Ministry of Petroleum Resources 51 Nigeria National Petroleum Policy Given the network-bound and monopoly features of the midstream, the regulatory objective should be utility regulation. The relevant regulatory tools in this regard are: • Competition regulation; • Open access rules for all onshore and offshore pipelines; • Tariff regulation on a rate of return basis for gas processing, storage facilities, transportation pipelines and other essential midstream infrastructure.

5.2.6. Petroleum Institutional Framework In order to reduce the inefficiencies in parastatals in the petroleum sector, u~ r the petroleum policy, the single petroleum sector regulator authority will operateN,..nd\r the policy supervision of the Minister of Petroleum Resources, where the M~ e1'vill: • Set the policy for the Petroleum Regulatory Commission; r,,.,. (::} • Ensure monitoring of the implementation of the policy; )Ii..~J • Ensure monitoring of the performance of the authority. • , This does not mean that the regulatory commission w~ill epG the Ministry on a day to day basis. The new single regulatory commi I will be an operationally independent regulatory institution. The Minister·~ · vo ent will be hands off and just to ensure that the regulatory commissio operly carries out its roles of implementing the policy. ~

5.2.7. National Petroleu~ y Directorate Figure 23: Nationn r¥ um Policy Directorate [ National Petroleum Policy Directorat_!_J Strategic Planning & Oil Policy Division Policy Research Gas Policy Division Division Upstream Oil Strategy Upstream Gas Forum: Public / Private Forum Implementation Midstream Gas Strategy Midstream • Technical issues Technical standards Downstream National Issues Downstream • Coordination issues Project management Investment Promotion Office Investors Source: MPR Petroleum Policy Team 2016 To ensure a more effective policy making and sector supervisory role into the future, a National Petroleum Policy Directorate will be established within the Ministry of Petroleum Resources. This entity is designed to provide a permanent technical back- Ministry of Petroleum Resources r::2 ===================================.dJ;J Nigeria National Petroleum Policy up to the Minister in the execution of his responsibilities. In addition, new technical departments and specialist centres will also be set up within the MPR as depicted above.

5.2.8. Strategic Planning and Policy Research Centre The new policy Divisions to be established within the MPR will include two new specialist centres: • Strategic Planning and Policy Research Centre; • The Investment Promotion Office. /\ The idea is that the Strategic Planning and Policy Research Centre ~w1 ~ } mall research centre of individuals who will keep regular track of local ~ ! ternational developments and keep Ministry, regulatory and other government ~ a updated as necessary. The types of areas to be followed are: ~ • Strategic planning and natural resource manageme~ _"" • Petroleum industry market developments; V • Oil and gas price movements and forecasts; / , ; . • Policy initiatives; V • Regulatory initiatives; /; • Developments in international ene~ a",ations; • Key international contacts with who contact. «, ders within the MPR need to keep in Dedicated Project Desks <:) To facilitate institutionalised / ...J.10mentation of the programmes and projects emanating from the policy, ~t\e try shall appoint dedicated Project desks within the Policy Departments ~ erve as interface between project developers and Government Agencien The Project des~ ,ll~ duplicate the activities of other Departments of Government or the regulato ission. Instead, their role essentially will be to lobby and push projects or~ ra mes provided for or relevant to the Policy through Government. Their job wi~ e to engage and fully involve other parts of Government and the private sector~ nsure that projects or programmes are implemented. ~ 5.2.9. Investment Promotion Office When the Government prepares or develops a project for investment, it should also be prepared to market that opportunity as well. The primary responsibility and capability for marketing a project will lie with those who developed it. Nevertheless, in an era where petroleum investment is harder to find, focus needs to be brought to investment promotion and a professional approach is needed. The Investment Promotion Office will provide: • Technical support in promoting a project; Ministry of Petroleum Resources r::3 ==================================.JJ;J Nigeria National Petroleum Policy • A centre of expertise on upstream and downstream petroleum opportunities within Nigeria which will work with the Nigeria Investment Promotion Council (NIPC); • A database of projects and investment opportunities; • An informative website; • Support with promotions and roadshows; • Dedicated personnel to help potential investors, so that investors have a single point of contact who will remain with them and guide them through the government process. A It will be useful and helpful to investors to have a single point of first c~ ~~ ere they can find out about Nigeria and about the investment opport n ies in the petroleum sector. Any potential investor should be given as muct("l?li(p ation as possible, in as investor friendly a manner as possible, about al~"'f:>portunities. While it is not possible to give confidential information about ~ • titors or other companies, the Ministry should be able to produce authorit~ _es~ ates of reserves, of markets, of opportunities for investment, of legal and fisc~ ditions, and any other information that can be provided. /,; . The Investment Promotion Office should have a ~ s'M'th as much information as possible on it, and also produce brochures a other informational material. In addition, rather than just waiting for potential il ~est rs to approach it, the Investment Promotion Office could also actively ! i~i . the opportunities in Nigeria and prospective projects to potential develop rough promotions, presentations, road shows and direct negotiations with ~ tia developers.

5.2.10. Petroleu~ *ompllance The current system in Nin~ ia regarding maintenance, health and safety in the Nigerian petroleum sectoti:~ ;t acceptable. Major safety incidents go without proper investigation and wite ufficient responsibilities being apportioned. There are two ~ ant roles for safety management in Nigeria (and as indeed anywhere)·1 v~ ion and investigation. Prevention is of course the best approach. Setting go tandards and ensuring they are followed help prevent incidents. lncidei n ccidents may however still occur (although increasingly rarely as the safety 1me becomes embedded) and it is the role of investigation to find out what h~ and to learn the lessons for the future. Rigorous investigation is important be\ ::,~: • Lessons should be learned, changes made and similar incidents avoided in the future; • If individuals are culpable, the guilty are brought to criminal justice, setting a deterrent to people who consider acting in a similar fashion in the future. The safety record in Nigeria is unlikely to significantly improve without establishing and empowering the regulator to carry out forensic investigations and to lay criminal prosecutions on company directors in cases of proven gross negligence. Ministry of Petroleum Resources r::4 ==================================.JJ;J Nigeria National Petroleum Policy A strong robust safety regulator will be established, with powers of inspection and investigation, and working with law enforcement agencies as necessary for entry into premises without owner's permission, removal of evidence, questioning under caution and detention, in accordance with the law. The policy is for safety regulations to include robust penalties for breaches of regulations and safety standards. There also need to be criminal prosecutions for instances of gross negligence which lead to a serious breach of health and safety or serious incidents that lead to loss of life. They should carry a potential jail senten~ for Directors of offending companies. "'\ A key safety regulatory function therefore is the monitoring and inspect~ regime. • Inspections: Preventative monitoring and inspections to e~ ensees are acting within regulation (before-the-incident preventi°i:..~ nte); • Investigations: Major incident investigations, where ~ e•n~ investigations of incidents take place (after-the-incident investiga on ex-post), gathering evidence so that: /,; . o Lessons can be learned for the futu7 ..a1V o Criminal prosecutions can be mad~ necessary in instances of gross negligence. ~ The petroleum safety division of the r~ r for Nigeria will be dedicated to the petroleum sector (including oil a~ ~ ~ ~duction, oil refining, gas processing, transportation, petroleum produc G, biofuels and LPG). However, it is recognised that such an organ~Jon eeds to be properly financed and it needs to have specialist staff with the\ ki yd the tools to carry out their work effectively.

5.2.11. Tech~ Standards Around the world, tO cal standards are usually developed by the industry in consultation. S~ ds are produced by technical standards committees of the Industry associa~ w hich are made up of representatives of the industry. Nigeri~ il~ opt appropriate international standards selected, whichever is more string from ISO, ASME, El, API, ASTM, ANSI, for example. Pipeline design st~ can be from, for example: ISO, ASME, El , API, IGEM. ThX e~ petroleum regulatory commission will be responsible for technical standards in Nigeria. The Standards Division of the Petroleum Regulatory Commission will be responsible for developing and maintaining technical standards, working with industry. The MPR is responsible for ensuring that the policy regarding technical standards is implemented. Ministry of Petroleum Resources !=i5 ==================================.JJ Nigeria National Petroleum Policy

5.2.12. Metering and Measurement The state of metering and measurement of hydrocarbons is not satisfactory. As part of arrangements for a transparently run industry, the policy is that shortcomings in metering, measurement and fiscalisation of hydrocarbons throughout the value chain will be addressed.

5.2.13. Cost Monitoring and Control The costs of running the petroleum industry in Nigeria have risen dramatical~Y. nd to an unacceptable level. Nigeria has become one of the highest cost provinr i the world. In a low oil price world which now prevails, this cannot continue Ji} v rely affects government revenues. The cost-price ratio should not exceed "'-'' w ich is around the maximum that the fiscal system can bear. ~ The advent of new technologies provides an opportunity toki~icantly reduce petroleum costs, in Nigeria as well as in other petroleum p~ ~ce~ round the world. Cost monitoring and cost control are crucial to the pr~ b~ f projects in the value chain and to overall sector economics. V The intention of the policy is to a ~ i.4iplication of and unnecessary costs, and to avoid redundant and u ~ iJtilised assets. It is the policy of the Government that robust c~ s • ation and cost control must be adopted as a standard operatin~ ctice in the sector. Measures to reduce costs in the NiQ , petroleum industry should include (among other measures): ~ • Cost optimisation; ~ • Cost managema t; • Better asset m na ement; • Consolid~ - o ntracts where necessary; • Perform sed incentives; • lnce! ts reward lower cost producers; • Pen • s for higher cost producers; • J(1ene al move away from higher cost oil; • ~ ving down cost to achieve higher revenue; ~ haring of services and facilities; l Contract thresholds for projects; • Cost estimates prepared for any project must be benchmarked across the industry and with peer projects globally; • An evaluation of the technical and economic feasibility of any engineering project must be undertaken before proceeding with such project; • Approved cost data for all projects should be recorded in the National Cost Database developed under the leadership of the Commission; • Effective cost monitoring and control of JVs and PSCs (as discussed in 5.5.2 PSC Plus Cost Structures below). Ministry of Petroleum Resources r::6 ===================================.dJ;J Nigeria National Petroleum Policy The petroleum regulator in implementing the intention of the policy will approve a duplication of infrastructure assets only if an economic case can be put forward. The government is also very aware of the measures it needs to take to help to produce a lower cost environment, including among others: • Resolving the Niger Delta militancy issues; • Reducing the general costs of doing business in Nigeria; • Optimising contracting cycles.

5.2.14. Consumer Protection ~ The single regulatory body shall have oversight over consumer protec~ n~ d shall consider in its regulations, orders and mandates, measures that e~ , consumer protection consistent with the Consumer Protection Act. ~ Despite the best regulatory framework, consumers will have pro..._Q5and complaints in their relations with their suppliers. There could be (for -~~~~ ;fety concerns, disputes over quantities of petroleum product or LPG ~ prices, quality of the product, concerns over customer service, and so on. ~ / .... Tasks that the consumer affairs department cou1~ ,¥ui include but not limited to: • Monitoring the treatment of consumP..cs:\ • Receiving and logging consumer ~ ts; • Resolving consumer complaints; "1 • Tracking, compiling and pub~ data on complaints; • Taking action on specifi~ id~ curring consumer issues; • Consumer consultation ortant new developments or regulations; o • Consumer awaren~ a aigns.

5.2.15. Agencies The gov~ nt will work with the donor community to identify where d gency support can best support the implementation of t,oas olicy and the necessary capacity building. ~ s) .16. Civil Society and Consumer Groups t)...The government will liaise with representatives of civil society and l consumer associations so as to ensure that all stakeholders to the petroleum industry are involved in industry and market development.

5.3. Commercial Framework

5.3.1. Introduction The commercial framework consists of two key issues: Ministry of Petroleum Resources !=i7 ==================================.JJ Nigeria National Petroleum Policy • Rules for access to pipelines and networks; • Pricing principles and regulations.

5.3.2. Access to Offshore and Onshore Networks An important principle of the petroleum policy is that there will be a full legal separation of petroleum infrastructure ownership and operations, and trading, such that separate companies will carry out the different activities. Oil and/or gas transportation companies will not be allowed to engage direc~ n the purchase and/or sale of petroleum crude, petroleum products or gas, and ~ e\ ersa for trading companies, except through separate corporate vehicles. /\ '" For purposes of clarity, asset owners in one segment of the value c~ \i~ own and operate assets in different segments of the value chain if they , albeit under r different legal entities. For example, a holding company may hav~ operating in the upstream, midstream and downstream. t ent companies In the new era with a new market structure, a suitabl~ ~'~ tive network code will be introduced, to govern open access to infrastructurv ties. The petroleum industry and gove~n e-«.will consider the type of network code that is required, bu re will be open access to all pipelines and other essential ~ am infrastructure, whether located offshore or onshore. V

5.3.3. Cost Ben, :.Q.i for Infrastructure Facilities Cost benchmarking is cruci8\t~ or economics and regulatory decision-making. Regulated t~ r: ~ ill be introduced for those monopoly infrastructuri ar, s of the petroleum industry, in a manner that will provide '1'1:_:! the opportunity to recover all the eligible costs plus an ~ te and reasonable return on investment. A c~ f-service approach will be adopted using average, standard n ~-hmark costs. 5.~ ~ cal Framework

5.4.1. Government Fiscal Philosophy A new fiscal policy and framework is proposed for the Nigerian petroleum sector. This is embedded in a separate National Petroleum Fiscal Policy document issued by the Government. The philosophy for the fiscal framework of the petroleum policy is to set fiscal rules that are clear, transparent, globally competitive and designed to incentivise all participants. The role of the government is seen as not to create economic distortions that confer an advantage on or favour any particular party. Ministry of Petroleum Resources r::8 ==================================.JJ;J Nigeria National Petroleum Policy The purpose of the fiscal framework is to separate oil from gas. Hence, gas projects will be developed based on their economics and not dependent on or consolidated against oil taxation.

