By Ejeviome Eloho Otobo & Oseloka H. Obaze
The oil resource curse has been Nigeria’s bane. This reality is well
known. Yet no discernible effort is being made to transcend the pitfall,
even as Nigeria’s political leaders, business elites and experts
continue to exhort Nigerians to look beyond its oil era. In reality, it
is not the vagaries of the global oil market or the growing emphasis on
renewable energy that has posed the greatest challenge to Nigeria’s oil
political economy, important though all these factors might be. Rather,
it is the lack of political commitment to diversification coupled with
corruption. This exemplifies the dissonance that has hobbled the
nation’s oil industry and national growth. This paper highlights other
sources of policy dissonance that continue to bedevil Nigeria’s oil
political economy.
One dissonance is exemplified by talking down the importance of oil,
reflected in statements like “agriculture will eventually overtake oil”,
“technology not oil will drive the economy” and “Nigeria’s biggest
export is not oil but its people”. The last point references the fact
that remittances by Nigerians in Diaspora, which stood at $25 billion in
2018, have virtually overtaken oil revenue. These assertions rest on a
flawed understanding of the dynamics at play. By constitutional mandate
and formula, revenue from oil is collected by the federal government and
shared with all the states. That is not the case with export earnings
from agriculture. Moreover, technology has remained the main driver of
oil production ever since the first oil exploration in Pennsylvania in
the late 19th century. Presently, advanced technology is also the prime
driver in the evolving shale revolution. Thus, technology and oil are
co-joined drivers of economic growth.
Individual Nigerian families remain the primary beneficiaries of
Diaspora remittances; and these resources are spent on business
formation, health, education, housing, wedding, burials, baptisms, and
other forms of extended- family support. Though increasing in volume,
home bound remittances are informal and unregulated and hence inherently
unpredictable; and no credible fiscal policy can be predicated on flow
of remittances. They also rest on a paradigm of migration of some of the
country’s best and brightest professional and skilled workers.
Remittances are not shared revenue, but government is a residual
beneficiary of remittances through possible accretion in capital
account. Today, although oil accounts for 9 percent of the GDP, it
contributes 90 percent of Nigeria’s export income and 70 percent
government revenue. The compelling and real strategic challenge for
Nigeria’s economic management is that there is no substitute on the
horizon to oil as a source of export income and government revenue.
Another dissonance is reflected in how oil producing states are
determined. Nigeria has 11 oil producing states, namely, Akwa Ibom,
Rivers, Delta, Bayelsa, Cross River, Edo, Imo, Abia, Anambra, Ondo and
Lagos. But pockets of oil deposit are believe to exist in states like
Kogi, Enugu, Bauchi, Gombe, Adamawa, Taraba, Benue, Ogun and Borno. Yet
some areas or states with oil deposits receive limited exploration
attention. Recognized vicissitudes of Nigeria’s oil industry include
huge losses from militancy and oil theft. Both result in huge loss of
revenue. However, several states sharing contiguous borders have also
experienced partial or total loss of derivation revenue and accruing
benefits due to policy dissonance, and specifically through delimitation
issues, and “arbitrary attribution of oil wells following the
implementation of the Onshore/ Offshore Dichotomy Abrogation Act 2004.”
At issue is the loss of revenue rights and prevailing ambiguities as to
which federal institution can statutorily pronounce a state as “oil
producing”. So long as these challenges and the attending dissonance
remain unaddressed, Nigeria risks being trapped in the quagmire of
extreme poverty amidst immense wealth and natural resources.
The nexus between non-deregulation of the oil sector and rise in subsidy
costs is yet also another source of dissonance. Notwithstanding its
ranking as the largest crude oil producer in Africa, Nigeria has
remained heavily dependent on the importation of petroleum products to
meet its domestic energy demands. A combination of circumstances – harsh
operational environment and huge downstream divestment by IOCs – compels
huge production costs that can only be offset by subsidization.
Moreover, opaque government regulations and non-market-based pricing
continue to impact the industry negatively. Sectoral divestments
continue unabated. In 2016, ExxonMobil and Oando Plc respectively
divested 60 per cent of their stakes in the downstream sector. Remedial
efforts by the marketers, to shoulder the cost of importing petroleum
products continue to be hamstrung by the Central Bank of Nigeria’s
inability to meet forex demands routinely or through Special Market
Intervention Sales. Based on its 2018 consumption pattern, Nigeria will
expend some N746.79 billion in fuel subsidy in 2019. This is an average
of N2.046billion daily with the consumption of 55million litres per
daily. This is reflected in the disparity between the landing cost of
fuel which is N171per litre, with NNPC selling at N138 per litre and the
independent vendors at N145 per litre, leaving the taxpayers to
subsidize N37 per litre. This subsidy amount could be dispensed with
through full deregulation.
