PIB: The historical coincidence of petroleum reform and constitutional change in Nigeria
Petroleum revenues accounted for 55% of government revenues in 2019 but only 8.78 percent of GDP. Successive Nigerian governments have devoted more government management resources, time and legislative capital to pass the Petroleum Industry Bill (PIB) than arguably all other pieces of legislation that collectively cover nearly 92% of GDP combined. The obsession of successive Nigerian governments with the petroleum sector is strangely correlated with major constitutional and structural change and transformative petroleum legislation.
Since Amalgamation in 1914 petroleum legislation and constitutional or structural reform have occurred in tandem. This PIB will be the first time they have not occurred in tandem. If this PIB passes, it will also be the first legislative overhaul of the sector passed in a democratic dispensation since 1963. These two connections would be coincidental or even accidental if five of the most consequential structural or constitutional changes to Nigeria’s political-geography had not happened within two years of major petroleum industry legislative change as table 1 shows.
Governments since Frederick Lugard amalgamated Northern and Southern Nigeria have designed legislation to exert control over and extract revenue from mining. That would not be a concern were that fixation accompanied by an enterprising mindset. Predictably, government is more preoccupied with revenues for government. The constitution happens to be tailored to supporting that endeavor. The net result is an extractive industry when Nigeria really needs a diversified energy sector driven by domestic utilization.
To take an example, the absence of reliable electricity supply is partly due to the inability to translate bountiful gas resources into electricity. This is emblematic of the extractive petroleum industry government policies reinforced by constitutional design created over the years. The continued flaring of valuable gas further emphasizes the wasteful outcome of Nigeria’s petrodollar influenced constitutional order.
The PIB does attempt to comprehensively address the issue of gas constraints and flaring. Nevertheless, it “ultimately fails to account for climate change, acknowledge the Paris Agreement, and address the need for diversification to adequately prepare Nigeria for the energy transition that is already underway.” The Columbia Centre for Sustainable Investment noted. The centre goes on to say that “rather than locking more capital into projects and infrastructure that will soon be obsolete, Nigeria should be promoting the stewardship of assets that propel the energy transition forward, not those that will be left behind.”
In short, while the PIB does well to play catch up, it remains woefully unprepared for what is coming next. NNPC is not only way behind its peer National Oil Companies in planning energy transitions, but worse still, the PIB’S proposed new NNPC limited is not equipped for the monumental changes facing the energy sector. Equinor, for example, Norway’s National Oil Company (NOC), is an investor in Oxford PV, an innovator in solar panel production using Perskovite cells. Equinor is also creating the world’s first fully decarbonized industrial cluster at an old chemical plant in Saltend, England.
Where Equinor is investing in commercializing cutting edge solar and Carbon Capture and Storage (CCS) technology, the PIB obsesses over applying 10% of revenues from acreage rents to subsidise petroleum exploration in frontier basins for reserves that may not be worth much after 2030, thereby elevating political agendas over compelling commercial and climate-change priorities.
That ‘Frontier’ or ‘Frontier basins’ are mentioned over 20 times in the PIB when renewable energy, research (and not development), Climate Change and the Paris Agreements are mentioned just once each is beyond disappointing. It harks back to the political restrictions imposed by the Mineral Oils Act 1914 where only British companies could mine for oil in Nigeria. It was only when the 1963 Mineral Oils Amendment Act was enacted that those colonial era ‘obnoxious ordinances’ were repealed, making room for Italy’s Eni to become Nigeria’s first nonBritish oil concessionaire.
Nigerian food import bill, that is, the aggregate import cost of the food commodities, increased in value by 21.13 per cent in Q3, 2020 compared to Q2, 2020, and 109.82 per cent compared to the corresponding quarter in 2019.
Nigeria spends roughly $5 billion on the importation of foods annually according to the Federal Ministry of Agriculture and Rural Development (FMARD). A breakdown of this figure shows that $1.5 billion goes into the importation of milk and other dairy products despite the Central Bank of Nigeria’s (CBN’S) embargo on foreign exchange for milk importation, a move aimed at boosting local production of milk.
