The Oil Curse: Once again, bringing Nigeria on its knees!
Abubakar A. Nuhu-Koko, a researcher in petroleum policy and economics, is founder and pioneer executive director, The Shehu Shagari World Institute for Leadership and Good Governance, Sokoto, Nigeria. He can be reached on +234 706 330 6887 or aanuhukoko4000@gmail.com
THE PRESENT IMPORT ED ADULTERATED PETROL (Premium Motor Spirit - PMS) scandal embroiling the downstream subsector of the Nigerian Petroleum Industry (NPI) is one of the several curses associated with the wider petroleum industry (Upstream, Downstream and Midstream) holistically; especially in developing countries. Hence, it shouldn’t be a surprise occurrence, particularly within the Nigerian context. This statement is explained further in the subsequent paragraphs below. Thus, without going into the review of the vast literature on the theory of oil and gas resources (hydrocarbons) - a Blessing or a Curse - it can be seen that there are indeed blessings and curses in the Nigerian petroleum industry. The most recent landmark book I read on the subject is the one published in 2013 entitled: “The Oil Curse: How Petroleum Wealth Shapes the
Development of Nations.” (ISBN: 9780691159638, paperback edition: 312 pages, Princeton University Press) authored by Michaele L. Ross.
In a nutshell, there are wide ranging literature on this subject that try to proffer possible explanations as to why many countries, particularly the developing nations of sub-Saharan Africa, the Middleeast, South America and Asian regions of the globe that are rich in petroleum resources in particular (and other natural resources in general), are economically and politically underdeveloped. For instance, it has been noted that these nations have less democracy, less economic stability, less transparency, competency and accountability in managing their vast natural resource endowment, wide income inequality and more frequent civil wars and or internal disunity, etc. than countries without oil. That is to say, good oil and gas and mineral geology often results in curses in the form of bad and unaccountable autocratic governance in many of these well-endowed developing nations, instead of blessings.
Nigeria, fortunately, falls into the category of blessed nations with vast amounts of natural resources endowment; particularly oil and gas (hydrocarbon resources) and other natural resources, such as solid minerals, fertile agricultural lands, fishery, livestock and forestry and surface and groundwater resources. For instance, Nigeria occupies the sixth position globally among the Organisation of Petroleum Exporting Countries (OPEC) with vast proven reserves of crude oil and gas (36.8 billion barrels) and second position in Africa, after Libya.
Again, Nigeria, unfortunately, equally falls into the nations prominently categorised as oil cursed nations from amongst its peer group of oil and gas rich nations of the world; occupying prominent position in all the tangible and intangible measurable indices associated with resource curse syndrome. The literature dating back to the late 1970s, when the world’s major oil and gas rich developing nations took over the control, development (exploration and exploitation) and management of their natural resources endowment is replete with analyses and documentations of public policy failures and mismanagement of these resources entrusted to the State-owned enterprises (SOEs) established by the various national governments to explore, exploit and manage them in the overall interest of their respective countries and peoples.
The Nigerian National Petroleum Corporation (NNPC), incorporated in April 19977 (– formally incorporated as Nigerian National Oil Company (NNOC) in 1971), and, now reincorporated as NNPC Ltd in 2021, is a prominent case study of underperforming SOEs among its peers across the globe. This I know from my over three decades as a research student and scholar of the petroleum (hydrocarbon resources), minerals and natural resources industries in the public sector.
For instance, in my research studies of policies, regulations and (mis) management of state-owned oil and mineral resources companies in developing countries at the Duke University’s Centre for International Development Research in the early 1990s, NNPC (my preferred chosen case study), always emerged as one of the top ten cases of mismanaged publicly owned oil and gas companies across the globe. The reasons adduced for such a curse on a nation well-endowed with both human and natural resources are overwhelming, to put it mildly, indeed!
