Leadership Deficit, Income Disparity And The Oil And Gas Sector

post3

In 1962, President John F. Kennedy of the United States, while unveiling the vision of landing a US astronaut on the moon, quoted William Bradford who said, “All great and honourable actions are accomplished with great difficulties and both must be enterprised and overcome with answerable courage”. J.F Kennedy then emphasized, “We choose to go to the moon and do the other things not because they are easy but because they are hard”. In 1969, 7 years later, that vision was achieved.

On May 29 2007, the Nigerian government declared a bold vision of Nigeria becoming one of the 20 biggest economies in the world by 2020. It was tagged Vision 20:2020 and it became the rallying point for Nigeria’s economic management. Vision 20:2020 was aimed at consolidating and maximizing the gains, however contested, of the National Economic Empowerment and Development Strategy (NEEDS) of the Olusegun Obasanjo administration.  It was the springboard for the Seven-Point Agenda of President Umaru Yaradua and, subsequently, has become the thrust of the Transformation Agenda of President Goodluck Jonathan. However, six years later, precisely on April 23 2013, the government, through the then Minister for National Planning, Dr Shamsudeen Usman, hinted that Nigeria is unlikely to attain Vision 20:2020 due to the challenge of inadequate power supply. Government, by that statement, inadvertently admitted its failure to provide the nation with the needed leadership for economic growth and development.

Admittedly, some gains have been made by the current administration, gains which President Jonathan and his aides do not hesitate to flaunt at every opportunity. These gains include a GDP growth rate averaging over 7% making Nigeria one of the fastest growing economies in the world, a listing of Nigeria by the United Nations Centre for Trade and Development (UNCTAD) as the number one destination for Foreign Direct Investments (FDI) in Africa, and the acclaimed creation of 1.6 million jobs in 2013. Furthermore, in 2013, the World Bank moved Nigeria from a low-income nation to a medium-income one and announced a poverty reduction from 64.2% to 62.6%.

The challenge, however, is that macroeconomic gains, which have largely had more to do with extraneous factors bordering on the effect of international events on oil and commodity prices than with good public management, have not impacted significantly on the standard of living of the vast majority of the Nigerian people. The World Bank in its 2013 Nigeria Economic Report admitted that Nigeria’s economic growth is not benefitting the masses as unemployment spirals in spite of bogus claims and poverty persists in the midst of plenty. This shows the structural defect in the economy and inadvertently reveals an income distribution pattern that is skewed in favour of a privileged few, most of whom have direct or indirect access to the corridors of power by which they leverage access to contracts and finance, access to import licenses and waivers on duties and, most importantly, almost exclusive access to the nation’s oil industry. The result is significant income disparity between the rich and the poor such that Nigeria has one of the world’s worst income distribution patterns with Gini index of 48.83 as though Nigeria were two countries – one for the rich and the other for the poor as well as the exceptional rich who fight for the poor.

Perhaps, in no other sector of our economy is the two-country scenario depicted as it is in the oil and gas sector.  In 2004, at a time when Nigerians consumed 20,000 barrels of kerosene per day, President Olusegun Obasanjo admitted not knowing the price of kerosene or that a commodity used by the average Nigerian had become unaffordable! In 2010, General Theophilus Danjuma shocked Nigerians when he disclosed that he had made $500 million (about 79 billion naira) from an oil block allocated to him by government and did not know what to do with the money! The Nigerian oil industry best fits the description of an enclave economy that is dominated first by the multinationals who control 88% of Nigeria’s oil production while cronies of government distribute the remainder through patronage and discretionary allocation of oil bocks. Aside the limiting effect of mismanagement, as oil is Nigeria’s economic mainstay, the enclave structure of the industry continues to widen the income gap as there is a cap in the number of persons the sector can employ and as specialized skill sets are required in the sector. Nevertheless, as has been demonstrated in other oil producing countries especially member countries of the Organization of Petroleum Exporting Countries (OPEC) such as Qatar, United Arab Emirates and Kuwait, proper management of a nation’s oil wealth can put at bay the so-called resource curse and harness a nation’s petroleum resources for widespread socio-economic development. It is therefore pertinent to identify some challenges plaguing Nigeria’s oil industry.

Corruption: The Nigerian oil industry has brought corruption to its peak. The rot in the industry was unveiled in 2012 when the House of Representatives set up an ad-hoc committee “to verify and determine the actual subsidy requirements and monitor the implementation of the subsidy regime in Nigeria”. The report indicted government agencies including the Nigerian National Petroleum Corporation (NNPC), the Petroleum Products Pricing and Regulatory Agency (PPPRA), the Central Bank of Nigeria (CBN), Ministry of Petroleum Resources, Office of the Accountant General, 69 oil companies, and individuals, including the Minister for Petroleum, Mrs. Diezani Alison-Madueke and former National Chairman of the ruling party, Senator Ahmadu Alli. Rather than investigate and prosecute culprits of this massive corruption by which Nigeria has been robbed of N1.7Trillion, the government swept the report under the carpet provided by the compromised head of the committee, Honourable Farouk Lawan and an indicted oil magnate, Femi Otedola. The Nuhu Ribadu report which, once again, indicted past and current Petroleum Ministers from 2008 till date, was rejected by the government. Instead the government set up a puppet committee headed by Aigbojie Aig-Imoukhuede which indicted 21 relatively small players in the industry, discharging and acquitting the main indictees.