A contrary report by the International Trade Administration (ITA) shows that Nigeria relies largely on imports to meet its food and agricultural product needs (mostly wheat, rice, poultry, fish, food services, consumer-oriented foods, etc.) worth about $10 billion annually. Europe, Asia, the United States, South America and South Africa are major sources of agricultural imports.
Using the United States America as a case study
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In 2019, U.S. food and agricultural exports to Nigeria reached $595.5 million (up 93 per cent compared to 2018). The breakdown of the figure reveals that wheat accounts for 79 per cent of Nigeria’s total imports from the US.
Nigeria also imported U.S.origin soybeans, intermediate food products (especially vegetable oils and animal fats), consumer-oriented food products (mostly condiments and sauces, processed vegetables, wine, prepared food, dairy products, non-beverage ethanol), and fish products. Corn exports are currently growing (as of August 2020) the report further show.
Be as it may, the food import bill is quite hefty for an agrarian-based economy in which the agriculture sector accounted for about 31 per cent of the country’s GDP in 2020. This represents an increase of over one percentage point compared to the same period in 2019. The agriculture sector employs more than 36 per cent of the country’s labour force, a feat which ranks the sector as the largest employer of labour in the country.
Over the years, despite government efforts to diversify the economy, the economy is largely dependent on crude oil, making the oil and gas sector being the main driver of the economy, in terms of revenues, foreign exchange and foreign investments.
The agricultural sector and other sectors alike are losing ground. The main reason behind this decline is the lack of financial resources for the farmers, and serious security issues in some region within the country, as well as lack of basic agricultural inputs, infrastructure, training and raw materials needed to increase crop production both in terms of quantity and quality.
The high import bill was so because of the obvious gap in the agricultural sector today: the gap includes the inability to meet domestic food requirements and export quality produce that meets up the international standards. Nigeria is also not earning significant foreign exchange from agriculture, what this means is that the country is losing out on both ends.
For instance, local wheat production meets an insignificant portion of Nigeria’s wheat consumption demand, but the overall demand is supplemented by imports, which is estimated at $1.8 billion in 2019 and projected to be $2.3 billion in 2021.
Data collated by BusinessDay Research and Intelligence Unit (BRIU) from ITA shows with a wheat milling capacity of about 8.0 million metric tons (MMT), Nigeria remains the fourth largest U.S wheat importer in the world. Bread, semolina, pasta and other wheat, flour-based products are staples in Nigeria and the demand for these products continues to increase. Currently, the share of wheat flour for bread, semolina, pasta and others remains at 60, 20, 10 and 10 per cent respectively.
So far, what has changed in the wheat market?
The Nigerian economy is characterized by fixed and low-income earners; wheat products like bread and pasta remain readily available at a relatively affordable price, particularly, in more populated urban areas.
The country’s domestic wheat production is still not enough to meet the growing need of the over 200 million populaces. This low-level of production is due mainly to unfavourable local climatic conditions requiring expensive irrigation, sporadic flooding, Boko Haram (BH) insurgencies, and conflicts between herdsmen and local farmers particularly in the northern region of the country.
The country’s consumption of wheat remained high reaching more than 4.1 million tons in 2020. As consumer demand for wheat-based foods continues to surge, the market gap is filled by wheat imports and wheat milling capacity was estimated at 8.0 million tons, with capacity utilization at 50 per cent in 2012. During this period, the U.S wheat market share in Nigeria was over 90 per cent in 2012 but has declined to less than 40 per cent in 2020 due to steep competition from wheat exports from the Black Sea region (primarily Russia). However, demand for U.s.-origin wheat is rebounding due to Russian wheat’s higher prices in 2019.
Government efforts/intervention to boost the agricultural sector
Between 2010 to 2016, the government, after years of neglect, began to reform the agriculture sector. To refocus the sector, the government implemented a strategy, the Agricultural Transformation Agenda (ATA). This reform aimed at rebuilding a sector whose relevance over the years had been insignificant.
A deep assessment of the ATA still shows a substantial gap in food production, as Nigeria still imports a significant amount of food to meet her food requirements. Also, Nigeria is also not earning significant foreign exchange from agriculture, which means that the country is losing out everywhere. In all, more reforms are still needed in the sector for optimal results.