The tardiness in the enactment of the Petroleum Industry Governance Bill
(PIGB) is yet another source of policy dissonance, which has led to
missed investment opportunities for Nigeria. The effort to articulate
and adopt a new framework for governance of Nigeria’s oil and gas
resources began over a decade ago. That effort initially focused on
adopting a comprehensive Petroleum Industry Governance law that had four
components, namely unbundling the Nigerian National Petroleum
Corporation; Fiscal Framework; Host and Impacted Communities; and
Petroleum Industry Administration. Three years ago, that bill was broken
up into separate parts, with the current focus of the PIGB on creating
four new entities to improve the efficiency and transparency of the
proposed new entities. In reality, the bill which has been passed by the
National Assembly and awaiting presidential assent has as its main
objective the privatisation of the oil and gas assets. Moreover, at
present, there is a growing divergence – and indeed dissonance —between
the way oil and gas resources and solid mineral resources are managed.
The stay of action by the President on the Nigerian Petroleum Industry
Governance Bill may have a new justification – and indeed provides an
opportunity for — aconstitutional review on natural resources control
and ownership, and for a harmonized national policy framework between
oil and gas, on one hand, and solid minerals, on the other.
The desultory management of the environmental impact of oil exploration
in the Niger Delta is another source of dissonance. Successive
governments at the federal level have enacted a significant body of
environmental laws to govern the conduct of oil companies and the
management of their operations, with a view to mitigating the adverse
consequences of oil exploration and production in that region. The
magnitude of the problem has been captured in a report drawn up by “a
group of independent environmental and oil experts have put the figure
of oil spill, both onshore and offshore at 9 to 13million in the 50 year
period (1956-2006)” . To put into comparative perspective, “people
living in the Niger Delta have experienced oil spills on par with Exxon
Valdez every year for the last 50 years” The wreaked Exxon Valdez oil
tanker spilled 262,000 barrels of oil in area known as Prince William
Sound off the coast of Alaska in March 1989.
Several reasons have been adduced to explain the broad and persistent
pattern of poor compliance and enforcement of environmental regulations
in the oil and gas sector. These include lack of adequate funding for
monitoring and enforcement activities; lack of technical expertise on a
range of environmental policy and management issues; lack of adequate
information on the environmental impact of the oil companies;
overlapping regulatory responsibility for the oil industry; and the weak
regulatory regime. However, the real reason for lack of vigorous
enforcement of oil-related environmental degradation appears to lie
elsewhere: it is in the structural limitation, stemming from the nature
of the oil industry in Nigeria, in which the main foreign oil companies
are operated as joint ventures with the federal government. NNPC is the
institutional vehicle for the joint ventures between the multinational
oil firms and the Federal government. NNPC—which is a Federal public
enterprise — holds an average of 50-60 per cent in all the major foreign
oil companies operating in Nigeria. The joint venture makes the federal
government an owner. As an owner, the government seemingly has more
interest in the revenue stream from the oil production than
environmental protection. There is thus an inherent tension between the
federal government’s role as an owner and as a regulator. Amnesty
International echoed this observation when it noted that “the level of
dependence of Nigeria on oil and the fact that the Nigerian government
is the majority partner in joint ventures are fundamental problems which
underpin regulatory failures” in the oil industry.
Federal government’s ownership of, and direct involvement in, oil
exploration and production facilities ownership remain an aberration.
Typically, federal systems of government are marked by sub-national
level ownership and control of natural resources. Were Nigeria to adopt
global best practices, its revenue from that sector should, at best,
consist of royalties and associated tax regimes on the oil earnings from
the sub-national level. However, Nigeria has made oil as its major
revenue earner, as opposed to taxation. Be that as it may, only a total
recognition and acceptance of the full implication of the plethora of
dissonances that hobble the Nigerian oil political economy, and
confronting then frontally, will lead to a paradigm shift in the ways
such challenges are tackled. Despite the oil sector’s huge potentials,
it remains a safe bet that until and unless there is a holistic
deregulation of all petroleum products, dissonance causing challenges
such as corruption, the proclivities of vested interests and
politicization of oil policies will persist with clear consequences.
—————
Otobo is a Non-Resident Senior Fellow at the Global Governance
Institute, Brussels.
Obaze is Managing Director/Chief Executive Officer, Selonnes Consult – a
policy, governance and management consulting firm based in Awka