For the sake of giving just few illustrations to put the sordid story into context from an evolutionary historical perspective, let me start from the time when crude oil was struck in Oloibiri, a sleepy settlement in the present Bayelsa State in 1956 up to 1969, a period of 13 years (9 of which were during the time Nigeria was an independent country from Britain, gotten on October 1st, 1960). The ownership, control and management of Nigeria’s hydrocarbon resources were in the hands of Royal Dutch Shell International Petroleum Company and later, in conjunction or partnership with the British Petroleum (BP) and other late comers international oil companies (IOCs), such as the Italian Agip, French Total, American Chevron, Mobil, Exxon, that owned oil fields concessions in Nigeria.
It was only in 1969 that the then Nigerian parliament enacted the first Petroleum Act (1969) that provided only for oversight functions such as collection of taxes and royalties from foreign-owned private and government-owned oil companies as determined by them; and the issuance of permits and new concessions to them to carry out further exploration, exploitation and exports of the commodity. Direct equity participation of the Nigerian federation in the oil and gas industry came only in 1971. This was also at the behest of Nigeria’s membership of the developing countries’ oil and gas industry Club known as: The Organisation of the Petroleum Exporting Countries (OPEC) in that year; OPEC required member states to nationalise the oil and gas industry from the foreign companies operating in their respective countries.
Thus, setting aside the looting of Nigeria’s blessed oil and gas fields between 1956 and 1971 by foreign owned oil companies, it can be asserted that the year 1971 was the year the Curse of the ‘Devil’s Excrement’ (Oil) began to germinate on the blessed oil and gas fields of Nigeria. This can be seen from the track records of Nigerian federation’s direct ownership, control and management of its God-given oil and gas resources and industry from 1971 to date. It is a period of both joy and sadness; many of which have been documented in the vast oil and gas development literature. For instance, crude oil export became the mainstay of the Nigerian economy, contributing over 90 percent of the country’s foreign exchange earnings and over 80 percent of its budgetary funding. Thus, Nigeria became heavily dependent on “wasting and depleting” crude oil and gas exports for its survival, economically. This is not without some negative challenges in all ramifications as well; the curse of oil!
The first oil curse in post-independent Nigeria was observed during the period of military regime under General Yakubu Gowon (1966-1975). For instance, during this period, especially from 1971, the industry’s organisational and institutional arrangements were lacking or so inefficient, so much so that Nigeria failed to take advantage of the global crude oil market crisis of the 1973-74 to maximise the substantial benefits arising from the global crises. Rather, Nigeria was selling its crude oil in the international crude oil market well below the OPEC’s crude oil pricing formula. Thus, Nigeria lost huge sums of foreign exchange between 1971 and 1975 from its “wasting asset” under the watch of its inexperienced bureaucrats with no prior knowledge of the inner workings of the highly sophisticated and intricate global industry. This was in addition to the notorious “Cement armada” affair in the summer of 1975, when the port of Lagos became jammed with hundreds of ships trying to offload 20 million tonnes of cement in one year ordered by the Nigerian military government from 68 different international suppliers for delivery to Lagos, even though the port could only accept one million tonnes of cargo per year.
The new military regime of Murtala Muhammed that overthrew the Gowon regime in 1975 set up a panel to review the situation and to suggest efficient ways for managing the sector and marketing Nigeria’s crude oil in the international market. Unfortunately, however, General Murtala Muhammed was assassinated in a 1976 failed coup attempt. General Olusegun Obasanjo (1976-1979) as the then Second in Command took over running the country. During this period, the sum of $4 billion (N2.8 billion) was alleged to be missing from the accounts of the NNPC. In 1979 General Obasanjo handed over the leadership of the country to a new democratic order with a civilian elected government headed by President Shehu Shagari (19791983). The newly elected President Shehu Shagari in March 1980 instituted a tribunal to probe the allegations of the missing money. The rest is history that has kept on being repeated since then.
For example, other oil industry scams took place during the eight years of General Ibrahim Badamasi Babangida’s (IBB) military presidency (1985-1993); from corrupt oil bloc allotments, offshore registration of NNPC subsidiaries, discretionary crude oil liftings and several dubious Turn-Around Maintenance (TAM) contracts for the nation’s four aged crude oil refineries; including the infamous MT Tuma strategic petroleum storage tanker scandal ($41 million) under the watct of Professor Tam David West as petroleum resources minister and other sundry matters; including the controversial alleged wasting of the $12 billion 1991 Gulf War (I) oil windfall profit investigated by Dr. Pius Okigbo’s investigative panel.
