EL-RUFAI ON
FRIDAY
The Nemesis
Called Oil and Gas
(1)
Nasir Ahmad
El-Rufai
That Sunday was
like every other one, but the impact of a single event that happened
would change the destiny of Nigeria forever. It was the day Shell
D’Arcy found oil in Oloibiri, in present day Bayelsa State.
The year was 1956; but the story began 20 years earlier in 1936
when Shell D’Arcy was granted sole rights to explore for hydrocarbons
all over Nigeria. Prospecting began in 1937 but the company’s
activities were interrupted by World War II.
After the war,
it teamed up in 1947 with British Petroleum to form Shell-BP unit in
Nigeria. In 1958 production began and the quantity of crude oil export
was about 5,100 barrels per day (bpd), which doubled a year later and
increased to 20,000 bpd in the 1960 when Nigerian was granted
independence. Output increased rapidly to 50,000 bpd (1961) and over 1
million bpd in 1970. The first Obasanjo administration created the
NNPC in 1977 and that year saw the then highest ever output of 2.09
million bpd under the ministerial leadership of Muhammadu Buhari.
By the time of
the Shagari administration in 1980, production had come down slightly
but was still in excess of 2 million bpd. It has remained there since.
By 1999, the World Bank estimated that Nigeria had earned about $300
billion from oil rents in the previous 25 years! Between 1999 and
2011, the country netted nearly another $300 billion in oil exports,
taxes and income from condensates, gas to liquids and liquefied
natural gas. Some estimates are even higher, nearing $1 trillion in
current dollars.
That steady
increase in oil production put the country as the 14th largest
producer of oil in the world but the 8th largest exporter. Many
Nigerians will be shocked to learn that Russia produces more oil than
Saudi Arabia, and the USA, China, Canada and Norway produce more oil
than Nigeria. But they do not export theirs in crude form, but
choosing to add value through refining, processing and beneficiation
into gasoline and other petrochemicals for internal consumption and
export. With an estimated crude oil reserves of 40 billion barrels and
some 184 trillion cubic feet (tcf) of gas, we are more of a gas than
an oil-blessed nation - the 5th largest gas reserves in the world. The
capacity to leverage these natural resources for the betterment of our
nation and its people is in the hands of our leaders.
The discovery of
crude oil was supposedly a blessing of nature expected to accelerate
the development and growth of the Nigerian economy. Our oil revenues
provided avenues to invest in the future through massive
infrastructure build-out, educating our people, ensuring their health
and well-being, and equality of opportunity for all. That
was the dream and promise of Oloibiri through the lens of our founding
fathers. Whether that expectation has been actualized 55 years after
is a question requiring deep pondering.
What went wrong with the dream of Oloibiri? What was the vision of the industry's founding fathers and how did we deviate from it? What can we do to diversify away from our oil-dependency? What reforms do we need to implement to put our oil and gas on a path of growth, indigenisation and maximum benefit to our nation? As part of
our exploration of the real sector in search of employment
opportunities for our rapidly increasing and youthful population, for
the next couple of weeks, we will analyze the oil and gas sector of
the Nigerian economy. The objective is not only to restate its
importance in our national lives, but open up the black box of the
sector a little bit for our readers to understand this tool for our
national development, which has also turned out, so far - to be our
nemesis.
This is because
most of our problems as a country can be traced to our mismanagement
of these two natural resources. And what we do going forward can
convert this blessing into a greater curse, or the reverse. Like most
things in life, it is about the choices our leaders make today that
determine the future of millions.
The oil and gas
sector accounted for about 16 percent of our GDP in 2010 - the third
largest after agriculture and wholesale and retail trade, but employs
less than 0.15 percent of the population, due to its
technology-intensive nature and the procurement practices of the
international oil companies (IOCs). The industry has capacity to
employ more people, and with the enactment of the Nigerian Content
Development Act in 2010, more will be expected in this regard.
The founding
fathers of the modern Nigerian oil industry are probably Head of State
Yakubu Gowon, Shettima Ali Monguno, Philip Asiodu, Olusegun Obasanjo,
Sunday Awoniyi and Muhammadu Buhari. Their vision of the 1970s led to
creation of the NNOC which became the NNPC in 1977. Their desire was
to create a Nigerian-owned and managed oil industry via the
instrumentality of the NNPC. They saw joint ventures as temporary
measures to enable Nigerians acquire the education, expertise and
exposure necessary to take control of the commanding heights of the
economy, including the petroleum industry. Everything was well-thought
out. For instance, the Petroleum Technology Development Fund (PTDF)
was established in 1973 to train manpower for the industry.
