Nigeria @ 50 –A Blessing or Curse?

Nigeria’s oil and gas industry is still characterised by corruption and lack of visionary leadership. Both have prevented successive leaders from utilising the oil wealth for the development of the country

By RAYMOND MORDI

There is a lot of fanfare around Nigeria’s oil and gas industry at the moment. From the controversial Petroleum Industry Bill, PIB, which among other things is reviewing the fiscal regime that determines the revenue accruing to investors and the government; to the Nigerian Oil and Gas Industry Local Content Act 2010, indications are that the Nigerian government is eager to fully harness the potential of the industry. But experts say that it is somewhat ironic that Nigeria is just trying to come up with appropriate legislation and policies to drive the oil and gas industry, the mainstay of the country’s economy, after 50 years of independence. The industry has been widely perceived as the national cake over the years, particularly by people in positions of authority, who invariably capitalise on their privileged positions to milk the economy dry.
Tam David-West, a former minister of petroleum resources and one of such critics, believes that by now Nigeria should not be talking about the unbundling of the Nigerian National Petroleum Corporation, NNPC, the state oil company. “Is it not funny that after 50 years of independence we are still tinkering with organogram and policy posturing? We are not a serious country! Things went wrong because those who have the responsibility of managing the Nigerian oil industry love themselves more than Nigeria,” the professor of Virology said. The PIB has become mired in controversy, stalling its passage by the National Assembly. Indeed, it is believed that there are several versions of the bill in circulation.
The bill is expected to transform NNPC into an autonomous body capable of raising international capital to boost investment in exploration and production. But multinational oil companies are pessimistic about the reform policies in the proposed legislation, insisting that some key aspects of it must be addressed for the restructuring exercise to work. Some of the grey areas, according to the players, include issues relating to contractual agreement, production sharing contract, PSC; funding of the joint venture projects and security issues. They insist that these issues must be resolved before they embark on fresh investments in the industry. Royal Dutch Shell has warned that these uncertainties over the planned reforms might deter new investment vital to the industry’s long-term health.
According to Kunle Obebe, managing partner, Bloomfield-Advocates & Solicitors, an energy and commercial law firm, an investor in an international petroleum transaction intending to invest in a petroleum regime would conduct its due diligence before committing risk capital by looking at, among other things, the returns to government compared to the returns to investors. Besides, members of the Oil Producers Trade Section, OPTS, of the Lagos Chamber of Commerce and Industry have argued that the overall effect of the changes in the PIB would be to make investment in Nigeria’s upstream oil and gas unattractive and could increase revenue accruing to the government from its current 92 per cent to 98 per cent; thereby reducing returns to investors from eight per cent to two per cent. This, they argue, would make Nigeria’s already onerous fiscal regime worse.
Realising the aims and objectives of the Local Content Act, experts say, might also pose a challenge. The thinking of observers is that there has been too much talk about the issue of local content over the years and very little action. The new Act encourages the utilisation of local human and material resources, as well as services. This involves the supply of services and products, as well as the employment of Nigerian nationals in certain proportions and for them to be given first consideration for employment in key positions. The idea is to domesticate the over $9 billion of annual spending in the petroleum industry in the country. Nigerians have very little share of the oil and gas business because local participation has been very low.
However, the implementation of the Act would still be challenged by the issue of lack of capacity among Nigerians to make meaningful contributions to the industry. Over the years, the NNPC has been pushing for increasing participation of Nigerians in the industry, but this has been limited by the level of skilled manpower available within the country. Oliver Mordi, an oil and gas consultant is of the view that very little is going to change in the short to medium term, in spite of the new Act. His words: “Take welding for instance. Petroleum exploration offshore requires a great deal of welding; for everything you see from under the sea bed right up to the platform is steel works, including the pipes under sea. You have to do all types of welding, including cold welding. But unfortunately we don’t have skilled workers, divers who can go down there and weld.”