Apart from the 1991 Gulf war windfall oil profit, Nigeria reaped huge oil windfall profits in the mid-70s shortly after the civil war. Thereafter, the country reaped another windfall in 2011-2014. The most recent is the 2022 windfall oil profits arising from the Post Covid-19 lockdowns’ upward swing in oil and energy prices. The question is what did the country do with all the trillions she earned from the recurrent oil booms? That is why no one in Nigeria should be excited with the current crude oil price rise.
Things continued to get nastier and messier with the coming to power of General Sani Abacha (1993-1998). Under his watch, his petroleum minister, Dan Etete, and oil businessman, Abubakar Aliyu of A. A, Oil Ltd, Muhammad Sani, the son of General Abacha and a Nigerian
non-career Ambassador to the United States of America (USA), Alhaji Hassan Adamu (Wakilin Adamawa) were alleged to have perpetuated a grand $1.3 billion Malabu oil bloc scam (OPL 245) dubbed as “Dan Etetegate” (1995-1998). The controversial oil bloc was estimated to have about six billion barrels of crude oil. The scam involved Royal-Dutch Shell International Petroleum Company (Shell) and the Italian oil firm, Eni. There were also other sundry allegations of oil industry malfeasances that occurred during the period. For example, the first importation of toxic PMS Cargoes under his watch also took place in 1998.
Furthermore, from the second coming of retired General Olusegun Obasanjo as elected civilian President of Nigeria (1999-2007) to date, the Nigerian petroleum industry continues to witness major scams and inefficiencies in the management of the sector; ranging from massive daily crude oil thefts, collapse of refineries and keeping them comatose at the cost of N10 billion monthly, and suspicious oil fields bloc public biddings or auctions, and etc. The 1998 Malabu OPL 245 scandal rolled over to President Olusegun Obasanjo’s administration.
The second importation of toxic fuels in 2008 happened during President Umaru Musa Yar’Adua’s administration. In the same vain, following the death in office of President Yar’ Adua in 2010, the $1.3 billion Malabu oil bloc scam (OPL 245) also rolled over to the administration of President Goodluck Ebele Jonathan (2010-2015); with his minister of justice and attorney-general of the federation, Muhammad Bello Adoke, featuring prominently. President Jonathan’s administration was also involved in its own messy dirty oil deals that became known as the “Diezanigate” scam (over $3 billion illicit crude oil deals, etc.).
The prevalence of corruption and corrupt practices through fuel imports/offshore refining (i.e. NNPC’s murky Direct Sale, Direct Purchase (DSDP) crude oil and refined products swap), petroleum products subsidy regime (estimated to reach N3 trillion in 2022), repairs of comatose refineries, oil spills, illegal oil bunkering, pipelines vandalism, and smuggling and hoarding of imported refined fuels and other sundry ways of making illicit money in the petroleum industry, cut across all the previous administrations and including the present PMB’s administration (2015-to date). The administration equally got involved in the third case of importation of adulterated PMS in January 2022. This happened barely less than one year into the coming into force of the long awaited Petroleum Industry Act (PIA 2021).
The new Act has been much touted to be the panacea of all the wrongs and challenges (i.e. Curses) bedevilling the industry over the decades. PMB’s administration similarly inherited the notorious Malabu oil bloc (OPL 245) scam. It is still being litigated! In addition, the PMB administration has also
locked the NNPC Ltd into murky involvement in a murkier 21 critical road construction projects; under the curious Tax Credit Scheme (N621 billion) tied to the PIA (2021); and building of world-class hospitals across the country. These are typical “off-budget” expenditures and are outside the core mandate of the NNPC Ltd.
