The presentation was done as a project for a MOOC progamme conducted by the World Bank on Coursera. The programme "Financing for Development aimed at providing participant with the knowledge of finance and development, the Sustainable Development Goals (SDGs), the challenges of financing the SDGs and sources of financing SDGs

1. FINANCING THE OIL &
GAS SECTOR IN NIGERIA
A critical Evaluation

2. Guide
 Overview of the Oil & Gas sector
 Current Financing Structure
 Challenges
 Proposed Financing Option
 The Nigerian Capital Market
 Benefit of Private Partnership
 Financing Opportunities

3. Overview of the Oil & Gas Sector
 Major source of revenue in Nigeria
 As at 2013, the sector contributed 35% of GDP
 Due to slump in oil price, the oil & gas sector
 Contributes about 10%
 Source: Quarterly Report of National Bureau of Statistics
 Despite fall in prices in the global market
 Oil remains a major source of energy in the world
 The sector is broadly divided into:
• Upstream:exploration and production stage
• Downstream:transportation, refining, marketing and distribution stage
 Development of the oil & gas sector plays a critical role in promoting the
development of Nigeria
 Nigeria as a nation must put in place a sustainable mechanism for mobilizing
revenue in the oil & gas sector while searching for other sources of revenue

4. Current Financing Structure
 Upstream
1. Joint Venture: a financing arrangement where the Nigerian Government
represented by the Nigerian National Petroleum Corporation and
International Oil Companies contribute to funding oil operations and share
crude oil discovered in the same ratio
2. Production Sharing Contract: this is a financing arrangement where the NNPC
engages the IOCs as a contractor on behalf of itself and the NNPC. The
contractor is entitled to recover cost of operation upon successful completion
3. Service Contract: under this financing arrangement, the NNPC engages the
IOCs as a contractor solely on behalf of the NNPC with the NNPC retaining
ownership of the concessionary right.

5. Current Financing Structure
 Downstream
1. Refineries are publicly owned
2. Bank loans are used in financing importation of crude oil
3. Government fixes the price of fuel rather than allow for the market to
determine the price
4. Subsidy on fuel price

6. Challenges
 Upstream
1. Insufficient funding by Government thereby failing to honour the financing terms of the
contract promptly
2. Unavailability of long term financing
3. Financing structure does not provide room for development of other ancillary sectors, for
example development of rail and pipelines for transportation of crude oil
4. Multiple Tax
5. Tax evasion
6. Cumbersome nature of the contract process
 Downstream
1. Banks loans are short term
2. Poor financing as loans are usually expensive
3. Subsidy does not allow room for competition
4. Government involvement crowds out private investors
5. Viability of financing infrastructure projec ts

7. Proposed Financing Structure
 Redefining Public Private Partnership to Private Public Partnership
 Entails Private investors taking the lead in financing while the government
provides the enabling environment
 Private investment are characterised by risk-reward syndrome therefore the
Government should put in place risk mechanism that allows for private
financing
 Focus on blended finance to fill infrastructure gap in the oil and gas industry.
 Financing arrangement should be made with the public sector social return in
mind plus the private sector financial return with the public sector mitigating
risk to allow for private investors

8. Proposed Financing Structure
S/N Private Public Multilateral
Development Bank
1 Foreign Direct investment Commitment to Rule of
law
Advisory services
2 Pension Fund Transparency Capacity building and
transfer of skills
3 Insurance companies Conducive investment
environment
Monitoring and
evaluation
4 Long term loans Healthy policy on
competition
Catalyst for attracting
private investor
5 Long Term Syndicated
Financing
Reduce Bureaucracy

9. Nigerian Capital Market
 There are opprtunities in the Nigerian Capital Market to rasie long term
financing for the oil & gas industry
 Currently the Nigerian Capital Market is overcrowed with companies in the
banking and manufacturing sector with few indigenious oil companies listed
 Strict regulation and monitoring,operation cost and lack of incentive makes
the capital market unattractive to tne oil & gas sector

10. Benefit of Private Partnership
 Job creation
 Rapid Economic Development
 Competition
 Innovation
 Increase efficency
 Reduce waste in government spending
 Increase Domestic Resource Mobilization in Nigeria
 Improve the standard of living thereby promoting the Sustainable
Development Goals

11. Financing Opportunities
 In conclusion there exist other pools of capital to finance the oil & gas sector.
There include:
1. Bonds: leverage on the capital market to raise Energy bond or Oil bond to
finance private refineries and infrastructure development
2. Regulations to compel a percentage of pension fund to be directed to
investment in financing infrastructure in the oil & gas sector
3. Regulation to compel insurance companies to focus on infrastructural
financing rather than hospitality business