Tuesday, October 16, 2018 10.08AM / OpEd By Tope Fasua
Nonsensical, simply means
(because) it makes no sense – its synonyms include meaningless, senseless,
illogical, unmeaning. Nigeria’s oil and gas industry is her mainstay. So
the government says. I hear that most people gunning for the position of
President of Nigeria are doing so just to lay their hands on that industry. It’s
no wonder the current president is also the petroleum minister; a position of
responsibility that has however not improved that sector much.
Indeed all is going on as
usual there save for one hopeful lucky break in the gas sub-sector. For
one, Nigeria’s petroleum industry is NOT as profitable as we make out, for
several reasons. Certainly nowhere near as profitable as to be able to afford
the tastes we have now developed and the way those who run that industry award
themselves with crazy salaries and allowances, foreign trips, five star
medicals and everything in between. Nigeria has therefore been building
castles in the air thinking it has a profitable and robust industry upon which
we could build magnificent castles and establish greatness. But if we
were wise, we will scale down our spending and expectations immediately.
Why do I say these?
First, let’s Hear Kachikwu in
a news report published on August 7, 2017:
“When people say we have a
bit of time to change, we really do not have any time. At best, we probably
have not more than five years to make very dramatic decisions in this country
in this field… The issue is the fact that we must deal with the inefficiencies
within our system, whether it is embedded within our national oil company and
parastatals or the ministries, or embedded in the private oil companies. The
reality, whether we accept it or not, is that every side has benefitted from
this lack of efficiencies. A country where after the prices of crude oil
moved past $20 – we couldn’t even enforce the PSC requirement terms that could
enable us to negotiate with the multinationals to plough back what has been
calculated as close to $60 billion of monies paid to the oil companies that
didn’t get into Nigeria because people didn’t do their work. That is the level
of inefficiency that we had…. For countries that have not saved and we
(Nigeria) haven’t saved – we haven’t saved sufficiently. I was meeting with my
colleagues from the UAE and Saudi Arabia and sometimes, I am ashamed to say what
I have in my reserves because when I am celebrating $30 billion, they are
celebrating reserves in excess of a trillion dollars in some countries. So, I
wonder what happened because we earned fairly close to what most of these
countries earned… but we did one thing: we sucked out a lot of our money; a lot
of fraud; a lot of diversions; a lot of our money is sitting in countries where
we can’t even find them and even when we find them, they give us conditions
under which they are going to return this money. We went through processes
recently with a country that wants to return our money giving us terms where
the money will be invested. This was our money, by the way, but you know, we so
belittle ourselves with what we have done with oil proceeds that nobody in the
world can give us respect”.
I recently appeared at the
Development Dialogue Series organized by Mej Obada and Oke Epia at the
prestigious Eko Hotels for Presidential Aspirants. The dialogue was focused on
the oil and gas industry and afforded me the opportunity to further research
the industry. I learned that there is a recent 70% dip in capital
investment in that sector, caused by uncertainty around the upcoming elections
as well as the controversies around the Petroleum Industry Bills which have now
been split into four; an administrative bill, a fiscal bill, a bill to take
care of host and impacted communities, and a governance bill. I learnt
that Nigeria is actually a gas country with a little bit of crude oil, as we
presently have around 37.2billion barrels of crude in reserve, but a proven
5.29Trillion cubic meters of gas. Another British Petroleum statistical survey
has it that we have between 300 to 600 trillion cubic feet of gas. The
resources seem to be endless but we actually have absolutely no input in the
technology around exploration.
After 58 years of
independence and over 60 years of discovering crude oil in commercial quantity,
Nigeria cannot extract a barrel of crude oil on its own, with its own
home made technology, competence or implements. Our intellectuals have not
assisted us in this area. If the foreign oil servicing and production people
upped and left today, we will be as stranded as a stark illiterate fiddling
with the engine of an aeroplane. The shocking thing is that we are still
extremely profligate as noted by Kachikwu above. It seems that the average
Nigerian sees nothing wrong in totally wrecking a place, an institution,
a whole system, a country, generations living and yet unborn… even a whole
human race, just to satisfy immediate gratification. The petroleum minister has
proven to be absolutely ineffectual or even conniving in the performance of his
duties. $60billion is down the drain according to Kachikwu, and it’s as if
nothing has happened.
Now let’s talk some
technicalities. These are facts that Nigerians are used to anyway.