5.4.2. Current Fiscal Structure Currently, under the Associated Gas Framework Agreement (AGFA) (codified in section 11 and 12 of the Petroleum Profits Tax Act), AG and NAG costs can be recovered from oil income. This has led to a number of distortions: ~ 1. It discriminates against non-oil tax capacity investors (that is, it)t,~ inates against companies who do not have oil operations, and theref<Nr\ unable to expense their gas costs against oil operations in the ma'K'-!!Jlt upstream investors in gas projects can); ..'-'J 2. It incentivises oil companies to build gas infras r ect~ i (in some cases unnecessarily oversized gas infrastructure) for fiscal ea ns (to include in their cost oil base and offset against their profit oil, w~ h • ately is paid for by the Nigerian government); 3. It has meant that the only gas infrastruc~~not uilt for fiscal purposes has been built by the Nigerian governm ~ nt, ia~ C; 4. When the oil price is low (as is th ion now), tax capacity (the ability to collect tax on profit oil) declines.

5.4.3. Fiscal Rules ~ eral Application Fiscal Rules of General Appl~ ~ ,.... (FRGA) is the framework through which the interests of the state and tha\ ~~ ~vestor are codified. Seven main thematic areas that need to be addresse~ e fiscal system for Nigeria are: 1. Governance - ~ Y governing institutions of the oil and gas industry and their role as ~r cr~ by the separation principle, i.e. of policy, regulation and com mer rations; 2. Funn o the institutions and funding of government participation in com~ cial operations; 3. ~ al incentives for investments - the balance of risk and reward in a fiscal ~ ~ igned framework; ~ Enabling petroleum exploitation in Nigeria through policy regulatory and fiscal interventions; 5. The role of the regulator - the principles, powers and economics of regulation; 6. The role of the state in natural resource management - the shareholder responsibilities versus the requirement to meet social needs; 7. Mitigating social consequences of natural resource exploitation - best practice community participation. An optimum fiscal regime is often a composite of trade-offs across different objectives: Ministry of Petroleum Resources r::g ==================================.JJ;J Nigeria National Petroleum Policy • Early Revenues vs Investment Efficiency; • Progressivity • Competitiveness; • Early fiscal revenues vs tax incentives that drive a critical mass of investments. Progressive and transparent fiscal regimes are generally considered to be more stable and credible and, depending on the fiscal design, they do not compromise on efficiency. FRGA are based on clarity and transparency which require that: • Rules are established by law and contracts are published; h.. ~ • Laws are consistent with the nation's jurisprudence; A", • Laws and contracts minimise discretion; l"-\ • Government revenue streams should occur during all prodlf.i\...~eriods but also should increase with a larger share of revenues as ~ ~ihty increases; • Progressive fiscal systems that arise from FRGAs should'~ l5ased on: o Royalty (Early Revenues); o Regular Corporate Income Tax (CITA); C, o Tax on Rent (Hydrocarbon Tax). ~ Stable and credible fiscal terms must also de~ ~ trate robustness in the face of volatilities of cost and price. Robustness m i ;t'II.I the fiscal system for gas is not subsidised by oil and vice-versa. This can be achieved through the right pricing of gas and lower royalties and resource ~ d itionally, FRGAs must deter transfer pricing (cost benchmarking) and re~ n ¥ational treaties.

5.4.4. Principles.7_,t~ scal Framework The fiscal framework of the\ ) ~um policy for Nigeria is based around four key principles: ~ 1. Pricing should rot\e fixed by the state but there should be an interaction of the market to dete~ the right price (which is not necessarily a low price); 2. Fiscal p~ ust enhance investment, be cost efficient and sustainable in the 1n ~~ ,;,-" , 3. 1 -~ solidation / Non-recovery of gas costs from oil income. The fiscal ework intends to remove the distortions in AGFA from the effective cross- s sidy of oil to the gas sector. The policy will therefore ensure that gas project osts are attributed to gas projects, and not allowed to cross-subsidise oil projects; 4. Fiscal policy incentives to attract investment into the midstream.

5.5. Sector Financing Petroleum projects need to be financed. The policy is to encourage all types of project financing but the Nigerian government direct project- financing role in future will be minimal. Ministry of Petroleum Resources FiQ ==================================,J,J Nigeria National Petroleum Policy

5.5.1. Main Financing Sources for Projects Funding of projects will come from one or more of several finance sources: • Government Budget: Government is not expecting to be a major direct investor in projects in the future, except for those projects where the early risks can only be undertaken by Government; • Owners' Equity Financing: This can include private sector companies or government owned corporations; • Commercial Loans: From international or Nigerian commercial banks; • International Financial Institutions Financing: International 4 ncial Institutions (IFls), such as the World Bank (WB), lnternati[ a~ -~ nce Corporation (IFC) or African Development Bank (AfDB) example, sometimes finance projects. Their advantage is that th~ act as consolidator for commercial banks, reduce borrowing ccA ~ d can lend important credibility to a project. ~J

5.5.2. PSC Plus Cost Structures CJ Nigeria is one of the few countries, if not the only on/ 'iA the world which still retains Joint Ventures (JVs) as a petroleum developm~ ~ ctual arrangement. Most developing countries around the world have mo to Production Sharing Contracts (PSCs). While Nigeria has adopted PSCs * os new petroleum exploration and production (E&P) contracts, JVs remain t~ for most contracts. This leads to two questions: V 1. Why has Nigeria been so slo~ ove away from JVs and towards PSCs? 2. Does the JV structure u~ 'Vo;k for Nigeria, or is PSC a better model? There are probably many ~ ons why Nigeria has stuck to JVs. This is because: 1. A JV barrel ~ ced has a higher government take than a PSC barrel. Therefo~ ~ ion of a JV to a PSC might result in reduction of government take rat ~ n increased government take if not properly negotiated. 2. NiaLri'>s problem with financing the JVs is a funding problem which can be .)id~ ed by having an appropriate capital structure for the National Oil ~ mpany in order to have project financing plus other forms of debt financing. ~ Using PSC as a financing mechanism results in a higher cost of financing than l'' using bank debt since in PSCs compensation for the financing is in barrels of oil and not cash; and when prices are low as they are currently, large quantum of barrel will be needed for financing production. 4. The funding parties in a PSC also use bank debt and therefore will demand a return in excess of that bank debt in a PSC (usually in excess of 15% versus bank debts that are often in single digits). 5. PSC contractors by virtue of the fiscal provisions of the law (PPT Section 10) in addition to project returns also receive interest deductibility (financial Ministry of Petroleum Resources 61 Nigeria National Petroleum Policy returns) against tax liability which further enhances their Return on Equity (RoE). Therefore, any consideration for conversion of JVs to PSCs must take into account these factors and there must be provisions for recognising historical equity investments by government and managing government take such that there are no losses to the sovereign. JVs have many problems, but the problems often associated with JVs are not insurmountable. The most important of which include: • Cash calls: The problem for the NOC (NNPC) to fund the constant callJl\ cash payments (the cash calls); this issue will be addressed with t~ ~ per capitalisation of the National Oil Company with a structure that all~ l o~ roject and balance sheet financing. ~\ • Cost monitoring: The difficulty of monitoring and checkin sts that the operator (the IOC or international partner) presents; this h_i] not unique to only the JVs but it is even more prevalent in the P~ s. ·T~ solution may be incorporating the JVs and using fiscal tools to incenf is ost reduction. It must also be said that contracting cycles, governm;f1 ....A.~ ~ ates and bureaucracy are also important factors in cost escalation in v erian petroleum industry. • Fund raising: An unincorporated JV doesl nat have a legal presence (it is not incorporated) and so it cannot raise f~ iJI&, the financial markets to finance activities, thus leading to the partners ·ng to fund all operations and the cash call situation. One option is to inc~ te the JVs along the NLNG model. Some countries may have realised ~ ortcomings with PSCs and may be starting to shift away from them, towar~ h~ rangements such as service contracts. Under the new Pe ~ ro ~ olicy, government's interest in the upstream will con f IJVs, PSCs currently under the 20-yr production pha~ d SCs at exploration phases. It is the intention of the Petroleu o cy to evaluate existing PSCs at the end of their exploration~ roduction phases in order to determine the appropriate • cing structure and risk reward matrix needed for any propos~ en als. Unt ' ) tHe new Petroleum Policy, government may consider con~ rsion of some JVs to Production Sharing Contract. However, ~ potential conversions need to meet the requirement that the l istorical equity capital contributions to the resource must be recognized and the risk reward profile must be significantly beneficial to the state. Under the Petroleum Policy, all cash call arrangements under the NNPC JVs will be exited, with a target of exiting all of them by the end of 2017.

5.5.3. Exit from Cash Call Arrangements The Petroleum Policy intends to exit all cash call arrangements. Ministry of Petroleum Resources Fi2 ==================================,J,J Nigeria National Petroleum Policy Under the Petroleum Policy, all cash call arrangements under the NNPC JVs will be exited, with a target of exiting all of them by the end of 2017. The target is to move them to a PSC+ or iJV arrangement as described above.

5.6. Sovereign Wealth Fund Under the Petroleum Policy the Government will agree a cap on the proportion of petroleum revenues that can be spent on current expenditure. From the remainder the Government will put aside an agreed percentage of petroleum revenue, to be dedicated fo~ capital items and for future generations. ~\ The Government will explore mechanisms by which petroleum re,A. 1~ can be managed for the benefit of future generations. The intention is for N~ ~ o commit to two principles: 0\ 1. To put a cap on the proportion of petroleum revenue that~ t>'e spent on current national expenditure; r • 2. To put an agreed proportion of petroleum reve~ i~ sovereign wealth fund, to be used for: V, a. Underpinning major infrastructure ~ .i,}cts within Nigeria; b. Put aside or invested for the b:('.t1!i.n,ture generations.

5.7. Niger Delta «, The Government recognises that ~ iger Delta region has suffered from the petroleum developments and ~ ] ~ egion must share in the benefits from the hydrocarbons exploitation. V The Government ~ develop a Niger Delta wide model with the intention of9 · . olving Niger Delta communities directly in infrastru~tur, s ial and petroleum developments in their local commun~ e. Concepts cl")n~ ;, among others: • }Sd~ ify small and marginal fields which it may be possible to develop in ~ Lnership with local communities; t)..J"o explore mechanisms whereby local communities can be integrated into l project developments; • To explore models for community based trust funds; • Engaging local communities in projects in their local area; • Small equity holdings for communities in oil operations in their areas. Ministry of Petroleum Resources Fi3 ==================================,J,J Nigeria National Petroleum Policy 6. INDUSTRY STRUCTURE

6.1. A Clean Break from the Past The Petroleum Policy intends for there to be a clean break from the past. There needs to be a realisation that the previous ways of conducting petroleum business in Nigeria is not sustainable and cannot continue. The new policy will consist of: • Clear separation of the roles of government and operators; • Transparency; • Cost efficiency; A • Reducing the regulatory burden through smart regulation and enhanJlii.ng\ afe operations; A "' • Realising the additional value in oil as a motor for industrial deN>~ent and not simply as an income earner in its own right. C?) '-J

6.2. Market Players ~

6.2.1. Roles of Government and Ope, ~rCJ Solutions to the development of the petroleum 7;t~ Nigeria (as in any market around the world) are in three areas: ~ • Areas where Government can ha ~ ·rect affect: Government sets the law and the regulatory framework, whi ctly sets the tone for the whole market, and only government can do" • Areas where Governm~ ~ he environment: Government can support the development of the , such as pushing the implementation of the Gas policy, and by attract~ g in estors to the country. Government can set policy frameworks, regul~ instruments and provide market support especially in the areas of r~ g the cost environment for the petroleum business using market-based ~ and fiscal rules of general application. • Areas w~ e market acts directly and there is no role for Government: GovAr,ne~ ec~"n set the scene for enhancing economic efficiency, economic ~~s and economic growth, but ultimately the private sector builds the ~ ,ket. t'whe petroleum policy sees an industry with partnership between the l public and private sectors, albeit with a clear separation of roles between the government sector and the private sector. The respective roles of the parties envisaged by the Petroleum Policy are: • Government: o Policy setting and implementation; o Legislation; o Fiscal rules of general application Ministry of Petroleum Resources Fi4 ==================================,J,J Nigeria National Petroleum Policy o Smart regulation that incentivises supply and non-discriminatory treatment of all participants in a manner that eliminates arbitrage; o Putting in place mechanisms to encourage the development of markets; o Encouraging payment discipline; o Encouraging the development of fair and competitive petroleum markets. • Corporate sector: o Engaging in commercially viable, profitable and sustainable operations; o Creating markets; o Conducting safe, healthy and environmentally friendly operations; o Serving their shareholders, as well as consumers, government ~ d other stakeholders. ~\ The corporate sector will contain state-owned corporations, IOCs, ind e dents, and international and Nigerian private sector companies. This policy rec s hat state- owned corporations and private sector companies will have the s,:a.y,-..~ ponsibilities and opportunities as each other, and will be treated equally. ~

