NIGERIA OIL: PRICES, POLITICS AND THE PEOPLE by Tim Onayemi

 There is a tendency to assume that Nigeria is essentially bureaucratical; that it is a place where the President and government officials are above the law and that their policies are uncontestable or infallible: not so, because the country has a well-developed democratic government and legal system, made up of English law and various aspects of customary law of Nigerian, and not, African origin, which would be too general when the situation on the ground is examined, however, the situation is exceptionally different because the limits of this democratic governance and legal system are determined by the elite in government.

 The problem is not with adjudication in Nigeria but the fact that the government does not want the interests of the oil companies to be harmed by litigation. These include the determination of local petrol prices. Whatever the Nigerian government, military dictatorship or civilian has been able to do in form of provision of and maintenance of infrastructure since the discovery of oil till date has been made possible through crude-oil exportation and  the support of those oil companies. Nigeria is a country where the tax-paying norm could be seen as non-existent except in the case of banks, factories and companies that have to pay taxes

 Nigeria’s experience with oil – the black gold – is the worst among the members of the OPEC, where per capita income is still in the range of $500.

 Nigeria has an abundance of natural resources, especially hydrocarbons. It is the 10^th largest oil-producer in the world, the third largest in Africa and the most prolific oil-producer in sub-saharan Africa. The Nigerian economy is completely dependent its oil sector which has continuously supplied 95% of its foreign exchange for two decades.

 MAJOR INCREASE IN OIL PRODUCTION OVER THE NEXT TEN YEARS

 There has never been any direct or indirect link between Nigeria’s prospects of oil exploration, the exploration and exportation of crude-oil, foreign direct investments (FDI) in the country and increased employment or growth in the economy since the military handed over the government of the country to civilians in 1978.

 All benefits go to the government and the companies and no exceptional increase in employment or a better life for the people, who have to rely, as it is historical and customary, on the inevitable trickle-down effect in the economy that comes from the inevtbility of the companies and government to spend money in the country. This is not planned, it is informally expected to occur, and cannot be assessed due to other complex, chronic and unsurmountable data-gathering problems.

 We should note that economic and other statistics used by the Central Bank of Nigeria and related government ministries and agencies to measure growth or fall in the economy are restricted to the section of the Nigerian economy that can be considered as ‚having a face‘ – presenting their facts and tables for documentation and research, at least, in other to be able to claim legality and currency in front of the law.

 A large pecentage of the economic activities in the country remain uncovered. And where facts are available in the area of imports and exports, companies sometimes go into agreement with officials to reduce the values of the goods going out or coming in so that they can pay less in taxes. Some goods even pass through the ports without documentation.

 Our assessment of growth in the economy and its effect on employment has to be taken with a pinch of salt, including what companies and the government have stated that is the total FDI in the country.

 It is time that the world come to realise that Nigeria’s popularity as an oil producing country did not have any connection with growth in the economy, increase in employment or a better standard of living past 1979 when the second generation of democrats was installed by the then military Head-of-State, General Olusegun Obasanjo who happens to be the President of the Third Republic in Nigeria. (These series of Republics is based on the fact that Nigeria’s status as a Republic is always suspended when there is a military coup and government).

 What could be analysed is the way billions of dollars are found in the Swiss, British, American or other bank accounts of the Heads-of State, ministers and friends-of-the-government while the foreign debt of the country remains unchanged for two decades and people die of hunger in the country or have to travel forty kilometres to get to the public phone.

 The following are the latest in a continuing sequence of oil discoveries in the country:

 1.     Nigeria’s deep water area is starting to simmer. In December 1999, Shell said it will go ahead with the development of the Bonga field and ExxonMobil announced it had made „a major deep-water oil and gas discovery“.

Shell’s Bonga will be Nigeria’s first deep-water development to move ahead, with $2.7bn being invested to tap reserves of some 600m barrels. Shell hopes to bring the field on stream in 2003, using a floating production, storage and offtake (FPSO) vessel to produce some 200,000 b/d of oil and 150m cf/d of gas.

ExxonMobil’s discovery, also announced

2.     In February 2000, Texaco announced that ist Agbami field, which a recent well showed to be much larger than previously thought, could be under development this summer and in production in 2003. Output could reach 200,000 b/d by 2004. The field, 355 km southeast of Lagos, is estimated to hold reserves of 1bn barrels. (Petroleum Economist 2/2000 p39).