Nigeria used to produce most
of its crude oil - about 97% - using a Joint Venture system in which we
contributed our quota and the foreign oil companies contributed theirs while we
later share profits. But profligate Nigeria, and her maniacal managers of the
oil sector, ensured that we couldn’t meet up with paying our Cash Calls…
meaning we were willing to enjoy the goodies but never wanted to pay our share
of obligations. Under Kachikwu (i think the man meant well for Nigeria), we
started to move towards what is known as Production Sharing Contracts (PSCs),
which is essentially a scenario where Nigeria takes absolutely no risk and
contributes nothing in capital to the exploration and production, but shows up
in the end after all the work has been done, to collect its share of profits.
Trust the white man. He is too smart for us. And so many PSCs have failed in
the past or Nigeria gets shocked by how little it gets from its Smart Alec
idea. According to NEITI (Nigerian Extractive Industry Transparency
Initiative), Nigeria got only $38Billion out of the $104Billion proceeds of
crude oil. This is like 36%. That is our true portion, so we need to correct
the usual error among our compatriots, who simply multiply our daily total
OPEC-quota production by the current price of crude oil to determine ‘what
Nigeria is getting’ on a daily basis. Crude is also sold ahead than on the spot
market.
The reason why we get
relatively so little from our crude oil resource is simply that we have no
technical input in the production. We own none of the technologies, and in a
capitalist world, those who have the advantage utilize it to the limit.
After decades of mismanagement and absent-mindedness we switched to PSCs
thinking we were smart. The first few trials showed us that we can never beat
the white man. We were and are still beaten down in that industry, but it is
our fault. We cannot eat our cakes and have it. The loss of $60billion that Kachikwu
spoke about in the quote above, relates to contracts that we signed in 1993
with a clause for review after 15 years. But since 2008 we have not done that
review. The same contracts were meant to trigger a review if more than
500million cubit feet of crude oil is found in any one location, and if the
price of crude oil goes higher than $20. Yet we did not review. In 2008/9,
under Yar’Adua, the price of crude oil went as high as $140 and he was the only
one - working with late Rilwanu Lukman, who tried to review those contracts.
Since Yar’Adua died no leader has tried anything useful. Even the petroleum
industry governance bill which was advanced, was stepped down by the president,
who is also the petroleum minister. Lest I forget, a major avenue for
loss of revenue Nigeria’s oil sector, is the clause that allows the
international oil companies (IOCs) to pay zero royalties for all exploration
deeper than 1,000 metres since 1993. Most IOCs have moved deep-sea since
technology has advanced, and Nigeria officially gets $0.00 in royalty from such
drilling, till tomorrow. Of course in 2009/10, the major oil companies
almost swore that the PIB will never see the light of day. The non-passage of
the bill is the chief reason why Nigeria cannot even run a reasonable budget
for its people; why smaller countries like Angola generate twice our revenue
yearly!
The Nigerian Natural Resource
Charter (NNRC) published a report recently wherein they observed that Nigeria
loses N3.8Trillion to the mismanagement of the sector, including the inability
to control the amount of pilferage of that natural resource. Nigeria loses
anything between 300,000 and 500,000 daily to pilferage. Our non-investment in
capacity development where it matters (technical research and development) means
that we are watching as shale oil made its debut and the USA became by far the
world’s biggest producer and a net exporter. Nigeria has shale oil too -
especially in rock formations around old abandoned rigs. We shall also wait
until the day the white man decides to develop our shale oil and gas deposits,
just as they will have to help us exploit our trillions of gas deposits.
That is who we are; we bring no innovation.
But we must quickly caution
ourselves. Our flamboyant tastes are ahead of us in that sector. The illusion
that we are rich just because we have crude oil has created fundamental, long
term problems for us. Not only do we get very little from our crude oil - as
the IOCs who own the technology get the lion share - we are also stuck with a
scenario where crude oil hurts our economy whether prices go up, or stay down.
When prices are down, our governments say they have no money to run the
economy. We slip into a quick and deep recession. We produce millions more of
‘food poor' people. When the price of crude climbs, since we get only 35% of
the proceeds, we also suffer as the price of importing refined petrol and
diesel rises. The current administration jerked up the price of fuel from N97
to N145 and damned all consequences. We thought the agony and rigmaroles were
over. Now we hear that the landing cost of petrol is N205 and that we are
underpaying. The fuel subsidies, now rechristened ‘under-recovery’ has hit the
trillions again.
There may be another price
hike. The deregulation of the industry has failed once more, not because
deregulation is not the right way to go, but because the benefit of the
resource has been eaten up by mindless mismanagement, thievery and
recklessness. The private-sector Alecs are out on the kill again, milking
Nigerians dead. My research shows that in 2017, Nigeria spent $6bn importing
fuel for 9 months. This is $9bn for one year. If we average that out for 3
years, that is $27bn. Yet we earned $38bn in 3 years. If we back out the cost
of running NNPC and other subsidiaries, Nigeria probably gets less than $5bn
from this famous crude oil on a yearly basis, yet we spend like drunken sailors
and successive governments have kept NNPC as a slush fund! They stretch their
hands and take money from there like some emergency bank! Again what is the
essence of Buhari being the minister there? What are we doing differently?