6.2.2. Corporatisation CJ Corporatisation of a state-owned enterprise is thL 4 --ess of making it into a corporation driven by commercial and profit ma~ ~'Yratives. Corporatisation has important advantages: ' • A separation of roles between: ~~ o Policy (Ministry); "1 o Regulation (independ~ gulatory commission); and o Operations (Corpa{~ o~ • The Corporation has ~ ~ ssets; • It can directly enter~ contracts and agreements with other organisations; • It has indepenQ finance raising powers and the ability to raise finance on capitalm~ ; • Lim~1te Ii~ means that the government (in theory at least) is not exposed to limited exposure to any financial consequences of actions by the ~ po tion, in the home country or abroad; • ~ res can be traded on stock markets and other non-state organisations may ~ ake a shareholding. A Corporation therefore can have less than 100% l government ownership if wished, so long as the government shareholder retains effective control and ownership; • Employees, while still state employees, are not directly civil servants, so more flexible commercial staffing arrangements can be put in place (although not as flexible as a fully private company); • Daily operations are conducted under commercial rather than civil service procedures; • Day to day independence of action but strategy and operating guidelines are still set by government; Ministry of Petroleum Resources ===================================:JJO "'5 Nigeria National Petroleum Policy • A Corporation deals with private sector companies on an equivalent basis; Corporations operate under a two or sometimes a three tier Board structure. Standard international practice is at least a two tier Board: • Supervisory Board: Strategy and corporate governance; • Management Committee: Operations. Benefits of corporatisation are set out in the following table. Table 11: Benefits of Corporatisation Benefits Comments Creates a legal entity A legal entity has significant advanta~ e ·., \ • Corporation will have its own ass • Can sign contracts and agree" " 1th other organisations • Will have finance raising~ rs and the ability to raise finance on capital s Corporation will have its The asset base wiil I~ the corporation and not own assets a government dep ent, which gives the corporation a ~ ci value Legally empowered to A legal ent~ tus provides the identity for enter into contracts comm~ r ial tracts to be formed with domestic and intern io I organisations, incorporated Joint tur emoranda of Understanding and other t~ f commercial relationship. Enables access to capitai-- ~ markets Q The presence of a balance sheet with a value will give the corporation the ability to offer assets as collateral for loans • ~ The Board of the corporation will be able to sign contracts directly with financial institutions /') Allow ~ r, • Management is empowered to manage com ialisation of • Will be able to put modern commercial o~ ns management practices into operation • Will enable investment in people and other resources • Enables modern technology to be introduced • Will enable higher levels of pay for workers and pay related to performance • Ensures customer focus Empowers management • Management is given the authority and responsibility to fulfil their functions effectively and efficiently, for better business results Ministry of Petroleum Resources Fi6 ===================================:dJ Nigeria National Petroleum Policy • Management are empowered to take decisions for the benefit of consumers without having to refer to Ministry Will be able to put modern An efficient platform is provided which can build commercial management accountability and improve business processes, practices into operation including governance, financial management, marketing, customer service operations and to introduce technology to aid efficiency, information and build the gas industry Is a platform for • A commercial entity requires new skills ar(~ investment in people and continuous development of skills A _~ other resources. • This encourages training and devel~ ~ t which leads to new employment opportun~ Enables modern The ability to enter contracts will ell&b ~ he technology to be corporation to enter contract~ ~-int~ ducing new introduced technology and skills, opport~ s that are not open to a Government Direc~ e.. Will enable higher levels of pay for workers and pay related to performance • • :k' The Corporatio~ jll ¥able to set its own pay levels As a cons nee, and as a result of the more efficien~ dern management practices, it will be poss~ o pay higher levels than before • M~ ment will also have the opportunity to / ; l~ ay to performance (if they wish) Ensures customer focus • ~ focus of attention of a Corporation shifts from meeting short-term government needs to meeting customer needs and to growing the market • Government objectives are still fully met but the focus now shifts from the "internal" government customer to the external market customer Enable try to • The government can set policy and monitor con ate on core role corporate performance better of se policy • The corporation can cease to be a burden or ~ worry for the government • The corporation can focus on operational performance: o Service delivery- Delivering good quality to consumers consistently; o Managing service to consumers and communities; o Growing the business; Enables Ministry to • The separation of policy setting functions of the concentrate on policy Ministry (Government) from the operations of Ministry of Petroleum Resources ===================================:JJO "'7 Nigeria National Petroleum Policy delivering service are vital to improving transparency and performance • Without having to worry about operational management, government can focus more effectively on its core role of devising policies for developing the energy sector The corporation can • Actual or potential loss-making enterprises can cease to be a burden on change from being a resource and financial drain government on government to a revenue-raising entities • Instead they become net tax payers and fin~ ial contributors to the government ~\ The corporation can focus • Service delivery, delivering consiste~ d quality on operational to consumers performance • Managing service to consumeri ~ mmunities • Growing the gas industry '" A platform for long term Corporatisation will permit tht;';.+t oduction of private growth and PPP investment when requir~~~ ovide the basis for the expansion of the e~ m sector to private participation Provides a framework • Enable~ aration of powers between policy, for effective corporate strateg operations governance • W~ to put corporate governance mv s in place and operate them Enables a separation of L~. . .paration of roles between policy (government), powers between policy, ~t~ y and corporate governance (Board) and strategy and operations perations (Corporation management) will allow corporate governance and effective monitoring to be 0 put in place Will be able to (')... • The Board will be able to concentrate on its key corporate ~ ~ nce role of putting corporate governance measures in measures ~ lace and place oper~ em • These can include transparency, reporting requirements to government, social protection ~ measures, protection of consumers as well as proper financial controls • Government can concentrate on its role of monitoring performance including effectiveness of the corporate governance • Non-executive directors and government monitoring agencies can operate more effectively, with specific mandates, accountabilities and functions • Independent audit reviews inform all parties and overall government agencies Ministry of Petroleum Resources Fi8 ===================================:dJ Nigeria National Petroleum Policy • Because government does not directly operate the corporation, government is much more ready to critically monitor the activities, which will improve the quality of corporation performance Social protection • As part of the Board corporate governance measures can be included functions, social protection measures can be included • Government can insist on these through its policy setting role Improved management of • Social protection and consumer protectio'\... ~ social and community measures can also be included within t 1' " services corporate charter or by-laws of the c ation • A charter can be developed to es levels and price controls, of wh~ I\, on- commercial impact can be cle~ asured and disclosed ~ • Consumers and vulnerab ups are protected and public accountai ' ~ is igh • Accountability f/ ~o~ cial performance remains intact , The charter c""""--l rm the basis of a contract with governme~ tion to specific standards of service and~ e mechanisms attached thereto Reform now will be • .__,,,._ ing changes now will be less disruptive than easier than reform later ter when the enterprise is in a worse financial situation • Change is needed and the sooner change mechanisms are identified the easier they will be to implement • This will be easier and less disruptive than change later when the enterprise has further declined and market opportunities have slipped away T~ r Board Structure International standard is for major companies or corporations to have a two tier Board structure: 1. Strategy Making and Supervising Board Called the Board of Directors or Supervisory Board. Functions: • Strategy and policy; Ministry of Petroleum Resources Fi9 ===================================:dJ Nigeria National Petroleum Policy • Corporate governance: Financial audits, monitoring performance, corporate codes of behaviour; • Responsibility for running the company in a crisis; • Represent key stakeholder groups, such as owner, government, employees. • Committees: An important part of the corporate governance role of the Supervising Board is that Board Members are members of various governance Board Committees. 2. Executive Operations Team Called the Executive Board, Board of Directors, Executive Team, Group Ma11e'1nent or Management Board. ~, Functions: ~ • Executing and implementing the strategy set out by the ~~ Making and Supervising Board; •' • Operations and day to day management; CJ • Membership: This is an operational Board and L ~ ~mbership are drawn from the Heads of the main business divisions, ~jxMt operational divisions and key corporate functions (such as Finan~ Legal Affairs, Strategy, Human Resources). ~

6.2.3. Restructuring of N~ Nigerian National Petroleum Cor. Oon (NNPC) is the agency of the government responsible for representing th~ ~~ cial interests of the government in petroleum exploitation and distribution. It I lved in oil and gas production on a joint-venture (JV) basis with internatio~~-1 1i1-~o panies (IOCs) and with international and national independent operators, w~ ct either as the operator of joint venture concessions held under Oil Minin~ ses or as contractors under Production Sharing Contracts (PSCs). ~ The previoi s o~ garding NNPC meant that it acted as representative of the state, setting pol" nd regulation, and also represented government interest in the JVs. The p, ,u olicy regarding NNPC will change under the new Petroleum Policy. ~ er the Petroleum Policy, a new national oil company will be ~ stablished as a corporatised entity, in accordance with standard l International practice for Corporations, including operating under commercial law and a two tier Board structure. It will relinquish all its policy making and regulatory activities, and will be treated on an equal basis with private sector operators. The new national oil company will be structured into operationally independent self-accounting profit centre subsidiaries so that the value of separate activities can be realised and operational efficiencies can be introduced. Ministry of Petroleum Resources 70 ==================================' Nigeria National Petroleum Policy The NNPC restructuring will mean that: 1. Policy making will become the sole preserve of the MPR; 2. All regulatory activities will become the sole preserve of the new single petroleum regulatory commission, under the oversight of the MPR; 3. NNPC will cease to exist as a statutory corporation and as a legal entity and will be succeeded by National Oil Company of Nigeria (NOCN); 4. NOCN will be incorporated as a limited liability company; 5. NOCN will be responsible for managing the national interests in the JVs, PSCs and in other upstream, midstream and downstream projects whj f the Government is involved as an investor, NOCN will be governed acier~ g to the Governance rules of the Nigerian Stock Exchange prior to th li~ffi\g of its shares, and by the rules of any bourse where its shares are ev lly listed; 6. It will also contain some semi-autonomous units, such a»-.....~ Corporate Services such as Audit, Corporate Planning & Strateg'-..~ S), Company Secretarial & Legal Division (CSLD), Common Ser'1i~ and a trading company; r. 7. Each of the subsidiaries will be holding compa~ · s i~ ir own right, although there will be strict limits and control over the n and scope of their further sub-subsidiaries. The NOCN subsidiaries t"Jbe gistered under commercial law with Corporate Affairs Commissi: ; ~; 8. Profits from the subsidiaries will be r ed to the holding company (NOCN) through dividends. The NOCN wil~ ake pay dividends to the FGN; 9. Poorly performing units of th~ C'Mill be divested, sold or closed down; 1O. International investors w,£_:_~ ht for autonomous units of the NOCN where it is considered av iate. The new policy~ seeks to capitalize the new National Oil Company w~· capital structure that will enable asset based financing t ou h debt or equity arising from its retained earning ~ italisation of the National Oil Company we mean the ve • f assets in the new entity such that when netted ag'l"Jt i liabilities significant equity capital is retained in the fir~ ~ sting of assets may be done through different asset classes: ~ • Fixed Assets: The National Oil Company assumes the assets of the Government within the iJVs, refineries (including storage depots within the refineries); o Liquid Assets: One-time Seed Capital/ Funding, capital allowance and profit retention in iJVs and existing PSC production where the National Oil Company is the concessionaire. Ministry of Petroleum Resources 71 ==================================' Nigeria National Petroleum Policy This policy is aimed at achieving an optimum capital structure which is one that combines tax efficiency and financial flexibility while minimising financial and business risks. Proposed Governance Structure • Government to ensure an effective legal and regulatory framework for NOCN through: • Clear separation between the ownership function and other government functions • Any obligations outside the norm should be legislated or by re~ tion • The government should ensure that the governance of NOCN~·s c r~ ~ t in a transparent and accountable manner, with necessa egree of professionalism, independent judgment by the board and effe I ss. • The government should recognize the rights of all shar·an,....1• rs and ensure equitable treatment and equal access to corporate infor n • NOCN are to observe high standards of transparencCnternal and independent Y. u~ external audits similar to those of internationalr f ompanies • The Board should have necessary authoi i , etencies and objectivity to carry out its function of strategic guida an monitoring of management. Board should be composed of t~oT o can exercise independent judgment and be fully accountabl~ • The state should not be involved~ y to day management of NOCN and allow them full operational " ~ to achieve their defined objectives The accountability structure wol'~.Y.follows: • Appointment of GM ~ ~ ment of NOCN would be on a tenure basis for an initial term of ears and renewable subject to the achievement of KPls in a clea~ da e to be specified by the Board. • Accountability ~ cture to conform to the five principles of good governa~.ynderpinned by the following values: _,nesponsible; 2~ nabling; 3. Transparent; t'>. 4. Accountable; l _ 5. Sustainable; • Under the proposed PIRB framework, the following functions are allocated to different actors: • Policy: MPR; • Regulation I Monitoring: Independent Regulator; • NOC: Commercial Operations. Ministry of Petroleum Resources 72 ==================================' Nigeria National Petroleum Policy Implementation / Operational Management - NOCN: • NOCN executes its mission of optimising the development of resources on a commercial basis; • NOCN board elaborates strategy for implementation of Oil & Gas policy (use of operational expertise to translate government objectives into detailed industry strategy); • NOCN ensures integrity (operations & HSE), effectiveness, and efficiency of operations; • New law setting up these functions would define: (\ o A clear charter, including a requirement for commercially sou~ decision making and sufficient execution authority for N09t;' , o Limit Ministry's authority over NOCN and independenc~ ~ ulator over commercial operator; '-J ('}\_ o Protects NOCN's funding and revenues from gov~ ~t intrusions; o Group control of individual corporate division(of t-JOCN; • The recommended governance structure t~ h~ OCN consists of a supervisory board appointed by the President, -term tenure of four years each for the Chief Executive; a Manag~ ~ nt oard headed by the Chief Executive & Group Executive Directo: c :~ nted by the Board; • By registering the NOCN as a Co ~ · & Allied Matters Act (CAMA) entity, the rules prescribed by CAMA w ply and the fiduciary responsibilities of Board members are clear; • The Government wouldtl io i Q .e that Board members exercise independent judgment in the exercis heir functions which include reviewing and guiding corporate strategy , :; ajo ans of action; risk policy; annual budgets and business plans; se • erformance objectives; monitoring implementation and corporate pe~ nc , overseeing major capital expenditures, acquisitions and divestiturv • The NO~ st have independent and sustainable sources of funding and must not subjected to the annual appropriation cycle of Government. The •i proj~ eve opment cycle is much different from an annual appropriation cycle; ~ CN will develop a dividend payment and earnings retention policy in er to ensure predictability of its returns to the Government (Ministry of ~ i ance/Treasury) beyond payments of royalties and taxes which are statutory.