The Malaysians
took similar steps by creating the
Petroleam Nasional Berhad (Petronas), which holds exclusive ownership
rights to all oil and gas exploration and production projects in
Malaysia. Unlike the NNPC, Petronas has since its incorporation grown
to be an integrated international oil and gas company with business
interests in 31 countries. It was ranked as the 80th largest
corporation in the world in 2009 and the 13th most profitable. It has
even bid for and acquired oil blocks in Nigeria. NNPC is still a
passive partner in an array of joint ventures, entirely dependent on
treasury funding!
The Nigerian
economy is heavily reliant on oil and gas exports - oil and gas
account for about 96% of foreign exchange earnings and 86% of the
total revenue of the Federal Government. Compared to other
oil-producing nations, Nigeria's excessive dependence on oil is a
clear and present danger that we have gone awfully wrong. Take
Indonesia which was at the same level of development (and
oil-dependence) as Nigeria in the 1960s, oil now accounts for less
than 10 percent of its GDP, 25 percent of government revenue and only
15 percent of exports. This over-dependence on oil exports for both
foreign exchange and revenues is partly responsible for our poor
programme implementation, continuous boom-bust cycles and abandonment
of development projects.
The
other problem with oil goes beyond government revenue-dependency. It
is the impact of 'easy money' on the incentive structure in the
society. Oil and gas are natural resources that are, as we say in
Nigeria, "just there". Unlike agriculture and industry that require
real hard work to earn the fruits of one's labour, oil and gas are
gifts of God, and we have the IOCs to organize, finance, extract,
transport and sell them, without any labour on our part!. A few
statistics here will suffice. Out of 896 million barrels of oil we
produced in 2010, 531 million barrels were produced by NNPC-IOC joint
ventures in which the NNPC contributes financially but not technically
or managerially, 317 million were produced under production sharing
contracts in which the NNPC contributes nothing, and only 45 million
barrels were produced under service contracts and by independents.
Only these miniscule 45 million barrels were produced with some
significant Nigerian participation!
As
a country therefore, we do little or nothing every month except meet
in Abuja to share out what Shell, Exxon-Mobil, ChevronTexaco, ENI, Elf
and other oil companies tell us is our share through the NNPC! We can
only believe what they and NNPC tell us because we are not involved
enough to question what they say or do. The relative ease of 'earning'
this money has created a 'national rentier mentality' within the
Nigerian elite and even the common man. Our nation got "oil-rich"
without working, so each one of us can get rich overnight without
working! The impact of this on our thinking as a people, our response
to incentives and the mentality of the young generation can only be
imagined.
Every activity has become subordinated to the capturing of easy rents
from oil and gas. The best and brightest no longer joined the public
service and academia willingly, but the oil industry. Oil became the
only game in town, and the acquisition of political power by hook or
by crook, was the fastest way to be a player.
The
overconcentration of government efforts and attention on the oil and
gas sector has led to the neglect of the non-oil sector making the
entire economy fragile as any slight disruption in the oil sector puts
the country's economy and polity in crisis, both gasping for breath.
The
oil and gas sector has contributed to our challenges in yet another
profound way. The rapid accumulation of oil revenues and build-up of
healthy foreign reserves led to an overvalued exchange rate. This made
imports much cheaper and exports more expensive and therefore less
competitive. The results were the collapse of our export agriculture,
reduced food production and more imports of cheaper Asian rice for
instance, and capital flight - the rush to take monies out of the
country. In 1980, the Shagari administration earned about $24 billion
from oil exports, enjoying the benefits of the Iranian crisis when oil
prices hit nearly $40 a barrel. Then 80 kobo would buy you one US
dollar, and everything became cheaper to import than make in Nigeria.
A couple of years later, Nigeria's debt crisis surfaced which took us
23 years to exit from.
Once again, our oil and gas industry is at a crossroads. NNPC is
perceived as corrupt, opaque and dysfunctional. Its financial solvency
and stability are questionable. Its true participation in the industry
insignificant, and its unchecked power not matched with
responsibility. Operationally, its best refinery (Warri!) operated at
43 percent capacity in 2010, and the proposed withdrawal of the 'fuel
subsidy' faces resistance from people that no longer believe an
administration that promises to spend at least 70 percent of the
budget running government instead of more investments. The reform of
the petroleum sector has stalled with the dilution, and delay in
passing the Petroleum Industry Bill since 2008! Where do we go from
here?
|