Oil and Gas: 60 years after, Nigeria not yet there?

The petroleum industry in Nigeria has passed through difficult periods since 1960 when the country got its independence. Despite it being among the world’s leading crude producers, many continue to wonder whether the industry has progressed or not? BENJAMIN UMUTEME reports. 

Oil was discovered in Nigeria in 1956 at Oloibiri in the Niger Delta after half a century of exploration.  

Nigeria joined the ranks of oil producers in 1958 when its first oil field came on stream producing 5,100 bpd. After 1960, exploration rights in onshore and offshore areas adjoining the Niger Delta were extended to other foreign companies.

In 1970, the end of the Biafra war coincided with the rise in the world oil price, and Nigeria was able to reap instant riches from its oil production. The country joined the Organisation of Petroleum Exporting Countries (OPEC) in 1971 and established the Nigerian National Petroleum Company (NNPC) in 1977, a state owned and controlled company which is a major player in both the upstream and downstream sectors. 

Gradually, petroleum production and export began to play a dominant role in Nigeria’s economy providing about half of Nigeria’s tax base and more than 85 percent of its goods exports, ratings agency S&P Global Ratings estimates. This dominant role therefore relegated agriculture, the traditional mainstay of the economy, from the early fifties and sixties, to the background.

‘Cesspool of corruption’?

One thing is constant in the Nigerian oil and gas sector is the alleged massive corruption that continues to trail it. Analysts and industry watchers say the opacity in the sector is frightening.

It’s been a series of mixed fortunes for the Nigerian oil and gas industry. There is no doubt that in the early years of the oil and gas sector the new wealth and immense revenue helped to propel infrastructure development, the five year development plan, the post civil war development plan among others.

A curse of sorts?

From the early 1980s and 90s, it started becoming a curse especially with the environmental challenges associated with it already obvious.

In a telephone interview with Blueprint, development strategist, Jaye Gaskia, said wanton corruption in the sector was a major factor hindering its growth.  According to him, the ruling class did not have to do anything but to collect rent as they were not involved in the management process of exploration.

A ruling class that became extremely corrupt and greedy

“It turned it into a ruling class that became extremely very corrupt and greedy. And then, we started witnessing the decay in those infrastructures that were funded initially by oil wealth including the refineries. Now everything has become comatose.”

Analysts have over the years aligned with Jaye on the opacity in the sector. According to a report by Bloomberg in October 2019, the federal government claimed it was taking steps to recover $62bn [N23.560tn] from International Oil Corporations [IOCs] operating in Nigeria, as unrecovered part of its share of profit from the production sharing contracts [PSCs]. This claim was based on a supreme court judgement of 2018, which had validated Nigeria’s basis for making the claims. 

N150.480 billion spent on TAM

Again, The Nation Newspaper in a December 2019 report said the Senate said it would investigate claims that $396 million [N150.480 billion] was spent on Turn Around Maintenances [TAM] of the four refineries by the NNPC between 2013 and 2015. The four refineries are still comatose, and the result of the investigation has yet to be made public. 

Even the House of Representatives, according to the Vanguard newspaper probed the Petroleum Products Pricing Regulatory Agency (PPPRA) over the non-remittance of N1.343 trillion [$3.534 billion] in operating surpluses to the CRF of the Federation domiciled with the CBN, as revealed by the DG of Budget Office of the Federation in his address to CEOs of GOEs in the same December of 2019. Again, more than 10 months later, the green chamber is yet to release the report of the probe.  

Endemic diversion of funds in the sector

According to the Vanguard of 22 August 2020, at a presentation before the Senate Joint Committee on Finance and National Planning, the Director of the Department of Petroleum Resources (DPR), which collects oil and gas royalties among others on behalf of the FG stated that out of the N2.4tn ($6.316bn) revenue it generated in 2019, only N44.5bn which is about ($117.105m) was remitted to the CFR. The DPR Director further stated that DPR had deducted the sum of N88bn as 4% collection fee, from the N2.4tn it generated, and that of this N88bn it further remitted N5.72bn to the CFR making a total remittance of N50.22bn into the CFR from N2.4tn in 2019. Even the remaining N1.9tn cannot be accounted for? The list could go on and on.  

In a chat with Blueprint, Adefolarin A.Olamilekan Political Economist and Development Researcher,  said the local political economic dynamics of the sector that is corrupt ridden is more culpable in the performance of the Nigeria oil and gas sector sixty years of operation. 

Inability to reform 

Several decades down the line, the oil and gas industry in Nigeria has yet to hit its potential especially with the massive deposit of hydrocarbon deposits in the government. Many continue to put this down at the feet of the government. 

The sector made little progress in the early years of its operations, however, with the incursion of the military into politics, the little gains made was wiped away as they saw the sector as a cash cow for themselves and their cronies. And with so much going out of government coffers into private pockets with no plans in place to improve it, it was only a matter of time before the rot in the sector set in. 

Stifling laws that would rubbish any investment

With businessmen unwilling to come into the sector due to stifling laws that would rubbish any investment coupled with the subsidy regime, it was obvious that new investment would be difficult. 

Several lame attempts have been made in the past to reform the sector for optimum benefit but they have all been like a drop of water in an ocean. Even, the Petroleum Industry Bill (PIB), which was at a point changed to PIGB, was supposed to chart the way for a full reform of the sector has for close to two decades been unable to see the light of the day due to various interests. 

Analysts are of the opinion that the sector would have seen significant progress if the PIB had not been made a scapegoat on the altar of  politics. 

Deregulation to the rescue?

Over time, analysts continue to argue that deregulating the sector is the way to go for the sector to move forward. But the federal government has been unwilling to toe this line of argument. However, the coronavirus pandemic which devastated businesses globally and crashed global oil demand seems to have forced it’s reluctant hand. And in March, the government announced it was deregulating the sector and with it came the removal of subsidy on Premium Motor Spirit popularly referred to as petrol. 

Speaking at the virtual African Refiners Association (ARA) Week 2020, Group Managing Director, NNPC, Mele Kyari said deregulation of the downstream sector of the oil and gas industry in Nigeria will increase investment in the refining business and facilitate exponential growth in the nation’s refining capacity.

Price stabilisation

Kyari, while admitting that the idea of price stabilization which led to the introduction of fuel subsidy in the 1970s was noble, it had grown into a huge financial burden on the nation’s treasury over the years, necessitating its removal in March 2020. 

He stressed that the move will not only free up much-needed cash to fund infrastructural development, but will also eliminate market distortion, foster competition between operators, get more private sector players to build refineries in the country and promote efficiency across the entire value chain.

“It is important to note at this point that the future of our continent does not just lie in our ability to unlock value from our vast natural resources or powering an industrial and economic revolution, but also in our ability to implement proven refining solutions that consider the broader public health implications of our business decisions,” the GMD stated.

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