At 50, the consultant believes that Nigeria ought to have developed its iron and steel industry to a level where it can contribute to enhancing Nigerian content in the oil industry, and thereby generate employment for its teeming population. Mordi recalled the experience of South Korea, which he said is very instructive in this regard. According to him, almost all the liquefied natural gas, LNG, vessels belonging to the Anglo-Dutch conglomerate, Shell, were built in South Korea. “The Asian country started its iron and steel industry at the same time that Nigeria started its own, but at a lower cost compared to the latter’s. But, today, the country is known as the best shipbuilder in the world,” the consultant noted.
The development of the iron and steel industry is said to be the key to the realisation of a high level of local content in the oil industry. This is because iron and steel constitute about 90 per cent of the materials that are used for construction works in the oil and gas industry. Thus, a vibrant iron and steel sector would make it possible for Nigerians to be able to fabricate whatever is needed in the industry such as rigs, vessels and tank farms. But in spite of the over $10 billion that has been sunk into developing the steel industry in Nigeria, there is nothing to show for it.
There is a consensus of opinion among observers that the future of oil is not as rosy as many Nigerians would like to believe. Thus, depending solely on it for revenue and foreign exchange earnings has its attendant risks. Global oil reserves are depleting and a time would come when there would be no more oil reserves to exploit. Experts say that time is almost here. Besides, great world powers known to purchase oil in bulk have been trying for years to reduce their dependence on it.
There is a general believe that Nigeria’s oil earnings were not properly invested to develop its other resources for the benefit of the people. As a result, the country’s oil wealth has not translated into meaningful development largely due to bad leadership and corruption. Beyond the major infrastructural developments that took place in the transport sector in the 1970s and the construction of several stadia across the country subsequently as football increasingly became a national pastime, it is believed that the gains from oil have not been prudently managed. It was with the oil windfall that the Yakubu Gowon’s regime organised the Festival for Arts and Culture, FESTAC, which many described as a jamboree in 1977.
The declining state of the country’s infrastructure base over the years, in spite of her huge earnings from oil, is blamed on the greed on the part of military dictators, politicians and civil servants who cornered most of the oil wealth. It was only during the civilian era of Olusegun Obasanjo that an attempt was made to set aside part of the windfall that accrued to the nation during that period in a special account — the Excess Crude Account —for the rainy day. That account has been depleted in the wake of the recent credit crunch that hit the economy. James Orife, an NNPC retiree and former president of the Nigerian Mining and Geosciences Society, said it is high time Nigerians started thinking about the future without oil, arguing that the commencement of the export of crude oil is the most painful thing that has happened to this country. “Yes, we have made some money; a lot of money indeed, but what have we done with it? During the Gulf War we had a windfall of about $12.4 billion; can we account for that money today? What happened to the report of the gentleman who carried out an investigation about how the money was spent?” he asked rhetorically.
Be that as it may, experts are of the view that the way forward for the oil and gas industry is very simple. The answer in two words is credible leadership. “The only way things can change is by having leaders with proven credentials; you don’t just wake up and say you want to be a leader; you must have a track record of service. The credentials for leadership are of two main kinds: ability to come up with sound economic policies and a sound moral background,” David-West said. Secondly, he said corruption has destroyed the system and foreigners do not feel comfortable with the idea of giving bribe before they can set up their business. On his own part, Mordi wants to see in place a good monitoring and evaluation system that would enable managers of the economy to review and adjust policy implementation periodically. “There must always be a monitoring and evaluation of whatever policy that has been put in place. Without this, the country would not be able to assess what it has been able to do over time,” he added.
To get out of the woods, Nigeria has a lot to learn from its peers who have developed their oil wealth to improve the welfare of both the present and future generations. Corruption and lack of visionary leadership are the twin evil that is believed to have dragged the country’s progress back. At independence, the country was far ahead of Indonesia, South Korea and Malaysia, which are today categorised as newly indusatrialised countries. For instance, Nigeria was number one and number three in palm oil and palm kernel production respectively. At the time, Malaysia sent a delegation to Nigeria, which collected the seedlings that the Asian country eventually used to catapult itself to the number one position in palm production in the world. Meanwhile, Nigeria abandoned agriculture the moment petrodollars started rolling in from oil exports. Successive leaders also failed to take the necessary steps to develop the country’s industrial base.

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