6.2.4. The NNPC I NOCN Subsidiaries The autonomous profit centre subsidiaries to be created out of NNPC will be: 1. Upstream Division: o Nigerian Petroleum Investment Management Services Limited (NAPIMS) / Asset management company; o NPDC; o IDSL; o NETCO; Ministry of Petroleum Resources 73 ==================================' Nigeria National Petroleum Policy 2. Downstream Division: o Retail company; o Storage company; o Pipeline company; 3. Midstream Division: o Nigeria Gas Processing & Transportation Company (NGPTC); o Nigeria Gas Marketing Company (NGMC) - marketing company; o Port Harcourt Refinery Company (PHRC); o Warri Refinery Company (WRPC); o Kaduna Refinery Company (KRPC); 4. NNPC Ventures Division: ~ ~ o HMO; o Insurance; o Other services; o NNPC Pensions. "Oj

6.2.5. Nigerian Petroleum Development c & ny Limited (NPDC) Nigerian Petroleum Development Company Limi1"~NPDC) is a fully-owned subsidiary of NNPC. NPDC is engaged in oil and gas exploration and production activities in the hydrocarbon-rich regions of coastal Nigeria (the Niger Delta), both onshore and offshore, and more recently around Equatorial Guinea. NPDC operates JVs with international and national operaa 4' NPDC has significant production ca" '' ¼it is not acceptable to Government that a company with such a strong asse~ should not be profitable. NPDC will need: • An audit of its losses; ~ • To be run like a co:~\ rcial E&P company; • Improvements ~~t all levels, in particular management skills; If there are not~ ~ changes in its operations such that it becomes profitable within a reason~ riod, NPDC will be divested or closed down. L)6. Nigerian Petroleum Investment Management Services D ~ - (NAPIMS) N~ :·~ presentatives in the Operating Committees of the various joint ventures are se ed from Nigerian Petroleum Investment Management Services Limited (NA IMS) which is a subsidiary company of NNPC. NAPIMS was established to manage NNPC's interests in the various oil concessions. In addition, all project proposals, joint venture budgets and key operating decisions in oil and gas projects are subject to NAPIMS approval. NAPIMS cost of managing government's interest is significantly higher than it ought to be. An expenditure of over $200 million per year is unjustifiable in the current oil price environment. These costs when applied across the JVs and PSCs makes some of the government equity interests in the joint venture unprofitable. Ministry of Petroleum Resources 74 ==================================' Nigeria National Petroleum Policy • NAPIMS has ten divisions but only three are operational (JVs, PSCs, Gas); • There are no written rules, procedures or policies to guide its activities; • Institutional capacity (management and staff capability) is weak; • There is no compliance unit, which there should be as a given; • Costs per barrel within operations under its supervision are unacceptably high; • There is poor data management, information asymmetry both internally and with NNPC Corporate and the organisational structure is fractured. The Petroleum Policy considers that NAPIMS is incapable of reforming itself because of the internal organisation. Effective NAP IMS reform can only come from fundamental restructuring with commercial discipline, and reform must come from outside ~ MS. NAPIMS will be substantially restructured and may ultimately becom9A~ ndent and with full autonomy from the NOCN. The restructuring and refo ~ {~ess, to be led jointly by the Ministry of Petroleum Resources and the Minis mance will include: ~ • A global level management consultancy to be hired je-ti~lp with restructuring; • A value-for-money audit; \,,..,/ • Enable faster contracting cycles (3-6 months);/ , ; . • Priority focus on low cost oil operations ($i - 0. • Emphasis on sustainable brownfield proje , • Standard commercial management pra tice to be introduced, including KPls; • Asset wide budget monitoring intro•\, 11,1•'-'o\'l~as a standard KPI objective; • Marine asset sharing in all its blortc.,.roduced as compulsory measure; • Cost benchmarking data and~ e o be developed; • NAPIMS will be limited to a p e sset management function whilst cost regulation will reside wit~ s tor regulator; • Data has to be sh~~~i ~~ st the key agencies, including: NAPIMS, MPR, MoF, NOCN, the P~ eum Regulator, NCDMB. 6.2.7. e e Sector Companies Nigeria is bles~ th an abundant and active private sector in the petroleum industry. T~ ~ ude: • i ~ onal Oil and Gas Companies (IOCs); • rnational Independents; ~ ional Independents; l~ii and gas service companies; • Independent Power Plant companies (IPPs); • Project Developers. The private sector is vital to the development of the Nigerian petroleum industry. Government agencies, government corporations, international companies and national companies need to and will work together to meet the common vision of a dynamic, successful and profitable Nigerian petroleum industry. Ministry of Petroleum Resources 75 ==================================' Nigeria National Petroleum Policy

6.3. Market Structure

6.3.1. Creating a Market Driven Oil and Gas Industry Under the Petroleum Policy, Nigeria will have a market driven oil and gas industry, structured to meet the vision of a nation where hydrocarbons are used as a fuel for economic growth and not simply as a source of income. This means: • Restructuring the government sector to one where efficiencies are intr~ ced and there is a level playing field between the private and public sect~ \ (discussed in the section above): ~' o NNPC and its subsidiaries; ~ o Clearly separating the roles of policy (Ministry), re!i,I~ (independent regulator) and operations (NNPC an~ ccessors); • Ensuring private investment across upstream, mids~ ..-i and downstream segments of the value chain; /,; ~ - • Moving Away from Oil as a Source of lnco.7_. t~ as a Fuel for Economic Growth; ~ • Improving the whole enabling supply ...£.__~ in; • Move the Nigerian economy from ~ ~ oil based exporter to a gas based industrial economy. "1 • Enabling Nigeria to become ~ ufacturing and industrial nation; • Enabling effective refiniL ..ftirl processing within Nigeria (whether public or private owned and/or \ P~ ), this is discussed further below in section 0 Midstream Operati~ efining. 6.3.2. e ing Private Investment across the Value Chain As discussed ~ private sector operators in the upstream, midstream and downstrea~ ttp; 'rate on an equal basis with government owned operators. Preference I not be given to government owned companies but to the most comp~ op rators. Government owned companies will be restructured but if they then fa~ succeed in a competitive market place, they will be divested or closed and th~ ate sector will be encouraged to take that place in the market. A market-based economy with equal opportunity of access, combined with a fiscal regime of general application to all players, will help to move Nigeria's economy forward and attract private sector investment into the upstream, midstream and downstream sectors. The policy realises that different types of company are best suited for different parts of the value chain. IOCs are very suitable for major upstream projects, independents for smaller or marginal field E&P operations, pipeline and storage companies for onshore midstream activities, and utility companies and project developers for downstream facility provision. Ministry of Petroleum Resources 76 ==================================' Nigeria National Petroleum Policy Different types of private sector players, including both indigenous and foreign owned companies, will be encouraged to invest across the value chain in the Nigerian petroleum industry.

6.3.3. Move from Oil as Source of Income to Fuel for Economic Growth The Petroleum Policy intends to move the Nigerian economy away from simply exporting crude oil to IOCs for immediate cash benefits. Crude oil will not simply be exported but a significant and growing proportion of government equity crude oil will be sent to local refineries (whether private or public). Under the implementati~ f the petroleum policy, oil will be refined within Nigeria and further used to create ~ gn, cant end products to create value for the nation. f" The Petroleum Policy intends to move the Nigerian eco~ o ~ y from using crude oil sales as a source of income to • oil based petrochemical chemical industries and ~ based industrialisation. C, The intention is to: // ~ • Achieve a competitive supply of petroleu~ 1cM • Make Nigeria a refining hub; • Introduce petrochemical industries t~ ~se he full value from oil refining. The figure below shows the large num~ f petrochemical products that can be extracted from a barrel of oil after~ ing. As the global market for oil (crude or refined) becomes increasingly~ i ht~ r the forthcoming years and decades, it is essential that Nigeria moves rds the industrialisation and industrial processes needed to realise the add~ I e inherent in oil. ~o <l. <l. ~ Ministry of Petroleum Resources 77 ==================================' Nigeria National Petroleum Policy Figure 24: Options for Petrochemicals from the Hydrocarbon Value Chain Potential Hydrocarbon Value Chain Options I PVC vt M I EVA Polyols v! M- - - - - - - - - - - - - - - - - - - PET - - - - . ♦ PTA f t M♦G LY--1 .. NBR SBR I I PE EDC EO Acet Aniline TDI PIA t....J ♦ Ethylene Prop le ne Butad iene t Pygas l Benzene l Toluene o-X t Xylene m-X ♦ LPG Light Naphtha Reformate Source: MPR Petroleum Policy Team Fundamental to the implementation of this p~ · y~ o attract investment into downstream sectors of the Nigerian petroleum e omy. There are many aspects to this, including: _ \ • Creating the appropriate industry ~ ~. legal, institutional, regulatory and fiscal environment; "1 • Creating a business friendly ~ nment; • An effective enabling s~ hain environment.

6.3.4. Nee~ prove the Whole Supply Chain The Nigerian govern~ is aware that there are currently challenges across the whole supply c~ · . ~ mprove key infrastructure is only part of addressing the problems that e t everything can be achieved all at once but the government is aware of thH e : • ! m r~ physical infrastructure, including pipeline infrastructure, roads, communications and others; ~ m rove the business environment; l Reduce bureaucratic inefficiencies to the barest minimum.

6.3.5. Enabling Nigeria to become a Manufacturing Nation In addition to the supply chain impediments there are many problems that constrain Nigeria's ability to become an industrial and manufacturing nation. To nurture and grow the tiny manufacturing base that Nigeria has presents some significant challenges. Ministry of Petroleum Resources 78 ==================================' Nigeria National Petroleum Policy Manufacture versus imports: One solution might seem to be the manufacture and assembly of products in Nigeria rather than importing. The National Petroleum Fiscal Policy and the National Gas Policy, complementary policies to this Petroleum Policy, address these impediments. Despite the challenges, it is nevertheless key to the future economy of Nigeria that it makes this shift towards the creation of a manufacturing base. The most important driver that government can provide to support this industrialisation is to remove the impediments to a market driven oil and gas economy, most of which created by government, including restrictions on access, government monopolies and protection of vested interests. A

6.3.6. Move from Crude Oil Export to Oil and Gas-B, r ~~ strial Economy ~\ A key part of the petroleum and gas policies is to move Nigeria fro~ ~ de oil export based economy to an oil and gas - based industrial economy. k ~; ~leum policy intends to realise the additional value in oil by encour~ · g •t~ development of petroleum based industries. At the same time, Nigeria will ov towards an economy based on gas-based industrialisation. ~ / .... Nigeria's long-term future lies in building up an o~~d' ¥ 'based industrial economy. At the same time, the full value of oil will be realis~ or the benefit of the nation, rather than simply exporting crude oil for cash inc~ The Government's vision as articulated ~ National Gas Policy is based around moving the Nigerian economy from " 'Mexport to an oil and gas-based industrial economy. This will require: V • Building up domes~ic a~ ets for industry and for power generation; • Developing gas m for Nigerian gas elsewhere in Africa and other regions; • Exporting gas~ ugli NG and export pipelines; • Realising mor of e value by becoming involved in the direct marketing of gas in in~ markets. Details aroi t~ mperatives are discussed in detail in the National Gas Policy and the N • al Fiscal Policy, which are complementary policies to the National Petrol~ P icy. ~ 6.3.7. Following the Hydrocarbon from Extraction to Destination The petroleum policy intends to gain more of the value from downstream export markets. The Nigerian government therefore intends to take two measures to support this: 1. Retaining Ownership of Crude Oil The intention is for Nigeria to retain ownership of its national petroleum entitlement (Government share of crude oil and gas production) up to refining. Ministry of Petroleum Resources 79 ==================================' Nigeria National Petroleum Policy 2. Improve International Product Marketing As Nigerian government marketing agents become more experienced in refined product marketing, it is expected that the government entity will be able to retain ownership further downstream, gaining access to marketers and distribution channels within international downstream markets.

6.4. Procurement for Projects The petroleum procurement process in Nigeria needs to be fundamentally overhauled. The Petroleum Policy promotes measur,~ s to bring efficiency, transparency and cost control into procurem and contractual processes. ~ A The procurement process in the government sector in petroleum~1s ~ )ttective or efficient. Inefficient or even improper procurement is a major prob Nigeria and an area which substantially has contributed to the current1'Po mic situation. Contracts have either been delayed or not implemented tE , a~ arent reason, or cancelled for no apparent reason, awarded to unqualified id rs or to bidders who did not make the best quality or best price bid, or aw~ ed ubstantially (orders of magnitude) higher cost than international standard ould indicate. Under the Petroleum Policy, improvements will be made in:/ ; • Efficiency: Of time, cost and financing ; \ ' • Contracting process: Introduce tra~ ~ cy in: o The contracting proce" "1 o The time line; -~ • Cost management of co¢ _jets: o Introduction _of \ ~M ichmarks and guidelines, based on international standard or ~ hmark costs, adjusted for local conditions; o lntrodu~ f transparency in all public tenders and all large private tenders \ulle petroleum sector (up-, mid- and downstream).