3.     Shell’s proposal to develop the EA field without the government‘s share of funding was approved by the Nigerian authorities, marking the go-ahead for the first all-private-sector development in Nigeria. The agreement provides for Shell and ist partners, Agip and Elf, to cover NNPC’s 55% share of the $1bn investment, in return receiving a larger share of profits than their joint-venture contract would otherwise allow. Shell is to put up 77.14% of the costs, Agip, 12.86%, and Elf, 10%. Interests in the producing venture are NNPC 55%, Shell, 30%, Elf, 10%, and Agip 5%. Nigeria’s approval of the arrangement is likely t make way for similar deals with other companies. (Petroleum Economist 1/2000 p 43).

 This is just to mention a little bit of the new, extremely profitable developments in oil exploration and sales in the next ten years in Nigeria. Apart from the money, profits being made from on-going sale of crude-oil and discoveries to be made within the projected period.

 EFFECTS OF INCREASES IN FUEL PRICES IN NIGERIA DURING THE ONE-YEAR DEMOCRACY

 The upstream oil industry in Nigeria is the life and blood of the country. It is also central to the recent civil ubrest in the country. It maybe time that the ruling elite and the military realise that the people are now having enough information about the business of government and that that is directly related to the new-born possibilty of understanding how to configure or imagine $1 billion and how far it can go to solve what is the problem.

 An unresolved issue, apart from the legitimacy of one particular tribe or the other to the presidency after President Obasanjo’s on-going first, and probably to be followed by a second term, is the equitable sharing of the country’s multi-billion dollar annual oil revenues amongst ist population (who, in some areas rank among the poorest in the world, and the environmental and public relations of the multi-national oil corporations.

 The civilian government of President Obasanjo has committed itself to sorting out the problems within the oil industry, and the President is one of the last set of leaders that is not often talked about, good or bad, in the country.

 It is, therefore, a surprise to the people, obviously holding such ambitions since the latest end of military dictatorships, to hear that the present government is going to increase the price of oil.

 The people are against such a step, and demonstrations have been predicted if the fuel price hike is carried out, as it was in 1988, but in support of the abortive coup led by the late Major Orkah.

 In November 1999, Obasanjo announced that the market for petroleum prices would be deregulated. (A word that is most unloved in Nigeria, except in the case of freedom, which has been seen since the death of Sani Abacha). He noted that all petroleum prices would be fully deregulated and domestic crude oil allocation to the Nigerian National Petroleum Corporation (NNPC) would be paid for at export parity with immediate effect, however, this would also have an immediste effect on pump prices.

 The Nigerian Labour Congress (NLC) and the Public have criticized and forced the government in December 1999 to state that it had NO IMMEDIATE PLANS to end the fuel subsidy and defer price increases. As it stands now, it may all depend on what ‚no immediate plans‘ meant, what the people believe could or have amounted to the government going back on the agreement or promise,  what the government understood it to mean and what they may not be able to do when trying to deal with the break down in law and order, as we know it, that accompanies all ‚days of demonstration‘ of all types, which Nigeria has seen and Nigerians seem to be more-skilled in organizing in the last year, based on their religious orientation, political affiliation or tribal heritage.

According to „The Post Express“, a Nigerian national daily, dated 17 August,

„ ... the President of the Nigerian Labour Congress (NLC), Mr. Adams Oshiomhole, alleged in a press statement that the NNPC was planning to once again raise the prices of petroleum products. Coming so soon after the increase announced on June 1, by the NNPC, which led to mass protests spearheaded by the NLC. ...To induce people to such desperation as will make them pay more than are affordable amounts to coercion and is condemnable especially under what should be a representative government.

 The effects of the rumours of fuel price hike on the new democracy in Nigeria has been encouraging, in the way it has shown how accountable the House of Representative would go to show that it does not support such a move on the part of the executive. The Reps issued a statement on 21 August, denying reports that it has lent ist support to new pump price for petroleum products, and describing the reports as one of the plots by the executive arm to dent the image of the National Assembly. The House of Reps also re-affirmed ist earlier resolution condemning any attempt at increasing the price of petroleum products.

 The House Committee chairperson on Information, Mr. Chijioke Edoga, told reporters at a press conference on August 21 that  „this (the rumours of petroleum products price increases) is just to pit the National Assembly against the labour and the Nigerian people“. The House Committee chairperson on Petroleum Resources, Mr. Ehioge West-Idahosa, at the same press conference, said that the report of the Petroleum Resources Committee sent to the Presidency and the leadership of the National Assembly, dated August 1, 2000, did not recommend any increase in the price of petroleum products.