Insufficient Local Refining Capacity: With the nation’s four refineries operating below capacity, the National Extractive Industries Transparency Initiative (NEWITI) reports that between 2009 and 2011 only 20% of the local crude allocation was delivered to local refineries while the remainder was either exported for NNPC accounts or utilized for offshore processing, crude oil exchange and product exchange. The result is sub-optimal revenue and an ironic dependence by an oil producing country on imported petroleum products for local consumption thereby nurturing the corrupt subsidy regime.

Insufficient Local Content: With the dominance of the Deepwater Offshore segment of the oil industry by the multinationals and their consequent control of 88% of Nigeria’s total production, local content in the sector is minimal, perhaps infinitesimal when it is considered that locals who obtain oil mining leases by patronage lack capacity to produce and consequently contract them to multinationals, serving only as middlemen. Even cabotage, for which international and domestic law favours local content, lacks sufficient local participation due to capacity deficit.

Oil Theft: From the NEITI report, between 2009 and 2011, Nigeria lost 11,794 billion dollars (about 1.852 trillion naira) to oil theft. In April 2013, Nigeria was reported to have lost 191 billion naira to oil theft in 3 months. Allegations have been made against powerful individuals, government officials and ex-militants who, ironically and suspiciously, have been contracted to protect the nation’s pipelines against this sabotage. A November 2013 report accused the federal government of ignoring expert recommendations on pipeline surveillance and protection.

Militancy, Environmental Degradation and Deprivation of the Oil Producing Communities in the Niger Delta: Years of neglect by the Nigerian government turned the Niger Delta to the proverbial goose that lays the golden egg. The Federal Government, in collusion with the international oil companies and the local community leaders as well as state governments, exploited the host communities without recourse to environmental impact and sustainability issues. With the pollution of arable land, fishing waters and portable water, despite such initiatives as the Niger Delta Development Commission (NDDC) and the amnesty programme, the region is still highly underdeveloped and environmentally disadvantaged with 80% living below the poverty line, notwithstanding the huge allocations to the region.

Unstable Gas Policies: Nigeria has 5.292 trillion cubic metres of proven gas reserves, which has huge potential for growth and employment and could make Nigeria Africa’s gas hub according to the Gas Master Plan, the blueprint for harnessing Nigeria’s gas reserves. However, since 2008 when it was first approved, the implementation of the plan has suffered political hurdles and leadership setback. Despite the fact that Nigeria flares the most petroleum associated gas in the world, having lost trillions of dollars in five decades to gas flaring, the monumental waste continues as recent reports show that 65% of gas flared by Shell Petroleum Development Company is done in Nigeria.

An Unsuitable Legal Regime: Most of the challenges highlighted above are nurtured by a legal regime which the Petroleum Industry Bill (PIB) seeks to correct. However, legislative action on the bill is being hampered mainly by misunderstanding of its benefits, sectional interests and the influence of the IOCs. Nevertheless, it is important to note that the bill as presently drafted, has provisions which were not intended by the original sponsors, and could perpetuate corruption through the enormous powers it promises the Minister for Petroleum. The bill seeks to make the Petroleum Minister Chairman of a number of boards including the Petroleum Development Fund, the Petroleum Equalization Fund and the Nigerian Petroleum Assets Management Company. The Minister would also be given power to grant, revoke, extend and amend exploration licenses, prospecting licences and petroleum mining leases as well as licenses for gas transportation, pipeline and gas distribution network, refinery, Liquefied Natural Gas (LNG) and Gas to Liquid (GTL) plants, petrochemical plants and gas exports. This has compounded the delay of the passage of the PIB.

Policy solutions to these challenges will, of necessity, seek to enhance local capacity development, effect the privatization of NNPC at the stock market, strip NNPC of its regulatory powers and implement a suitable Gas Master Plan. These and other appropriate measures will require legal backing in an uncompromised Petroleum Industry Act. Nevertheless, the key to reversing the state of Nigeria’s oil and gas sector and harnessing the gains of the industry for widespread socio-economic development is the emergence of visionary and purposeful leadership with the credibility and political will to purge the system of corruption as well as the courage to facilitate political and economic restructuring to allow for diversification thereby creating the enabling environment for the integration of the sector into the larger economy, linking it seamlessly with manufacturing, transportation, power, agriculture and finance, a situation that will, in turn, produce jobs across sectors and catalyze exponential growth and development.

- Research Unit, Save Nigeria Group