6.5. Ass~ ~ ement The exi 1 ·nci'<ssets have to be optimally exploited and realise better value for the nation. ey need to produce maximum oil volumes at the lowest cost. Every cost ne~ o e challenged to achieve the goal of least - cost oil. Prol ssional and modern asset management methods will be introduced to make sure that the assets are optimally exploited to their maximum capacity. Cost Efficiency is of the utmost priority in order to improve the competitiveness of Nigeria as an investment destination. International best practice asset management models will be introduced into Nigeria. These models will allow: • Data and asset sharing; • A national asset inventory/ register; • A cost efficiency model; • Equipment inventorisation and tagging. Ministry of Petroleum Resources 80 ===================================-" Nigeria National Petroleum Policy 7. UPSTREAM - DEVELOPING RESOURCES

7.1. Maximising Production of Hydrocarbons within Nigeria

7.1.1. Maximise Existing Production The short and medium term objective for the upstream is to maximise production. Figure 25: Nigerian JV and PSC Oil Production Outlook to 2026 Nigeria Oil and Gas Production Outlook to 2 0 2 6 C: .Q 2- 0 0 ~ 1- 5 0 c:- 0 1 . 00 .... 0 . 5 0 ·..:; ::::, ""'Cl ..... 0 c... 0 . 0 0 r--- 00 0 ...... ...... ...... (V') ...... Lr') ...... I...D ...... c5 rl 0 rl 0 0 ...... ...... 0 ...... 0 ...... ...... 0 ...... 0 ...... • J V O il • PSC O il Source: NNPC; Government Strategic Plan ~ , Notes: Oil Production expected to start from 3 mmbbls/~ 7 and decline by 2 mmbbls/day by 2026; Bulk of Production is expected from JV arrangem~ round 67% over the 10-year period. Figure 26: Nigerian G7_:~ quids Production Outlook to 2026 5.5o Nigeria Gas Production Out look to 2026 1,200 Nigeria OIi Production Outlook to 2026 V\ ~ 1,100 b s.oo Ill l- e' ::i: ::i; 1,000 ·E4.so V c' ::, 0 900 "tl ·.:; e4 .00 V ::, 0.. "tl Boo 111 Ill e 0.. \!1 3-50 700 0 600 r---. oo cno rt N M -t L/1 \.0 i'0'.)(71Q rl N /'Y1 "'" LI) \,() rl rl rl N N N N N N N rl rl rl N N N N N N N 0 N 0 N 0 N 0 N 0 N 0 N 0 N 0 N 0 N 0 N 2 2 2 2 2 2 0N 0 N 0 N 0 N - Gas Production - Oil Production Source: NNPC; Government Strategic Plan Total production is expected to be: • Gas: around 46 tcf; • Oil: around 10 billion bbls. Unless there are additions to reserves and those reserves are brought into production, Nigeria can expect to see absolute declines in production from around 2020. The Petroleum Policy will therefore: Ministry of Petroleum Resources 81 Nigeria National Petroleum Policy • Maximise existing production (from existing production blocks): o Ensure clear vision of how to fund projects; o Maximise retention of production (accountability, security); • Maximise additions to reserves and future production; • Diversify resource base. In order to maximise existing production from existing production blocks, hindrances to maximising production will be investigated and actions taken. A clear vision and strategy from the government investor for how to fund pr~ cts is one critical part of ensuring continuing and growing production. Under Sifti~ 5.5 Sector Financing above, alternative financing arrangements are discus~ " Niger Delta Insecurity ~ There are two aspects to maximising retention of existing proc:l&t~ . The first is to take steps to reduce the disruptions to production from the ~ :_r ol ta insecurity. The government is taking measures to restore long term stabili~ he region. In the meantime, operators are expected to ensure th~ ,L,...: take sufficient measures to protect their assets and make them secure. O~j~~ familiar with the security environment in the Niger Della and, withou~ u~ e to the role of government, with respect to security, operators are expected their facilities. «, ke the necessary measures to secure Accountability for Production <:) The second aspect is to incr~ ~ accountability for production. Through the new enhanced regulatory mea ~ u s~ r this Petroleum Policy, the government will take steps to ensure full ace t bility for and transparency of production figures from operators. This will~ - de through improved regulatory monitoring plus transparency and oth~ rovements as may be necessary. 7.1.~ aximise Additions to Reserves Future proa on of hydrocarbons depends on making additions to reserves. The gas policy g .~~ ow the government is determined to move Nigeria to a gas based indust economy, with the expectation for the upstream sector that there will be d~ e exploration for gas, rather than finding associated gas during a search for oil ,serves. Both for gas and for oil reserves, the government will identify and then put in place measures to enhance the attractiveness of Nigeria as a suitable investment destination for exploration only, production only or E&P companies. The benefits of Nigeria as a place to add reserves will include: • High quality of Nigerian Bonny Light crude oil; • Low cost of extraction compared with other environments; Ministry of Petroleum Resources 82 ===================================="' Nigeria National Petroleum Policy • An established petroleum environment, with a large number of operators and service companies, both indigenous and foreign owned; • An improved and improving fiscal regime, particularly for gas developers.

7.2. Diversifying Petroleum Resources

7.2.1. Niger Delta There are security of supply risks with the current situation, emanating from the Niger Delta militancy, and consequent disruptive effects on gas production, the environment and wider economy. ~ Nigeria needs to diversify its petroleum supply sources ,t\ national and energy security perspective. In order to ""iltniiOve security of supply, the petroleum policy intends to e,~ .ai';alle an environment that ensures deliberate exploration andlil,,.~ ction in other regions of Nigeria, outside the Niger Delta P'-'ided it is commercially viable. (J This means carrying out exploration activities with t~ .M'ltention of finding additional petroleum resources beyond the currently know~ 1 ~ ces, in other geologically prospective terrains, especially the offshore and ~ •d basins. Consideration will be given to J -romotion of upstream development activity in inland~ ~ hore basins, including the review of the commerc~ffttl upon which titles in inland basis are held. V

7.2.2. Benue Tr~ nd Sedimentary Basins of Nigeria igure 27: Benue Trough The global arc of oil and gas reserves, of which Nigeria lies at the centre, does not just cover the Niger Delta in Nigeria. The Benue Trough extends right through Nigeria, from offshore Gulf of Guinea through the Niger Delta and then on through the country to Chad. As well as the offshore and Niger Delta, many other sedimentary basins have been identified (but not yet developed) in Nigeria, including the Anambra Basin, Kerri Basin, Yola Basin, Gongola Basin, Bida Basin, Lullemeden Basin (with Niger) and the Chad Basin (with Chad). A key one is the Anambra Basin. Ministry of Petroleum Resources 83 ===================================-" Nigeria National Petroleum Policy Figure 28: Petroleum Basins in Nigeria NIGERIA SEDIMENTARY BASINS AND LEASES ..,t ., ,; CHAD • - Tertiary Cretaceou!I H r,nlary Votcen cc ~ ~~,,,,,_.... ····', . ~ Pr eaM~IIM B lffl fll ....... ::::::::::::: ...·.,...~.~....·.·.·.·.·.·.·.·.·.·. ••••••••• • ••••••••••••••• , •....,.. I :;; ;:,:::;:,:;:;;;:::::~:-❖ :;:•:•~;: ❖:❖:~:;;;:;:;, ) . •·•·•·•·•· ·.·.·.-.·.·•►·•····•t······ :_._::::::::::::::::~:::::::::::::::::~:::::::::::::::.. ' :•: . ................. Source: NNPC, 2016

7.3. Field Developments <:)

7.3.1. JVsand ~ The policy regarding JVs ~ SCs is discussed above under section 5.5.2 PSC Plus Cost Structures abovo summary the Petroleum Policy will: • Exit all ca ~ lls completely by the end of 2017; • Move to e anced PSC set of arrangements for project financing (PSC+ ), or i~ ora ed JVs. The e~ g JVs are to become independent and self-funding. The most effective way to allo~ is is for them to become incorporated Joint Ventures (iJVs). The existing J~ to be closely monitored for: • Effectiveness and performance; • Compliance to agreements;

7.3.2. Allocation of Oil Licences and Leases Oil and gas licences and leases will no longer be awarded under opaque procedures with allocations of blocks or production. Under the Petroleum Policy all petroleum blocks, licences, leases, licence renewals and licence extensions will be awarded following Ministry of Petroleum Resources 84 ===================================="' Nigeria National Petroleum Policy a transparent competitive process. The process will also allow local community participation through local community vehicles. Similarly, licence renewals or extensions will now be based on licence holders making progress in meeting their exploration or production targets. Licence holders who do not meet licence conditions, including oil production, gas flare down, gas supply obligations, will risk losing the licence. It is the policy to ensure that in a timely and competitive access to petroleum assets, to ensure optimum exploration, developmenJ--\ and commercialisation of its oil and gas endowment. ~\

7.3.3. Marginal Field Awards ~ The Government remains determined to develop the Nigerian _,.,,_.,,_~c petroleum industry and in developing indigenous players. The Gover~ :11 therefore continue with the policy of marginal field awards to indigenu lai)l,rs.

7.4. Minimise the Environmental Footprint / / . The damage to the Niger Delta from petroleum O~ J t~ as been described further above and is immense. ' The environmental damage contributing factor to the curr, ~~ Niger Delta is a major iger Delta militancy and is in itself evidence of a failure o~ ul tion and governance. Under the Petroleum Policy, meas e will be taken to minimise environmental damafli'~ n the environmental footprint. The government will~ e~ under the principles of "name and shame" (pollutio polluters will be published in international media) and ~" llu pays" (polluters pay the full costs of mitigation). T, e vernment will consider moving to a system of indepen~ a ssment of the environmental and human costs of an oil, Oil spills ~ from operational reasons and from disruption from militancy. The govern ~ II take measures to ensure that polluters pay the full costs of mitigating any d, ge to the environment or communities. These will include measures to: ~ nsure gas flare reduction in accordance with the gas policy and the gas l flare-out programme; • Monitor oil spills; • Enforce Nigerian regulations and international best practice (before the incident preventative measures); • Ensure that "the polluter pays", that operators who cause damage to the environment and/or communities, will have to pay the full cost of mitigating the damage; Ministry of Petroleum Resources n5 ===================================-"Q Nigeria National Petroleum Policy • Ensure international publication of oil spills and the polluters (a "name and shame" policy). The environmental and community damage has been allowed to go unnoticed for too long. The Petroleum Policy will now operate under two principles regarding the physical and human environment in the Niger Delta. Name and shame: Publishing details of pollution and the polluters in international media. The Petroleum Policy believes that there is only so much that the Nigerian government is capable of doing to save the Niger Delta, but with the active involvement of international environmental NGOs, much more could be achi, td. Polluter pays: Polluters will pay the full costs of setting right any ~ i~ m\ ntal damage from now on. Very often, when there is a spill, the company a a nominal financial settlement with a local Chief. Such arrangements do not r~fl t rue costs of the damage and such arrangements rarely lead to satisfacti n he affected community. Such arrangements and lack of real mitigation of tht ta ge simply lead to more resentment and ultimately more militancy. ~ T .c~ le of increasing environmental damage and increasing consequent impove sh ent and militancy has to be broken. The government will therefore con~ er ving to a system of independent assessment of the damage caused by a pill, and may introduce an outright ban on the types of private arrangement~ h e been prevalent up to now.

7.4.1. Balancing Utilisation At: Petroleum Resources within the Context of Renewable E~ The current policy is to maximise o~ ~n and, over time, to develop the ability of Nigeria to add value to oil by eng~ in refining, and in petrochemical and other oil based industries. The long ~~-future for Nigeria is seen to be in gas, with a gas based industrial economy, sf ~ by an oil based petrochemical industry. Gas development is curr~ focused towards gas for power as the single largest consumer segment fe erian gas. The governme~ ware though that renewable energy is increasingly gaining ground, wo~I i~ nd in Nigeria. As renewable energy costs continue to come down, over the lo nd even medium term, renewable energy is expected to, and should be en~ g to, become a significant part of a diversified energy mix. T~ f~ , over the medium to long term, gas will be diverted from its reliance on the po ector and will be increasingly used for gas based industrial purposes in Nig ia. Similarly, over the medium to long term, oil exports will become proportionately less and less important for the Nigerian economy, as oil refining and oil based industrialisation becomes an integral part of the new industrial economy of Nigeria. Ministry of Petroleum Resources 86 ==================================,=J Nigeria National Petroleum Policy 8. MIDSTREAM OPERATIONS - INFRASTRUCTURE

8.1. Definition of Midstream Operations Midstream operations in the Petroleum Policy include: • Construction and operation of crude oil and gas transportation pipelines, in general after the flowstation ; • Oil refineries and gas processing facilities; • Oil and gas bulk storage facilities; • Shipping of oil and gas, and related products; A • Other bulk transport methods, such as rail, barge and trucks for trantQ.or\,g oil and gas, and related products, on a wholesale basis; A ", • Wholesale marketing of petroleum products. s:)\ Specifically, for the purposes of the Nigerian Petroleum Policy, rw._~ am operations include all transportation pipelines (except only for those within ~~ ck and therefore under the ownership and operations of a single operator oo sortium).

8.2. Nigeria's Midstream Oil Network ~

8.2.1. Security and Pipeline Van~ m Pipeline vandalism and security issues ~ or issue for the midstream sector in Nigeria, and this has been discussed furtv ove in this Petroleum Policy document. It has been already stated above, iQ .ion 7.1.1, under Niger Delta Insecurity, that the government is taking stepsy~~-~stability to the Niger Delta region, but that in the meantime operators are e ved to take sufficient measures to protect their assets and make them se~ 8.2.2. c oop Operating Oil Product Midstream Facilities Although there~1 theory, an existing set of midstream assets for the transportation of Nigerian cru o I land refineries and the transportation of refined oil products, in reality they4'1) ba ely operational. There has been little to no maintenance for many years and b~ ed on their state, they now have a low or close to zero value. Midstr$2 facilities need to be created that are operationally effective and cost e~ . Under the market based structure of the Petroleum Policy, investors are invil d to construct midstream and downstream infrastructure facilities, including: • Transportation pipelines; • Refining facilities; • Storage facilities; • Distribution pipelines. In accordance with the market based nature of the Petroleum Policy, the midstream sector will be open to private sector developers to invest in, such that upstream players Ministry of Petroleum Resources n7 ===================================-"Q Nigeria National Petroleum Policy can conveniently focus on finding, developing and producing hydrocarbons while the midstream can process, transport, store and market hydrocarbons.

