The Federal Government’s recent decision to block Shell’s $2.4 billion divestment plan for its onshore assets has raised concerns among analysts, who warn that this could deter vital investment needed to bolster Nigeria’s crucial oil sector.
The analysts speaking to Reuters on Wednesday highlighted that the government is sending mixed signals regarding its commitment to attracting investments, citing concerns about prolonged delays in the approval processes that could deter potential investors and hinder economic growth.
President Bola Tinubu has been seeking, with some success, to woo foreign investment as Africa’s most populous country grapples with a fiscal crisis.
But on Monday, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) shocked many in the industry by declining to approve Shell’s $2.4 billion deal with the Renaissance consortium, dominated by local firms.
It did not give reasons for its decision, and Shell has yet to comment.
The company has ties that stretch back more than half a century and is one of the biggest investors in Nigeria’s oil, which is the backbone of its economy and the largest foreign currency earner.
A similar deal by ExxonMobil to sell onshore assets to Seplat Energy was approved this week, but only after a wait of more than two and a half years.
Commenting, a director for sub-Saharan Africa at the political risk consultancy Horizon Engage, Clementine Wallop, said the difficulty of getting regulatory approval clashed with the president’s quest to win outside investment.
“On the one hand, you have a government that says we’re open for business. We want to improve the ease of doing business. We want to engage with the world’s largest energy investors, and on the other hand, there have been these long delays to the approvals of Shell’s divestment rejection hinders Nigeria’s investment climate”, Wallop said.
“The delays have been an impediment to the success of President Tinubu regime’s big investment push. It has had an effect outside the energy industry as well”.
As Nigeria’s economy has failed to recover from the shock of the pandemic and its impact on oil demand, total foreign investment inflows fell to $3.9 billion last year from $5.3 billion in 2022, data from the National Bureau of Statistics showed.
That continued a downward trend that started five years ago when investors pumped in $24 billion.
The oil assets Shell is selling are either producing below capacity or not producing at all, but would be boosted by investment.
The government says boosting oil production—which remains below 1.35 million barrels of oil per day (bpd) against a target of 2 million bpd—would help to ease dollar shortages.
The lack of foreign currency and plunge in the value of the naira has led multinational companies beyond oil, including Procter & Gamble, GSK Plc, and Bayer AG, to either leave Nigeria or appoint third parties to distribute their products.
MTN, Africa’s biggest telecoms operator, and soap maker PZ Cussons, meanwhile, have attributed losses to Nigeria’s currency crisis.
To get the much-needed investment, swifter regulatory approval would help, analysts say, although they also cite other issues, including power shortages and corruption that could be more complicated to address.
“I believe that the country needs to do more to attract investments in the oil and gas sector. One such measure is improving the speed at which regulatory approvals are granted”, energy lawyer and partner at Lagos-based Bloomfield Law Practice, Ayodele Oni said.
Some investors, however, are encouraged.
The CEO of power and energy group Shoreline Energy International, Kola Karim, which has operations in Nigeria, said the assets bought by Seplat were “low-hanging fruit” that could quickly be turned around to boost production.
He also said executive orders, including one last month that raised to $10 million the amount oil firms can spend without going to tender, would help cut back timelines for projects.
“For the first time in a long time, there’s a big alignment between the government and the oil companies”, Kola said.
