OF NIGERIA OIL EXPORTS AND FUEL CRISIS

The country must explore other avenues to make the economy viable, argues FELIX OLADEJI

There has been an increasing call for fuel subsidy reforms globally as policy-makers have expressed concerns regarding the H΀FDF\ RI VXFK SURJUDPPHV DV ZHOO DV LWV LPSOLFDWLRQV IRU ÀVFDO VXVWDLQDELOLW\

Oil plays important roles in the Nigerian economy, contributing about a third of the country’s gross domestic product (GDP) in the 1980s and 1990s. Although its share of the economy has waned in the subsequent decades due to declining oil prices and the changing structure of the economy, the oil and gas sector still accounts for about 11.2 per cent of the GDP in the current decade. Also, the contribution of oil to government revenue has remained quite high, increasing from 70.2 per cent during the 1980s to about 80.0 per cent in the last decade. In terms of trade, oil accounts for about 93.1 per cent of exports and 24.4 per cent of imports during the period 2010-2018.

Against this backdrop, several research have investigated the macroeconomic impacts of oil price shocks on the Nigerian HFRQRP\ $PRQJVW RWKHU HͿHFWV LW KDV been shown that oil price shocks generate VLJQLÀFDQW LPSOLFDWLRQV IRU RXWSXW SULFHV exchange rate, government revenues, interest rates and external reserves.

However, there are several challenges facing the Nigerian oil and gas industry. 7KHVH FKDOOHQJHV PD\ EH GL΀FXOW WR VROYH without a change to the 1999 Constitution of the country. According to an overview of the petroleum industry bill (2009), some of the major elements of these challenges LQFOXGH HͿHFWLYH SURJUHVVLYH SHWUROHXP ÀVFDO V\VWHPV WKH RZQHUVKLS RI UHVRXUFHV and the exclusive rights of the Nigerian government to allow the exploration and development of petroleum resources in Nigeria, funding options for NOC and joint venture operations, an authentic indigenous participation in the Nigerian oil and gas industry, continual membership of Nigeria in OPEC and the rules of law and institutional empowerment.

$Q HͿHFWLYH DQG VWDEOH ÀVFDO V\VWHP basically the Nigerian constitution is the principle that guides the development of underlying petroleum resource and the allocation of revenue generated from the extraction of minerals. Beyond this FRQVWLWXWLRQDO IRXQGDWLRQ WKH ÀVFDO WHUPV that govern some of the operational and production or revenue sharing aspects of SHWUROHXP ÀVFDO V\VWHPV LQ WKH FRXQWU\ are mainly predetermined via the national OHJLVODWLRQ +RZHYHU WKH QRQ ÀVFDO instruments are subject to negotiation; this is where some of the political uncertainties DQG ULVN FDQ EH TXDQWLÀHG 8QGRXEWHGO\ 1LJHULD·V SHWUROHXP ÀVFDO DJUHHPHQWV 3)$ is good enough to improve the country’s economy to a maximum potential. However, it is suggested that the type of contract provided is not as essential as the terms negotiated and the design of the contract.

Authentic Indigenous Participation Issue: several policies have been implemented since the inception of the oil industry. The purpose of these policies is to accomplish an increase of home participation in the oil business. Over the years, oil blocks have been awarded WR LQGLJHQRXV ÀUPV EXW TXLWH D IHZ RI WKHVH ÀUPV DUH DXWKHQWLF $OVR WKH LPSOHPHQWDWLRQ of the local content development policy may be argued to be irrelevant. This is due to the unavailability of technical expertise, KXPDQ VNLOOV DQG LQDGHTXDWH ÀQDQFLDO intermediation.

Resource Ownership and Control: the exclusive ownership of oil resources by the federal government in Nigeria may create ‘undue leakages in the economy’. This exclusive ownership has also LQFUHDVHG FRUUXSWLRQ WKH LQH΀FLHQF\ LQ petroleum block allocation mechanisms, and limited transparency. The meaningful impact of petroleum taxation policies cannot be felt in petroleum producing regions in a sustainable way due to the existing rule of resource ownership. This is considered to be an underlying factor ZKLFK SHUSHWXDWHV FRQÁLFW RI LQWHUHVWV among stakeholders in the Niger Delta region. This has also resulted in several damages to Nigeria’s economy.

Institutional and Human Capital Development: there are allegations that there are inadequately skilled oil and gas professionals in the international community of the oil and gas industry. 7KLV KDV EHHQ WKH UHDVRQ IRU WKH ÁRRGLQJ of foreign petroleum professionals and contractors into the country.

Petroleum policy, the petroleum policy formulation process by the National Assembly is another challenge to the oil industry. There is also inadequate human capacity and infrastructure to independently evaluate the policy acts that govern the oil and gas sector.

Funding options for the National oil company, there is substantial funding requirements for JVA operations from the Nigerian government. The government spent about $3.7 billion on the JVA upstream investments from the year 2002 to 2006. The estimated projected annual funding needs for JV operations ranges between $11 billion and $13 billion from the year 2007 to 201l. This evidence strongly suggests that the national government has received enough revenue above its original investment.

/RZ RLO SULFHV DUH OLNHO\ WR VLJQLÀFDQWO\ LQÁXHQFH WKH RFFXUUHQFH RI LQÁDWLRQ LQ RLO producing countries. If the decline in oil prices is largely driven by supply factors, it is estimated that a 45% decrease in oil prices will increase global GDP by 0.7 to 0.8% in the medium term.