8.2.3. Network Code for Access to Midstream Facilities Access to all midstream facilities will be on an open access basis and a network code to manage access will be developed by the industry with oversight by the petroleum regulatory commission.

8.3. Storage

8.3.1. Build a Strategic Reserve of Petroleum Products ~ The vast majority of refined products are currently imported. The import-4-~ inals are potential high risk areas. If there is any sort of disruption to the ~ ~ ~ minals at Apapa (Lagos) or Calabar, the country is effectively cut off from refi~ ducts which are critical to the nation. ~ There have been times, even within the recent past, when b ttne reason or another, refined products, particularly jet fuel and PMS, have~ b~ delivered in sufficient quantities to the Nigerian domestic market, which ha to considerable shortages and disruption to the national economy. The gi'Jrn nt is determined not to be exposed to this sort of risk in the future. ' The Petroleum Polley has ~ lned that Nigeria needs onshore strategic reserves ~ ined petroleum products. This is to provide security of sup12lyQ st the risk of any significant disruptions in: • Supply from exisli~g _'\'_~ or withholding of supply for any reason; • Transportation rou~ uch as import jetties at Apapa or Calabar. It is true that there is ~ jor oil refinery in Niger, near the Nigerian border, which is able to supply a ~ I s~ of Nigeria's strategic petroleum product needs. This single refinery is how t on its own sufficient to meet all of Nigeria's needs in the event of one of thi ise utlined above. That refinery is also outside the borders of Nigeria and the Ni n government has no control over it, meaning that a single refinery does ~ ro e sufficient security of supply at a national strategic level. F~ e reasons therefore, the government intends to develop a strategic storage of ref1T a- products.

8.3.2. Need to Audit Existing Storage Capacity In order to achieve this, the first step is to assess the design capacity and the current operating capacity of existing product storage within Nigeria. An audit of all petroleum product storage within Nigeria will be undertaken, to ascertain: • Design capacity; • Current state of assets; • Current operating capacity; Ministry of Petroleum Resources 88 ===================================-" Nigeria National Petroleum Policy • Current entry and withdrawal speeds; • Amount of investment needed to bring the capacity up to a sufficient level. Figure 29: National Daily Petroleum Products Stock (Example), June 2009 ~ATION.AL'DA.U..~~~~~~ N 06128/09 RGURES IN MILLION UTRES t '' I OCIIIBAIBA -, Pll!C KRPC Wll'C PMS 4.59 0.27 1.011 AGO 3.39 4.56 21.11 DPK 0.00 0.62 3.561 PMS 957.71 AGO 60.58 DPK 254.44 DAYS AlK 32.37 PMS 11111 36.6 AGO 121 12.9 DPK 211 27.6 LEGEND AlK 54 36.3 OK 0 GMD's OFFICE Source: NNPC ~

8.4. Ref" g ~ s} .1. Current Situation: Refinery Underperformance Th~ t causes of current refinery underperformance include: • Crude Supply; • Power Supply; • Plant Operations; • Product Evacuation; • Performance Management; • Human Resource Capability; • Governance and Autonomy. Ministry of Petroleum Resources 89 ====================================--' Nigeria National Petroleum Policy Figure 30: Underperformance in Nigerian Refineries I High Crude supply Power Product DMedium Value chain Low supply evacuation Unavailable Power No product Core issues crudeoll !allure evacuation ¾ of downtime ® ® @ @ @ # of hours , 2008 2729 1480 1 1 s88 1 2548 r Performance management "' Q) "' ::, C\l (J Capabilities 0 0 0:: j Governance and autonomy SOURCE : Refineries data; team analysis Source: MPR Petroleum Policy Team 2017

8.4.2. Vision of a Strong Refining Sector~ nsi ion to a Desired State A strong refining sector is a basic requi~ t for the achievement of the vision of converting Nigeria's economy from ~ ~~xport to an oil products and derivatives value added economy. Withou~ ~~~ h volume and commercially viable refineries within Nigeria, the whole visio. ~ ot be achievable. In the new refining model - re\neries are expected to sell products directly to multiple off takers. The regul~ ~ ce is to ensure operators of wholesale infrastructure and/or refineries don t e rcise undue market dominance. To ensure a level playing field, similar res~ _or' ill apply to any other dominant private sector participant in the market. ~ Therefore, a eries with ownership of their storage and loading arms are expected to sell t,~t~ ~multiple off-takers and not only to NPMC. Ni~ ~ efineries have been underperforming for many years. The refining sector h~~ ~-~ndergo fundamental reform therefore so that refining can play its important and necessary part in economic development. Reasons for the underperformance over the years of the NNPC refineries (Port Harcourt, Warri and Kaduna) include the absence of (among other factors): • Investment from NNPC; • Regular or turnaround maintenance; • Consistent power supply; • Modern management practices; • Commercial viability, producing losses rather value additions for NNPC; Ministry of Petroleum Resources QQ ====================================iJ Nigeria National Petroleum Policy • Payments, from consumers (PPMC) to refineries and refineries to NNPC; • Crude oil supply, from vandalism and operational shutdowns of pipelines; • Crude oil supply, from conscious NNPC decisions not to supply crude; • Ease to export refined product from the refineries, with depots under PPMC; Figure 31: Structural Model for Nigerian Refineries The OM Matrix Model ai Base +Tolling Sells Products & Capacity -g Capacity ~ D Desired State "' C: 0 ~ I,,. Q) C. 0 Tolling Sells Capa ity Only Capacity 0 Current State Single Off-Taker Multiple Off- Marketing Model (Supply Driven) Taker emand Driven) • A basic Refinery model must assure profitability. • The operational & marketing models ultimately deter 1 ■ The current "as is" state of the NNPC's refineries sllffer om severe weaknesses (absence of performance matrix) in both its operational and ma eting models • Fortunes of the refinery tied to one off-•.r•••IUlllitH no take or pay obligations ■ Base capacity under utilized because pla • dedicated to tolling ■ No incentives to perform optimal! e use there are no consequences for non- performance To achieve the desired state a uired Source: MPR Petroleum Policy~ 2 6 An evolutionary pro~ could take the form of operating maintenance service agreements with thir a es, product sharing agreements (with trading outfits willing to invest a capit~ e ery upgrade, co-location, etc.) and sale of equity. Nevert~ ~ der the Petroleum Policy, a strong refining sector is sine q non for the future of Nigeria, and steps will be taken to e~ s ccessful, commercially viable high volume, high utilisation reffiffries in Nigeria. ~ s policy seeks to develop a strong refining sub - sector with significant private sector participation. Impediments to private sector participation in the sub- sector will be addressed to ensure a robust and competitive local refining industry that ensures local product availability, product export and, feedstock availability to related industries. Ministry of Petroleum Resources 91 Nigeria National Petroleum Policy Figure 32: Nigeria's Midstream Refineries and Manufacturing Assets MANUFACTURING ASSETS KADUNA REFINERY 110,000 BPSD ATIONAL REFINING CAPACITY 445,000 BPSD WARRI REFINERY 125,000 BPSD ~ NIGERIA LNG LTD. •.wla\illiillk Source: MPR Petroleum Policy Team 2017 ~ Steps that the government will take to enco" . : ( ~ development of a viable refining sector in Nigeria include:

8.4.3. NNPC Refineries b~ e Autonomous Profit Centres Under the restructuring of NNPC a ready described further above), the NNPC refineries will be set up as auto~ ~¥ ;ndependent, profit centres with responsibility for their own commercial opt al V

8.4.4. Retu~ rage Depot Assets to the Refineries The storage depots O originally part of the refineries but had been subsequently transferred fro~ refineries to PPMC (now NPMC). This arrangement is not considered to ~ e'been successful. NPMC has failed to manage the depots effectively ~ the refineries have been denied an important part of their assets. The storag~ e~ will therefore be returned to the refineries. In addition, the perimeter fence nd the refineries will be set sufficiently far from the operations including de~ ts ensure that proper security can be maintained. Everything inside the pe r fence will belong to the refinery solely and will be on each refinery's asset regi ter.

8.4.5. Tolling Structure and Merchant Status As part of their new independence, each of the refineries will be given commercial autonomy. This means that they will be free to take crude oil from wherever and whoever they can. They are not constrained to take NOCN deliveries only. Each refinery may, on the other hand, decide to conclude a close relationship with a single crude oil producer (other from NOCN) who may like their crude refined, perhaps Ministry of Petroleum Resources Q2 ==================================- Nigeria National Petroleum Policy to take those refined products into the Nigerian market. It should be commercially interesting for an IOC who has downstream operations in Nigeria, to have their own crude refined and sold in Nigeria, rather than exporting crude across the Atlantic and the refined product to be shipped back.

8.4.6. Non-Performing Government - owned Refineries will be Divested The aim is to make the NNPC refineries successful, high volume, commercially viable enterprises. They will be encouraged to become so and will be supported as much as it is within the government's ability to do so. Each refinery will be given a t" 'sition period in which to set themselves up on their own feet. "'\ Ultimately though, if a refinery fails to make the transition and to becomed,.;,mercially viable, the Petroleum Policy is for the government to divest ~ s 1'~. grant a concession or if necessary, close down any non-performing go e nt - owned refinery. In either instance, the site may be handed over to a sui~ ualified private sector developer to build a new refinery facility on the sam~ t: . Of the three NNPC refineries (Port Harcourt, Warri ~ ~ ma), Port Harcourt is expected to be the best placed to succeed. It has in its own independent gas fired power supply, it has undertaken its own tu~;ou maintenance, it is close to jetties and the pipeline length from crude oil s~ !iers is short (less of a pipeline security risk), it is operationally ready to P.ro~uce refined products to international standards, although the cost structure is ~ ~ight. Of the three Kaduna is perhaps the least ready currently because of its ~ ce from crude oil supplies and reliance on a poorly maintained crude oil pipt " \

8.4.7. Strategic ~ ~ ips and Concessions Different approaches for hri~ ing international private sector finance, technical and commercial expertise into~ NPC refineries will be considered. These can include strategic partnership~ king closely with a suitable international partner over many years in return ~~ s!:l~ ic shareholding), concessions or other ways of introducing long term inter: ~ private sector involvement. An idea fo~ sideration is the co-location of new refineries, developed by strategic partnef f~ the precincts of the existing refineries (an asset sharing venture). ~ 8.4.8. Private Refineries will be Encouraged Th~ vernment will also encourage the construction of private sector refineries. Under the market-based nature of the Petroleum Policy, NNPC refineries will have to compete in an open market along with any other entrant, competing with international refineries for light crude and with any new private refineries in Nigeria which the government will encourage to develop. Ministry of Petroleum Resources q3 ==================================- Nigeria National Petroleum Policy

8.5. Jetties As already described, the refined product import terminals are considered potential areas of risk for the nation. Two main areas of risk have been identified: 1. Physical disruption at either Apapa or Calabar, blocking entry of product; 2. Commercial arrangements at the terminal management, leading to less than optimal flows of product and/or pricing. An investigation will be carried out into these two areas of risk, to identify the level of risk and recommended mitigations. The fact that such a critical part of the ! ional infrastructure is vested in the hands of a small number of players at just two t r inals raises concerns about possible monopoly or oligopoly behaviour.. ~~~ cern justifies the need for economic regulation of jetties in a deregulated en, ~ment. The government will also investigate the opportunities for increa-~C\tty capacity and the construction of new jetties, so as to diversify and hence~ e risk.

8.6. Proposed Commercial Framework for Midst-€, Oil The lack of a commercial framework for midstream oi1 ~ ~1~ has bedevilled the sector and has rendered investment not possible. ~ V What passed as the previous tariff templatel!i\, v~ ous dysfunctionalities: • It is unclear and non-transparent, ~ ~ing only for transportation by trucks and not by other means, suc~ raViland waterways, pipelines etc., so it is not comprehensive; • The tariff does not acco~ Jor o -going and future capital investment required to keep the network fl(lc~ ; • The tariff system d~ ot provide for losses related to sabotage and insecurity, thus/Mting investors wary of any involvement in midstream infrastructure; \..J • Years of ~ sidy regime in Nigeria for petroleum products has contributed to i lim · d ~ ate sector involvement and consequently government has come to a e all the business risks associated with private sector participation of , , ,Ii d few private sector participants. T~ ercial philosophy for the midstream for petroleum is the same as that for thel uastream gas sector. The commercial philosophy is based on: • Separation of the activities of whole oil supply and operation of midstream facilities (gathering pipelines, onshore crude pipelines, product pipelines and storage); • Regulated pricing for monopoly midstream facility operations based on a methodology of international standard or benchmark costs. A midstream tariff methodology has been developed under the Petroleum Policy and will be implemented. Ministry of Petroleum Resources q4 ==================================- Nigeria National Petroleum Policy 9. DOWNSTREAM - INFRASTRUCTURE AND MARKETS

9.1. Industrialising the Full Value Chain The vision of the Petroleum Policy discussed above (section 4.1 Vision), is of creating additional value for Nigeria through refining of oil and then further processing into significant end products for industry, such as complex petrochemicals and plastics.

9.2. Commercialisation and Liberalisation of Downstream The Petroleum Policy is pursuing a policy of a market driven oil and gas ~ ustry, driven by commercial arrangements and an equal playing field between priv~ e ~ ctor and public sector operators. ~, This will lead to a much more commercially operated and a liber~ ownstream petroleum products sector in Nigeria. ~\.D- Bold reforms are necessary to allow private sector entry in;,-t~e downstream sector. Key reforms will be introduced covering: \,J • Downstream capacity enhancements and ~ fe~ tions; • Building up strategic product reserves; • Improved sector logistics; ~ • Private sector investment in sector i ructure; • Permanently removing all petrole~ uct subsidies; • Unbundling and fundamenta~ ~ing of NPMC.