I did an analysis I had
longed to do. It is titled “How Many Barrels Does it Take?”. I
tried to cost everything we buy in terms of crude oil. I quickly realized that
crude oil is not too expensive. Though that resource traded at $3.00 for more
than 100 years before the unprecedented spike to $12.00 in the wake of the Yom
Kippur War of 1973 - and the formation of OPEC, I wouldn’t say it is such a
goldmine even today.
If a barrel of crude oil sold
for say $80, that is N24,400 in today’s money if converted at the official
N305. This is gross value, without taking cost of production into consideration.
A simple phone, worth N200,000 in the hands of some lucky girl on our campuses,
is 8 barrels of crude oil. An official Toyota Prado bought for some ministry
director at N60,000,000 is 2,500 barrels of crude oil. The new EFCC
Headquarters - which the Chairman built for a bargain price of only N24billion
- cost a tidy 1,000,000 barrels of crude oil in today’s prices even though they
built when prices were much lower. The budget for maintaining Aso Villa this
year 2018, at N4.8Billion, is a tidy 200,000 barrels of crude. Ditto, in 2017,
Nigeria budgeted N1.9Billion for clearing sewage and fumigating Aso Villa. This
is a 80,000 barrels of crude oil. We can do the remaining math(s) ourselves.
The fact is that there are 190,000,000 Nigerians to be fed, clothed, housed,
transported and secured with this crude oil. The truth is also that out of
every 1,000,000 barrels drilled, only 350,000 belongs to Nigeria. So at an
average of 2,000,000 barrels daily, ours is around 700,000. It is from this we
must back out the cost of running our oil and gas parastatals, and also the
fact that we import refined oil worth at least 70% of the value we get from
exporting. We must be insane to spend the way we do.
Enough already. Let me quote
a bit from Jeffrey Sach’s classic article “Pass the book; hold the oil”,
which is trending again; an admonition to countries like Nigeria in particular,
to remind us that he who owns the technology owns the resource, and he who is
knowledgable can create any resource by using his brains. Enough of the
nonsense about ‘awa oyel”. There is no ‘awa oyel’ without the Oyibo man’s
technology, and as at now, the Oyibo man is doing us the required abracadabra
in that sector, in addition to our self-inflictions. Until we talk to ourselves
and gradually - yes gradually - build our own capacity, there is no hope. We
haven’t however shown that presence of mind, or capacity for contrition, for
foresight. No, not we. We spend it all once it passes through us.
Hear Sachs: quoting
Schleicher, “knowledge and skills have become the global currency of
21st-century economies, but there is no central bank that prints this currency.
Everyone has to decide on their own how much they will print.” Sure, it’s
great to have oil, gas and diamonds; they can buy jobs. But they’ll weaken your
society in the long run unless they’re used to build schools and a culture of
lifelong learning. “The thing that will keep you moving forward,” says
Schleicher, is always “what you bring to the table yourself.”
It’s not all gloom though, in
that sector. Currently PSCs account for 44.81% of our production,
Joint Ventures 31.35% and Local (NPDC and alternative financing) accounts for
the remaining 24%. As at 1998 - JVs did 97% and PSCs, 0.5%. Nigeria has made
some progress with local content actually. This must be counted as a gain. The
other great thing going on in that sector is the drive to end gas flaring by
Year 2020. I hope the Minister and NNPC will steadfastly follow through. They
intend to tie new contracts for drilling to plans for utilization of gas, while
also jerking up the penalties for flaring. That is commendable. Let us add that
as a feather to Buhari’s cap; fair is fair.
Still,
we are living on borrowed time as a nation. We are surviving on loans. We have
been patching this economy along for so long. This crude oil economy is
totally broken. No wonder Adeosun borrowed $33bn in her 3 years as
finance minister. But how, and why, does an oil-drunk serial-borrower
country get a few of her people to live like oil-sheikhs everyday, while
majority remain in the Stone Age?
About the Author
Tope
Kolade Fasua is a Nigerian businessman, economist and writer. He is the founder
and CEO of Global Analytics Consulting Limited, an international consulting
firm with its headquarters in Abuja, Nigeria. He is the presidential candidate
of the Abundant Nigeria Renewal Party (ANRP), which he founded.
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