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State group faces overhaul as Nigeria weighs plans to boost oil output

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State group faces overhaul as Nigeria weighs plans to boost oil output

By Matthew Green in Lagos

Published: August 5 2008 03:00 | Last updated: August 5 2008 03:00

Plans for an overhaul of Nigeria’s oil industry took a step forward yesterday when energy advisers submitted proposals to Umaru Yar’Adua to restructure the state-owned oil company in an effort to reverse declining production.

A combination of attacks by militants and a lack of investment in new projects has undermined supply from Africa’s biggest crude exporter – which dipped to 1.5m barrels a day in June, its lowest level in 20 years – spurring the rally that recently took oil prices to record highs.

Mr Yar’Adua, the president, set up a committee a year ago to advise on ways to plug the funding shortfalls hitting joint ventures between the Nigerian National Petroleum Corporation and Western groups, which account for about 70 per cent of Nigeria’s oil -production.

The state group’s repeated failure to meet its share of development costs for operations with companies including Royal Dutch Shell and Chevron has stalled the development of key projects needed to boost output.

The contents of the report submitted by the committee, headed by Rilwanu Lukman, a former Opec secretary-general, were not made public. Since he took office in May last year, Mr Yar’Adua has, however, repeatedly -signalled his intention to reform the joint ventures to allow them to raise private capital instead of relying on government funds.

An interim report submitted to Mr Yar’Adua in January, seen by the Financial Times, also recommends breaking up NNPC to streamline the government’s role in regulation, oil and gas exploration.

The document warned that Nigeria’s oil production could fall by a third by 2015 unless financing issues in the joint ventures were addressed. A lack of investment to replace ageing pipelines and open new fields has compounded production losses in Nigeria since an explosion of militant violence in early 2006, and a spate of attacks this year.

Nigerian officials say an average of 650,000 barrels of crude per day is being shut-in due to attacks by militants. Industry experts estimate Nigeria’s installed capacity is about 2.5m b/d.

The NNPC agreed to borrow more than $6bn from Western groups this year to tackle arrears and liberate funds for new developments, but delays by government officials in approving new projects have led to delays in spending the money.

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