9.3. Review of Role of NPP5 ~ Nigeria Petroleum Marketi\ q ¥mpany (NPMC, formerly Petroleum Products Marketing Company or P~ ). is the division of NNPC which acts as its wholesale marketing arm within ~ ria. It owns and operates the 21 storage depots, including those depots formerl~ ched to the refineries, plus the nine LPG storage depots. NPMC receivesA!:£!eum products from the NNPC refineries and provides storage for importers. Nf't\Csells petroleum products to marketers in bulk. The delive~ ~Q have trouble in collecting all payments from NPMC for product and in turn have problems in paying their NNPC JV crude oil suppliers. Th~ ctiveness of NPMC in carrying out its role of marketing petroleum products an~ ffectively developing a modern and commercial petroleum products business in Nigeria will be reviewed such that it does not abuse its dominant market power. The effectiveness of NPMC in growing a commercial and well run petroleum products marketing and retail sector in Nigeria will be reviewed. Ministry of Petroleum Resources n.5 ==================================-::, Nigeria National Petroleum Policy

9.4. Petroleum Products Pricing Policy

9.4.1. Regulated and Unregulated Markets The philosophy is to move towards unregulated markets in Nigeria as much as possible. Regulation will be required nevertheless for: • Some limited pricing regulation (as discussed below); • Health and safety; • Product standards; ~ • Consumer protection.

9.4.2. Removal of Subsidies ~"' Petroleum product subsidies caused considerable social and ~ ic harm to Nigeria, the economy and the people. Subsidies led to prodw.._~ oH:ages, black markets, withdrawing of product from the market, abuse by i:J~ al interests and strong operators, opaque practices and a drain on the nati~ l.budget. Figure 33: Comparison of Nigerian National De a~ bsidy Payments Comparison Nigeria's Debt an 10,000 8,000 C C ai 2,000 ai z 6,000 z ~ ~ .a C Cl.I 4,000 Cl.I C 1,000 E u :;:: >- Ill 2,000 0 Q. Cl.I E >- "O 0 0 0 ·;;; C .a 2012 2013 2014 ::, V) t (N Bin) - outstanding Domestic Debt(N Bin) The untold~ ¥ o igeria's subsidy program is that it resulted in adding about N4Trillion to the N • al Domestic Debt because subsidy payments were paid through borro • s ich resulted in the crowding out effect on other borrowings especially with rd to capital investment in infrastructure So~ R Petroleum Policy Team 2016 Sub\ idies have now been removed from nearly all petroleum products. Any remaining petroleum subsidies will be removed. It is the policy of the government that petroleum product subsidies caused immense social and economic harm to the nation and the people. The government does not intend to reintroduce any subsidies. Any support to the poor will be made directly rather than through distortions to economic pricing. A transitional arrangement to a fully price - deregulated product market will be developed and implemented. Ministry of Petroleum Resources Q6 ====================================iJ Nigeria National Petroleum Policy

9.4.3. Open Market Pricing and Publication of Prices The Petroleum Policy objective is that petroleum product pricing will be market-led and not regulated. End user prices should be unregulated and regulation should only be used for those monopoly parts of the infrastructure (such as pipelines). There are two important provisions to this general regulation philosophy, which leads to some limited retail price regulation. Non-Discriminatory Regulatory Stance: Consistent with the new poli~ rices remain unregulated except in tariffing of the monopoly parts of infras~~\f~-\jon- discriminatory regulatory stance is to focus on incentivising supply wht •x n turn will result in competitive pricing. ~ Price Publication and Monitoring: While prices are intendeN <2Se unregulated, computation of open market pricing should be made avai~ e to lhe general public. End user prices will be required to be published and price will e monitored to avoid infonnation asymmetry and arbitrage. ~ ~« <:)«; ~~ ~o <l. <;. ~ Ministry of Petroleum Resources n.7 ==================================-::, Nigeria National Petroleum Policy 10. DEVELOPING NATIONAL HUMAN RESOURCES

10.1. Current Nigerian Background

10.1.1. Some Unique Features Affecting Nigerian Local Content The need to develop Nigerian human resources and methods for doing so, are described in the following sections. Much of that discussion applies to any national local content development plan. Nigeria though has some unique features in the petroleum sector which have to be taken into account and considered when developing a local content strategy for the nation. ~

10.1.2. Local Content in a Depressed Economy /\. 1' Nigeria is now in the depths of a major recession, and early re~ ~ ~ ight be a challenge. VJ It is more difficult to develop Nigerian local content in a low ojlOri_~ nvironment where contractors are cutting jobs. Developing human resources i~ nvironment of cutting human resources is not easy. ~ / .. Another issue which is more fundamental, and ~~ ~ more impact in this current era of cost cutting, there is evidence that ~ i ~ri~ contractors make projects more expensive. Were it not for legislation, proje evelopers would rather import foreign workers and contractors, at a lower net ~~ eir operations. A policy approach is to encourag~ igenous participation at competitive prices consistent with the law. ~

10.1.3. Nige~af ~e able to Export Skills A further objective for~ ~lopment of Nigerian skills is that Nigerian should be at a level that they are i~ and around the world. In many casesa._. •rse they already are. Nigerians are to be found in leading positions thi 1~ tthe world, including in leading position in oil and gas companies worldwide. issue is that the most successful almost entirely spent most of their trainin~ ar outside Nigeria, they did not acquire most of their expertise within Nigeri8 'ne human resources part of the Petroleum Policy intends to improve this. 10~ Developing Local Content Building Nigerian human resources, so that Nigerians can take a full role in managing our own resources, is a key objective of the Nigerian petroleum policy. There are a number of aspects to this: 1. Enforcement of the Local Content Act while enhancing cost efficiency; 2. Building competence across the petroleum industry; Ministry of Petroleum Resources Q8 ==================================- Nigeria National Petroleum Policy 3. Institutional capacity building, especially in areas of smart regulation, economics of regulation and strategic policy development; 4. Instilling a national maintenance and safety culture.

10.3. Implementing Local Content Policy

10.3.1. Summary of Provisions of the Local Content Act The Nigerian Oil and Gas Industry Content Development Act 2010 (Local Content Act, LCA) was enacted to ensure better development of Nigerian skills and content. The main concern was how to increase the participation of Nigerians in the p! leum industry, which has been characterised by large numbers of experts broug~t'.'1 r the country, at executive and even technical levels. The main provisions of~ ~ a e: 1. First consideration given to Nigerian companies in bids; ~ 2. Nigerian Content Development and Monitoring Board (NCI ~ is established; 1'-' 3. NCDMB sets up a Nigerian Content Consultative F< : ,(NCCF); 4. Operators must prepare Nigerian Content Pla' nth regular compliance reports; V 5. Detailed minimum Nigerian content provis~ are laid out; 6. NCDMB operates an online system far L gistration, verification of contractors, database of national skills develo~ ~ d a Joint Qualification System. The Local Content Act is an impo~ tep forward in genuinely improving Nigerian content in the gas industry. N ~~~ been set up to manage this and can match its database of Nigerian conte, v operators' plans for skills needs and training.

10.3.2. Rout~ mplementation Sometimes JV partnO ate that they cannot comply with some provisions of the Local Content ~A ~ e the skills they seek are simply not available within the country. Them ctive way to deal with this and to ensure compliance with the Act is to ta'1'ep to make those skills indeed available within the country. ~ man Resources part of the petroleum policy therefore olves around developing local content in petroleum sector and ~ king that available within Nigeria. The petroleum policy will l ~ocus on developing competent workers, possibly through apprenticeships.

10.4. Building Industry Competency

10.4.1. Competent Worker There are two main ways in which skill can be acquired: 1. Formal training: whether long term or short term, normally classroom based teaching; Ministry of Petroleum Resources qg ==================================- Nigeria National Petroleum Policy 2. Supervised experience: this is practical experience in the workplace where training can be put into practice, and which is certified by a competent supervisor. A competent worker is one who is: 1. Fully and formally trained; and 2. Qualified following examination with certification from a reputable accredited training institute; and A 3. Experienced with certified numbers (hours) of supervised expe, r~ \ ach of the different areas of his trade or profession; and ~\ 4. Regularly updated with new developments and techniq- "e"'"~ -·is trade or profession and where necessary with refresher course~ nContinuous Professional Development, CPD); Competency training has become an important part~ roU ional training in many countries, and is central to much of training thinkin provision. A competency framework is a system of supervised and mon~~ed evant practical on the job training and also mentoring. ' Nigeria needs a competency framewo~ ~ gas industry in Nigeria, operated nationally and in collaboration with inter o al or national bodies who are expert in competency frameworks and their an tit I0n for the gas industry. The tradttional way of developi~ ,¥e'tency is through apprenticeships.

10.4.2. Skill~ elopment There are four main e for skills development: 1. Leaders~ is covers the strategic management and leadership skills requ~ f~ e nior management and executive positions; 2. i ~ ment: this is general management training for middle and senior agement and covers the whole range of skills needed to be an effective ~ nager; 1 Engineering: this is graduate level engineering, for University graduates, whether from Nigerian or international Universities; 4. Technical: this is technician level competency, suitable for those with practical skills, for school leavers or those with some college education. Technical skills include for example wiring or installations, pipe fitting or welding; Ministry of Petroleum Resources 100 ================================ Nigeria National Petroleum Policy

10.4.3. International Education Obtaining good quality qualifications are the first part of the competency framework. The PTDF funds a number of schemes to provide Nigerians with good quality qualifications, including sending Nigerian graduates for University graduate and post- graduate training abroad. Under the gas policy this will continue.

10.4.4. National Education Nigerian Universities and Colleges need to be encouraged to develop their abilities to produce good quality graduates. No matter how good a Nigerian Univers!1 may become, employers are likely to prefer qualifications from good quality intt ':1< ional Universities (especially UK or USA, but also other parts of Western Eur~ ef~ s ralia or New Zealand). ~\ Nevertheless, Nigerian Universities need to improve such that theyetl\ (;) competitive with the best international Universities for producing Nigerian gr~ ~- One way this could be done (for example) is for a Nigerian Universi j to • r~ programmes in collaboration with an international University, even for the mt national University to award their own degrees with the education delivere ~ ro the partner University in Nigeria. This is a model which is being increasing! in other parts of the world, and will be considered by the Government. ~

10.4.5. Technical & Vocation~ d'}ducational & Training TVET Technical & Vocational and Educational~ ining (TVET) is training and education for post 16 school leavers. It is for t~ ~ing on to University who are seeking a technical education. This includes a~ ticeships. While Nigeria has had a ~ ~ ord for TVET historically, with technical skills accredited by the City & u s of the UK. Since approximately the 1980s though, technical training hase a se ignificantly. There is now a large gap in the level of technical skills provisi n I the country, such that IOCs complain that they cannot even find petroleum ~~~ or example) and have to bring them in on ex-patriate packages from ~ (the costs of which are charged to the JV). The Petrola i Policy recognises the need for technical training, and one of the object-'1 ~ e Petroleum Policy is to improve the level of technical training within Nigeri~ ~ 10.4.6. Supervised Experience As already mentioned, qualified graduates or technically skilled personnel is not enough. They also need to gain supervised practical experience before they can be called competent. International accreditation bodies have approached the development of competences in several main ways: 1. International accreditation institutes (such as for example, City and Guilds or the Gas Industry Apprenticeship Framework, both in the UK) accredit training organisations who provide an approved course; Ministry of Petroleum Resources 101 ================================ Nigeria National Petroleum Policy 2. Alternatively, international accreditation institutes (the Institute of Engineering and Technology for example) do not accredit training, and instead they accredit organisations (companies) to provide a competency based approach to enable engineers to attain supervised practical experience that enables them to attain a Chartered Engineer status; 3. In some cases, an international accreditation institute could approve existing courses. In order for competency development to work, there needs to be a large and dedicated group of experienced supervisors who can supervise and accredit the pract!1c work experience of the students. These are people who are recognised interna\l_.<1fl, ly as competent who are working in the industry. Nigeria will need to ensuree ~r are sufficient numbers of competent workers in the industry who can act upervisors for trainees or apprentices. In other words, a "train the trainers" pr~ ~ will need to be set up to develop accredited work experience. '-!)V - lt is feasible and essential to set up a competency devel~ e~ ramework for the Nigerian petroleum industry. It is recognised though th t c rrently there are not enough already accredited experts to support a comp19;c mework.