 NEW TERMS ON PROFITS MADE BETWEEN THE GOVERNMENT AND FOREIGN OIL COMPANIES

 The situation causes more worries for analysts and those who have been foolowing developments in Nigeria in the past year when the agreement enetred into by the Nigerian government and the foreign oil companies in March 2000 are considered. The new terms on profit, set out in revised memorandum of understanding between the state’s national Petroleum Investment Management Services and the foreign companies, will provide a significant increase in company’s earnings id oil prices stay high – but they will trim earnings if prices fall again to low levels.

 The new terms increase the companies‘ official profit margin – on the equity shares of production only – from $2.50 a barrel to $2.70/b, and they increase the official production cost allowance from $3.50/b to $4.50/b. (If actual costs exceed the allowance, 15% of the excess is deducted from the official profit margin as penalty.) But the price range in which the official profit margin applies narrows, from $12.50-23.00/b previously to $15.00-19.00/b. If the price exceeds the upper limit, the official margin increases by about $0.10 for every $1.00 rise; if it falls below the lower limit, the official margin decreases by about $0.18 for every $1.00 fall.

 The people See this agreement as a plan by the Nigerian government to give more money to the foreign oil companies at the most problematic economic and political transition and situation the country is passing through in recent years while it is also trying to increase the price that ‚the poor people of Nigeria‘ has to pay for petroleum products. Shell is the foremost of these companies, and the foreign companies in Nigeria could be seen to have a Shell face, and the people do not think they should lose government subsidies on petroleum products and pay more for same at a time that foreign oil companies are getting more.

 The memorandum of understanding was inroduced during the oil price slide of 1986 to guarantee the producing companies a minimum profit margin, in return for which they agreed to maintain a specified level of capital investment. It was renewed in 1991, and should have been renewed again in 1996. Negotiations ran on for two years, with the government seeking a sharp increase in penalties for „excess“ production costs and a cut in the five-year term of agreement, while the companies were seeking an increase in the official profit margin from $2.50/b to $2.90/b.

 The foreign companies are seen to have won, as they always had. The people do not See any reason why the government should enter into such agreements partially based on ‚a specified level of investment‘ by foreign companies when the profits that the government must have accrued over an approximately 30-year period of crude-oil exportation are rightly estimated to be enough for African development, and not just the development of Nigeria.

 THE PROSPECTS OF MORE OIL AND NIGERIA’S PLACE IN THE WORLD IN THE NEAR FUTURE

 Referring to the General Agreement on Tariffs and Trade (GATT) in 1947, Hussein Abdallah, energy consultant and former Under-Secretary at the Egyptian Ministry of Petroleum wrote, in the OPEC Bulletin of February 2000, that „oil was not explicitly excluded from GATT but the principal trading parties, the United States, European countries benefitting from the Marshall Plan, mainly OECD members treated it as if it was. Their main goal was to keep precious energy flowing into their energy-hungry economies after World War II. Western multinational oil companies pushed Arab oil production to nearly 20m b/d in the early 1970s from 1m b/d in 1950.  the western oil cartel also reduced the price of oil from $2.18/b in 1947 to $1.80/b in 1960.

Nigerian became independent in 1960. Until 1960, the colonial government participation in the oil industry was limited to regulation and administration of ‚fiscal policies‘. In 1971, Nigeria joined OPEC, and in line with OPEC resolutions, the Nigerian National Oil Corporation (NNOC) was established, later becoming Nigerian National petroleum Corporation by virtue of Military Decree Number 33 of April 1, 1977, which merged the NNOC and the Ministry of Petroleum Resources. The NNPC explores, refines and provides crude-oil and also advices the government on petroleum industry matters. In 1988, the Ministry of Petroleum resources was re-established. At the moment the Ministry has no Minister. Consequently, matters affecting the NNPC are directed to the Head of State and Commander-in-Chief, President Obasanjo, for decision.

Decisions that put the country in a comarative and competitive advantage against foreign oil companies which will also be of benefit to the people in terms of increasing the standard of living and reducing unemployment drastically, have not been made.

Maybe the force that the foreign oil comapanies have on the country and that of their governments on OPEC, being restricted, would not give way to a better allocation of resources from the oil sector in Nigeria. this has been highlighted in other places around the world too. At the Seattle demonstrations in November 1999 and the upcoming Prague meeting of the WTO and IMF scheduled for late September 2000, however, the Calgary 2000 World Petroleum Congress (WPC) was not seriously affected by demonstrations.

Nigeria’s development and benefits from the upcoming increase in crude-oil sales is not guaranteed but the transition to responsiblity, accountability and the availability and use of more information, coming from the new democracy to the people will change the scope of the issue – the problem, and ist resolve in the distant future.