At 59, Nigeria Still Grappling with Resource Curse

Nigeria has produced oil for about 61 years. But 59 years after it gained Independence, Chineme Okafor, writes that the country has been unable to utilise its natural resources to create the much-need wealth for its citizens

The world isn’t waiting for Nigeria, petroleum discoveries are constantly being made in many other countries, and electric cars signal the end of the era of petroleum

Over the weekend in Kula Kingdom of Akuku-Toru local government area of Rivers state, the federal government had a tour of communities within the kingdom in conclusion of a peace deal it initiated between the indigenes and Shell Petroleum Development Company (SPDC) over a two-year old community development-related disagreement.

The disagreement which reportedly bothered on SPDC failing to develop the communities which host an oil block – Oil Mining Lease (OML) 25 and from which about 35,000 barrels of oil were produced daily, resulted to the shutdown of oil production from the oil block and community.

Sleepy and underdeveloped, Kula which is one of the communities co-hosting the oil block represented just how badly Nigeria has ran its oil industry since oil was discovered in 1956 at Oloibiri after half a century of exploration by Shell-BP - at the time the sole concessionaire.

The disagreement between the communities and SPDC, as well as shutdown of operation for two years – a development the Nigerian National Petroleum Corporation (NNPC) said resulted to the loss of about $17 billion worth of oil - was also an example of how the country has failed to create significantly palpable value from its oil resource after it became a producers in 1958 when its first oilfield came on stream producing 5,100 barrels per day (bpd).

Across board, the country’s oil industry is replete with challenges of community restiveness which often disrupted oil production, dilapidated infrastructure, outdated governance framework, and loss of value to all stakeholders.

History and milestones

According to records from the NNPC, a rise in the world oil price was coincided with the end of the Biafran War in 1970, with Nigeria reaping instantly from its oil production.

This was after the discovery and commencement in production by Shell D’Arcy Petroleum in 1958 from its oil field in Oloibiri in the eastern Niger Delta. It subsequently attained a daily production level of over two million barrels, but later saw the production figure drop below the two million barrels.

The country also joined the Organisation of Petroleum Exporting Countries (OPEC) in 1971 and established the NNPC in 1977 to oversee its interests in oil production, as well as become a major player in both the upstream and downstream sectors of the industry.

Further, in 1956 Shell reportedly changed name to Shell-BP Petroleum Development Company of Nigeria Limited, and Nigeria shipped its first oil in 1958 before the Bonny Terminal was commissioned in 1961 after Shell had built it.

Similarly, in 1961, the country’s oil industry began to attract more interests with Texaco Overseas also setting up its operations in Nigeria, followed by Elf in 1962 as Safrap, and then Nigeria Agip Oil Company (NAOC).

Also, in 1963, Elf according to the NNPC discovered the Obagi field and Ubata gas field, just as Agip in 1965, found its first oil at Ebocha, and Phillips Oil Company also setting its feet into the country.

The interest in the country’s oil resources grew further with Elf reportedly starting its oil production in Rivers state with 12,000 barrels a day (bd) production level in 1966, and the Philips in 1967, drilling its first dry well at Osari-I before making a discovery at Gilli-Gilli-I.

Again, in 1968, Mobil Producing Nigeria Limited was formed and the Gulf’s Terminal at Escravos was commissioned. Mobil also in 1970 started oil production from four wells at Idoho field as well as Agip just when the Department of Petroleum Resources Inspectorate started.

In 1971, the Shell’s operated Forcados Terminal was commissioned as well as Mobil’s terminal at Qua Iboe.

Several other key developments in Nigeria’s oil sector happened afterwards including the formation of the Nigeria Liquefied Natural Gas (NLNG) Limited, enactment of a petroleum law in 1969, and the government’s acquisition of equity shares in oil production, such that oil production and export according to the NNPC played a dominant role in Nigeria’s economy and accounted for about 90 per cent of her gross foreign exchange earnings.

Status of oil industry

Based on records obtained from the NNPC and OPEC, Nigeria has mostly produced and exported her oil and gas. She has also failed to leverage the potential for value-addition available in the downstream and midstream sectors of the industry and as such relied on importation of refined petroleum products to run her economy.