10.4.7. Industry Expected to Devet ) ~ etency Schemes While the Nigerian government will do what ii ca~ o build the competency building approach in Nigeria, the petroleum indu~ ~pected to and will be encouraged to develop petroleum industry appropriate ~ tency schemes. This may be together with public sector agencies. ~ The government will l~~ t~ e private sector petroleum industry to develop compete'{t ¥ er schemes. This may (will proba; e l ,Hie form of apprenticeships. The project-based training of the Nigeria Conte velopment & Monitoring Board (NCDMB) also provides a good model that~ ul xpanded across the industry. Because of their international experience and ise in this, the international oil and gas companies are expected to be proac~ in veloping industry wide schemes. The g~ ~ nt needs to make it clear to the industry what is expected from the indust articipants, particularly the international companies. The industry for their p~ xpected to put in place schemes to ensure that competent workers are pr~ ced and made available to work on projects in Nigeria. Initially competent worker schemes will be voluntary and not mandated by government. If, however, insufficient progress is being seen to be achieved, the government will introduce mandatory measures to ensure the petroleum industry installs competency or apprenticeship schemes. Ministry of Petroleum Resources 102 ================================ Nigeria National Petroleum Policy

10.5. Introducing a Maintenance and a Safety Culture Among the most important milestones for the sustainable development of the petroleum sector is to install the highest international best practice standards of maintenance, health and safety. Recent progress in the privatised power industry show the improvements that can be made in a short time when new management techniques are introduced. The petroleum policy will insist on the best international maintenance and safety practices being introduced and applied throughout the industry. :1 The petroleum policy intends to bring about legislation t~~ make Directors liable to criminal prosecution if they heir company employees knowingly allowed severe safety .f!.fl!, hat lead to serious damage, injury or death to premises, p~ r the environment. ~

10.6. Institutional Capacity Building C,

10.6.1. Policy Team ~ Whilst clear legislation is required to move ~h i4 try forward, it is recognised that legislation alone will not work. A co tent policy and regulatory team, knowledgeable across engineering, fina~ a , and related disciplines etc. is also essential for the implementation of the p~ nd the law. As well as building e~ rtQ n the national petroleum industry, expertise also needs built in the public sector, in regulatory agencies and in te nistry of Petroleum Resources. The government is a~ of the need to build institutional and human capacity and jPlfi~ds to work with industry, educational partners and internatia,;e!J1evelopment partners to achieve this objective. 10.6~ oposed Strategies and Action Plan for the MPR As the Mina responsible for the management of Nigeria's petroleum resources, the MPR ~~~ge role to play within Nigeria's economy. A core part of its mandate include he ability to undertake research and surveillance of energy markets, the p~ o major industrialised and developing economies, and to forecast scenarios po~ bilities for the consideration of the government. There is an urgent need to rebuild the functional and institutional capacity of the MPR in order that it may achieve its duties. Technical capabilities need to be significantly upgraded such that the MPR becomes professionalised as a technical Ministry with a bench of specialists as its core staff. The vision ultimately is for the MPR to emerge as a centre of excellence with demonstrable skill sets to develop policy on matters within its remit. The support of development partners can be called on to assist in the capacity building programme for the Ministry. Ministry of Petroleum Resources 103 ================================ Nigeria National Petroleum Policy 11. COMMUNICATIONS

11.1. Introduction Communications are important parts of any policy. There are two fundamental purposes for communication of the petroleum policy to all stakeholders in Nigeria and abroad: 1. Explaining the policy; 2. Changing attitudes. The Nigerian people, industry, international investors, even membe'it ~the government itself, have become to a certain extent sceptical or cynical W fl~ forms in the energy sector. On numerous occasions there have been pro~ o l8"ents from various parts of government announcing an end to power shortage f I crises, but with no apparent change. There also exists a gulf and lack of understanding between i""".!;;:;;. and government of their respective expectations and obligations. \,,..,/ A communications strategy will be dev~ L ..d as part of the .r Nigerian petroleum policy to explain to , Z olders the purpose of the petroleum policy, and the thint in~ nd analysis behind it. Audiences need to understand that the p~ policy is not a promise of when the lights will stay on. Instead it is to show th~ Nigerian government is clear on what it wants to achieve, the reasons w~ tlie steps to achieve the policy objectives. The petroleum policy will be co~ ~ ~ d as a process to arrive at a long-term vision for the nation. ~ The communications stra~ will consist of two parts: • Internal commQ tions - audiences within government; • External ~ ~ ations - other stakeholders involved with the gas industry. 11.2. lnte" I c\~munications ~ 1~ .1. Ministry P~ succeed or fail through the efforts of the civil servants and it is important that the~ are keen and active participants in the policy. The first task therefore is to explain the policy and its implication to stakeholders within the Ministry of Petroleum Resources. As the government body directly responsible for implementing the gas policy, staff within the Ministry need to be: • Aware of the direction of the policy and the key parts of the contents; • Aware of what is required of them individually; • Persuaded of the benefits and enthused so that they work on its implementation. Ministry of Petroleum Resources 104 ================================ Nigeria National Petroleum Policy

11.2.2. Other Government The same applies to other parts of government, including parastatal organisations such as: • NNPC and subsidiaries; • Existing regulatory bodies such as PPPRA, DPR etc.; • Other Ministries, Departments and agencies of Government such as the Ministries of Finance, Environment, Power, Budget and Planning, Niger Delta etc.

11.3. External Communications ~

11.3.1. Communication to Stakeholders ~ External communications will be needed to the other stakeho~ ~ he Nigerian petroleum industry, covering : 1' • • The general public, the Nigerian people; International investors; <vC, • Domestic investors; • Civil society; /,; • Donor community; \ ' • Other stakeholders. ~ External communications to the ge~ ~ ic and other stakeholders will take the form largely of media presentations d terviews, seminars, workshops, newsfeeds, websites, mass media and the~ . 11.3.2. lndu~ ~ement and Consultations The petroleum indu~ · Nigeria has been involved in the development of the petroleum policy, thr heir participation in industry for and seminars, such as the Nigerian Chapt~ e ociety of Petroleum Engineers, the OPTS and the Petroleum Club. ' This petrol~ policy therefore, while driven by and led by the government, is a joint produqtl'S) from the government and the petroleum industry community in Nigeria, with do~ stic and international industry involvement. ~ Ministry of Petroleum Resources 105 ================================ Nigeria National Petroleum Policy 12. ROADMAP AND ACTION PLAN

12.1. Summary of Philosophy and Key Actions The philosophy of the action plan for the Petroleum Policy is for the government to put the legislative and commercial framework in place and then let the market develop by itself. The government will set targets for market development, monitor progress and take appropriate actions to ensure market development takes place. However, achieving the national objectives for petroleum sector development in Nigeria is ultimat~ down to the private sector to deliver. ~\ A roadmap and action plan for delivering the petroleum policy is set scales for the types of activity: oS:) ..A~~ different • Short term: Months, up to one year; 1'~ • • Medium term: One to two years; Long term: Over two years. C, The roadmap presented below sets out how the ~ ~~ olicy will be implemented, according to the timescales and considering the ~ ities and the parties involved.

12.2. Critical Policy Milestones ~ There are some critical milestones ~~ etroleum policy that must be achieved for the policy to be effective: V • Stakeholder consultatio~ .. • Approval of the petrol, ~~ icy; • Enactment of legis~ ; • Establishment ~ new single petroleum regulator; • NNPC restruct~ ; • Turnarm~ he refining sector; • Sub~ ti~ riigress towards industry wide restructuring. ~<l. Ministry of Petroleum Resources 106 ================================ Nigeria National Petroleum Policy

12.3. Short-Term Activities (Months) Timescale: Months (up to one year) Scope: Institutional The short-term activities are those that can commence very soon and can reasonably be expected to be completed within a matter of months and within a year. Those short-term activities which the Ministry of Petroleum Resources can start immediately are those within its direct control, namely institutional activities within the Ministry of Petroleum Resources and NNPC. A Table 12: Roadmap, Short Term (Months), Institutional 1'.. \ Implementation ~~~ Upstream Activities ~' Parties 1nA.1~e~ r,,..'-> Petroleum policy approval • • Ministry consultation Wider government, industry and other stakeholder consultation C,• ~.I • Cabinet and Presidential app~ ""' • Gazetting the agreed and appv policy ~ Communications • Internal communicati.oi • MPR strategy • External commu~ ~ Legislation • Conclude o~ preparation of • MPR the exe~ iv~ on Petroleum • Petroleum regulator lndust f rms (Petroleum lnd_u1 ry orm Bill and the P~ um (Fiscal Reform) Bill) • ~ tabl!sh_ single regulatory ~ m1ss1on PSC NegotiatioL)_ Ensure NNPC continue to negotiate • MPR n , .,., with contractors on PSC issues • NNPC ~ • Production Sharing Agreement and ~ JOA renegotiations • Exit JV cash calls • MPR F~ • Resolution of Joint Venture funding • NNPC issues • Develop 2017 funding requirements for operations aimed at increasing increase production (to ~500,000 bpd by 2020) • New policy direction for upstream JV funding • Negotiations of new funding options Ministry of Petroleum Resources 107 ================================ Nigeria National Petroleum Policy Fiscal policy • Fiscal principles/ framework • MPR • Fiscal rules • Policy re petroleum products & LPG Cost control • Inter-agency committee for cost • MPR sharing model for upstream Studies • Onshore production growth strategy • MPR • Review of production mix for • NNPC government revenue maximisation • Develop a detailed deep-water A development strategy for Nigeria ~ \ • Develop and implement plan to A ", sustain product availability across ~\ Nigeria r'1...'-> • Develop policy for downstream data h..~J aggregation ", Institutional restructuring • • Restructuring within MPR Begin NNPC restructuring CJ /,; . • MPR NNPC • Institutional capacity build~- ~ training in MPR and sect regulator ~ <:)«; ~~ ~o <l. <l. ~ Ministry of Petroleum Resources 108 ================================ Nigeria National Petroleum Policy

12.4. Medium Term Activities (One to Two Years) Timescale: One to two years Scope: Regulatory and Institutional Medium term activities are those which are largely (but not completely) within the control of the Ministry but which will take a little longer to complete. These are mainly those activities in the legislative and regulatory areas, which set the framework for the industry and market to grow. Table 13: Roadmap, Medium Term (One to Two Years), Regulatt,_, 1\ Implementation Activities Parties l~ fv1-I Strategy ~\ Petroleum policy • Policy framework for domestic • approval crude utilisation and optimisation ~ Legislation • Sustain dialogue with all stakeholders in finalising the Q MPR Senate & House of Petroleum Industry Reform B~ a,d Representatives the Petroleum (Fiscal Re~o )~ • Work closely with Nation Assembly leadership f(\r qu k passage ~ • Articulate the tra~ al arrangeme~ ~to ensure smooth tak~ f the bill Regulation • Draft nL~"- ulations consistent • MPR with ft~ • Petroleum regulator • C~ te establishment of • Industry technical ~ roleum regulator committees • \.c.lvelop petroleum regulations ~ Develop technical codes and ' ~ standards n • Cost benchmarking for facilities n, ' • Tariff modelling • Pricing regulations t,-.. • Market and price monitoring system l • Standardisation of offshore / deep- water operations framework • Develop framework for concessions of midstream assets with new relations to curb monopolies and abuse of market power Upstream • Launch new licensing round and • MPR timely lease renewal Ministry of Petroleum Resources 109 ================================ Nigeria National Petroleum Policy Midstream- • Complete all projects and • MPR Refineries rehabilitation works in the refineries • Refinery • Refineries: Collocate/relocate companies Brownfield Refineries within existing refineries with increase in capacity by 250,000 bpd in addition to 445,000 bpd • Refineries: Complete tendering process for collocated refineries in WRPC and PHRC and seek for selective bidding for KRPC Co- A Location : \ • Refineries: Complete rehabilitation A 1' of the existing refineries to raise ~\ present capacity to at least 90% ~ capacity utilisation ~ • Refineries: Resuscitation and ~ implementation of the Green Field Refineries initiatives through PPP C, arrangements ~ Downstream • Eliminate fraudulent activ~ ~ • MPR associated with produ<fs ~ ply • NPMC and distribution :-\ • Regulatory body Fiscal • Review of fiscal t~ - PSCs • MPR • Enforcing fi s&r\iles of general • NNPC applica~ i -~ monopoly • PSC holders policie etitive bidding and d= and liberalisation • D incentives for utilisation of ~ ire oil value chain Cost control ~Ymplementation of industry wide • MPR ' ~ cost sharing models • NNPC n • Industry lnfrast~ u~ • Address security challenges to oil • MPR ~ production and critical infrastructure • Industry Lo~ ontent • Nigerian content development - • MPR l highly skilled labour, contracts and • NCDMB in country capability development Institutional • Develop organisational structure • MPR restructuring and staffing plans for new and old • NNPC institutions • Petroleum regulator • Continue restructuring within MPR • Continue NNPC restructuring • Institutional capacity building in MPR and sector regulator Ministry of Petroleum Resources 11 Q ================================ Nigeria National Petroleum Policy

12.5. Long Term Activities (Over Two Years) Timescale: Over two years Scope: Industry After two years, the legislative, regulatory, institutional and commercial framework will be in place. The industry will then need to step up and implement the policy in terms of infrastructure projects and growing the Nigerian domestic and export market. Table 14: Roadmap, Long Term (Over Two Years), Industry Strategic Role Activities Parties lnvolv,t Communications • Identifying potential strategic partners • MPR ~ \ ~~y ~ Upstream • ~~=:~f management - lease : ~ • • Environmental protection and clean up impacted areas Frontier exploration - private sector (j- ~ •l~~~ estors driven and incentives / ,; . • Design long-term surveillance y repair program to ensure ~ _jea piping integrity is mai~t ·ne~ • Growth of new produ • sources: independent, mar~ ie s • Build up on NPD~~ nt base of 9 operated ass~ owned, 4 JVs) and inte~ ~ ~ eepwater blocks Midstream • Pipe~i' t~ orage Facilities: enable • MPR reh~ tion, upgrade, maintenance • NNPC security of NNPC jetties, storage • Industry ities, LPG plants and pipeline • Investors astructure Develop infrastructure to support n ~ deregulation of the Downstream Sector Down4 m • Sustain and increase Petroleum • MPR ~ Products Supply • Petroleum l • Maintain and manage refinery assets regulator to produce highest value petroleum • Gas Industry and products investors • Stop 60% of refined products importation by Dec 2018 • Start exporting petroleum products by 2019 • Develop alternative source(s) of supply of crude to refineries Ministry of Petroleum Resources 111 ================================ Nigeria National Petroleum Policy Funding • To secure independent funding • MPR sources for government equity interests Fiscal • lncentivise diversification from oil to gas and from crude to processed products Institutional • Institutional capacity building and • MPR training • Petroleum regulator A • NNPC "\ ~ "Oj <v(; ~« <:)«; ~<v ~o <l. <;. ~ Ministry of Petroleum Resources 112 ================================