Therefore, from the above very few illustrations of the oil curse in Nigeria, it is safe to say that it is still not yet ‘UHURU’ in the Nigerian Petroleum Industry, even with the enactment of the PIA (2021). Yes, some changes have been introduced under the new petroleum Act. But these changes are largely cosmetic as many of the clauses are mere “a little to the right and a little to the left” (apologies to IBB’s innovative political reform of his era) type of reform or changes. The industry is still largely afflicted with weak executive capacities and oversight by regulatory authorities.
Generally speaking, I see the PIA (2021) as a similar exercise of the restructuring of the NNPC by military President IBB (1985-1993) done in 1988 and midwifed by late Professor Jibrin Aminu of blessed memory, who was then the minister of petroleum resources. For instance, the most silent element of the PIA (2021) is the so-called transformation of the NNPC Group to a limited liability company under the rules and provisions of the Nigerian Companies and Allied Matters Act (CAMA) of the Corporate Affairs Commission (CAC).
That is to say that most of the clauses under the PIA (2021) are not fundamentally different from the 1988 commercialisation exercise conducted by IBB whereby the NNPC was transformed into a holding company with about twelve subsidiary limited liability companies that were all registered under CAMA and the transfer of the regulatory authority (Department of Petroleum Resources (DPR)) back to the Ministry of Petroleum Resources. Furthermore, the PIA (2021) has not fully unbundled and dismantled the hitherto industry monopoly position conferred on the NNPC since its establishment 45 years ago in April 1977 when it became the nation’s dominant public sector player in the petroleum sector and industry.
Thus, the governance framework and structure established under the PIA (2021) at best, consolidated/merged the various regulatory agencies and established two new ones; a regulatory Commission for the upstream subsector and a combined regulatory Authority for the downstream and midstream sub-sectors, respectively. Also, the removal of the Minister of Petroleum Resources from the Chairmanship of the NNPC group board under the PIA (2021) is similar to the 1988 Commercialization transformation of the NNPC group.
Hence, in conclusion, the current crisis bedevilling the Nigerian petroleum industry, particularly the importation of adulterated PMS and the suspension of the removal of subsidy from PMS consumption to a later date in 18 months away from this year, are not new happenings; they have a very long history dating back to 1971, the year the Nigerian federation got involved in the direct ownership and management of this very crucial sector of the Nigerian economy. These are “historical problems that have been ongoing or have recurred frequently over the long run.”
The solutions to these problems cannot be situated under the PIA (2021) as presently framed. The new Act is being largely derailed from the onset by some of the key stakeholders. However, a reworked and or an amended PIA should look into proper dismantling or unbundling of the present NNPC Ltd group structure and creating two or more additional national petroleum companies; similar to what exists in Russia and other oil and gas producing countries around the world.
The proposed new national oil and gas firms are to compete for acreages (onshore, offshore, and frontier fields; upstream, downstream and midstream) with the private operators (local and international) both at home and abroad. Thus, a thorough and full scale restructuring of the NNPC group Ltd and the entire oil and gas sectors can elevate Nigeria’s eternal quest and struggle for a “Curse free oil and gas” economy similar to what obtains in Norway, Malaysia, Saudi Arabia, Indonesia, Brazil and Mexico to name but a few countries with state-owned oil and gas companies.
Finally, the bitter truth must be told, that the PIA (2021), the restructuring and further unbundling of the NNPC Group Ltd will not be the panacea to the gamut of Curses facing the Nigerian Petroleum Industry if the situation such as: “We rely on foreign firms for figures” statement by Col. Muhammadu Buhari made on Tuesday, June 7, 1977 (45 years ago) as the Federal Commissioner (Minister) of Petroleum Resources while addressing fuel crisis that year continue to exists to date. And, by extension, the continued operation of the Nigeria’s upstream subsector (including the financing of crude oil and gas exploration and production) by foreign oil firms and the whole scale importation of petroleum products for domestic consumption in Nigeria 66 years (1956-2022) since crude oil was commercially discovered in Oloibiri, Bayelsa State are not frontally addressed. Above any other consideration, integrity and competency are the best ingredients and panacea for successful sustainable development, governance and management and regulation of the Nigerian extractive sector; particularly the oil and gas depletable extractive industries subsectors.