The country has also resorted to using a 1969 law to run the sector which has experienced tremendous changes globally, as against continuous need for reforms.

For example, in September 2016, the Nigeria Extractive Industries Transparency Initiative (NEITI) released a policy paper titled: ‘the urgency of a new petroleum sector law,’ and warned that it was time the country reformed her oil industry to enable it add value to her economy.

At the time the NEITI published the policy paper, Nigeria’s oil output was from another of its reports - the NEITI 2016 oil and gas audit report, about 1.805 million barrels a day (mbd) down from 2.127mbd which was her average production in 2015 when President Muhammadu Buhari took over from former president, Dr. Goodluck Jonathan.

Both reports from NEITI – the policy paper and audit report, by their disclosures indicated that the productivity level of the country’s oil industry was declining. They called for urgent reforms to regain the lost values.

Besides the NEITI reports, the Petroleum Products and Pricing and Regulatory Agency (PPPRA), also disclosed that between 2006 and 2016 – a period of 10 years, Nigeria spent over N8.97 trillion to subsidise petrol consumption by her citizens under the Petroleum Support Fund (PSF) scheme.

According to the PPPRA, this was only possible because Nigeria has consistently failed to refine the petrol her economy uses, and as such, she resorted to importation and at the same time subsidising consumption of the imported petrol.

As a matter of fact, the NEITI 2016 audit report showed in its assessment that oil production which Nigeria is mostly good at, however continued to drop between 2012 and 2016, just the same way revenue accrued to the federation from oil dropped.

It explained for instance, that the total crude oil production in 2016 was 659,137 million barrels (mbbls) which was less than 2015 production figure of 776,668mbbls by 117,531mbbl. This it added represented a 15.13 per cent drop in the annual production figures.

On the revenue end, the NEITI audit report equally showed that oil income to Nigeria in 2012 was $62.94 billion, but fell to $58.08 billion in 2013, and further down to $54.56 billion; $24.79 billion and $17.05 billion in 2014, 2015 and 2016 respectively.

The content of the report thus suggested that the sector which kept Nigeria running was under immense threat and needed quick reforms to halt its continued declined in value addition.

Although no new reports on the status of Nigeria’s oil industry have been produced by the NEITI, activities in the industry in the last couple of years however suggested that the situation has remained the same.

To buttress this, market and production data from the NNPC suggested that the sector may merely be managing to hold up. The data indicated that expenditure on oil subsidy has continued to be raked up, the three refineries owned by the NNPC still in shambles, while critical infrastructure in the sector remained poorly managed and seldom upgraded.

No reforms to upgrade industry

In addition, President Buhari in 2018, declined to sign into law, a reform bill - the Petroleum Industry Governance Bill (PIGB), which experts believed could halt the decline and gradually restore comprehensive productivity in the industry.

According to industry experts, this meant that the industry would continue to operate with the 1969 law, in addition to a couple of administrative alterations at the NNPC or other agencies in the industry, but not a holistic reform as expected with the PIGB.

Speaking in a recent interview, the President of the Nigerian Association of Energy Economics, Prof. Yinka Omoregbe, in a recent interview told THISDAY that: “There is no alternative to reform.”

Omorogbe, added that: “The world isn’t waiting for Nigeria, petroleum discoveries are constantly being made in many other countries, and electric cars signal the end of the era of petroleum.

“I hope that Nigeria finally creates an optimal legal and regulatory framework that will allow the emergence of a petroleum industry that works for the good of Nigeria and Nigerians. I believe that the new GMD understands the urgency and imperative of reform, and so I am expectant.”

Therefore, by choosing to continue with the 1969 Petroleum Act, and delaying reforms through the Petroleum Industry Bills (PIB), the NEITI in its 2016 policy brief clarified that the country was at the losing end when compared with what she had lost and continues to lose to market and governance failures.

It said the derivatives of such lack of reforms in the sector included imprecise rules, excessive regulatory discretion, and the fusion of regulatory, policy and operator roles.

The NEITI equally added that corruption, lack of transparency and accountability in the oil sector were consequences in a chain of ripple effects from the lack of reforms, leading ultimately to a severely underperforming economy, loss of benefits to the country, and a largely impoverished population.