Nigerian oil: overpromising and under-delivering

Posted by Bayo Okoya - Delta Analytics Lagos


What the Nigerian administration possesses in its ability to propose ambitious promises, it ultimately makes up for in a lack of ability to execute its very well-intentioned plans. And it is now clear to everybody that the price of crude oil has very little to do with the country's problems.

Among petro-states, there was a long period of intense suffering after the price of oil nose-dived two years ago. We are led to believe that those in OPEC were engaged in a game of chicken: who could outlast the crash, by either turning to reserves or benefiting from low production and refining costs. Saudi Arabia long refused to cut production, for fear it would compromise its market share. And rightly so: the result may well have been one of its fellow OPEC members from the Gulf – keen to encroach on Saudi dominance – taking advantage, undermining any potential fall in the oil price, instead sweeping up the production gap left by the Saudis.

Also sitting around playing this game of chicken from the other end of the table, so the argument goes, was Venezuela. Stuck with sulphur-laden sour crude oil, the high costs of processing oil for Venezuela meant that it was always going to feel the burn of languishing crude prices the deepest of any OPEC member.

The reality is that, however unwelcome, the fall in oil prices two years ago became a smokescreen, masking incompetence economic management – governments pointing this uber-external shocks, relieving them of scrutiny for their own failings. Led by a semi-authoritarian government, it was too populist to enact short term economic pain for long term economic gain, and yet too intensely shackled to power that it would never be held accountable for its economic mismanagement. Venezuela's problems – debt, falling reserves, shortages, inflation – all began long before the fall in the price of oil.

And as Venezuela's economic woes did not begin with the oil price crash, Nigeria's did not end with it. It too has prolonged the agony far beyond what was necessary and now it is the midst of the first year-long recession in a quarter of a century, and the pain is being felt throughout the country.

Excused from OPEC's output quotas because of militant vandalism in the oil rich Delta region, it has been allowed slowly to increase oil production from a 30-year low of 1.4million barrels per day last August to 1.6 in January this year. A number of domestic oil firms have been keen to tout the part they are playing in the turnaround and we should not play this town. Considering the lack of serious, capable indigenous firms a decade ago, the capabilities now displayed by these Nigerian-born newcomers is phenomenal; effectively making decades' worth of progress in less than three years.

The issue, therefore, is not external shocks. It is not the lack of effort of commitment from Nigeria's private sector. It is that the Federal Government of Nigeria is not holding up its end of the bargain. It is not meeting these firms halfway.  There is no shortage of grand plans – such as the long-awaited Economic Recovery and Growth Plan ­– and big promises – such continually missed deadlines to pass the PIB.

But these plans and promises are hardly ever put into action. They are never accompanied by a firm implementation timetable and hardly ever costed appropriately. This is why Nigeria – an oil rich country with a massive labour capital – is not receiving the investment that it deserves. Because when President Buhari makes a statement from Aso Rock, he is not taken seriously. No record of previous action to back it up, instead just a trail of broken promises.

This is evidenced by its inability to pass the landmark Petroleum Industry Bill (PIB). The PIB has been called “infamous” and with good reason. It seeks to overhaul an entire raft of oil and gas sector legislation that currently governs the Nigerian sector. It promises to break up the bloated, corrupt and commercial inviable Nigerian National Oil Corporation (NNPC), dividing it into smaller, more agile units. It also seeks to impose a new fiscal regime on to the upstream sector, deregulate downstream and free up the exploration market.

Nigeria is not predestined to live and die by the price of oil. Producing some of the most sulphur-light petroleum in the world, its processing costs should enable it to weather any price slump. Whilst the Buhari was away in London seeking medical treatment, his younger, more energetic deputy Yemi Osinbajo (and temporarily) took over the Presidential Office. During that time we saw a small but definite flurry of progress (on ForEx, not least of all) and spike in the visibility of our Head of State as he visited parts of the country barely touched by Buhari.

Just as Venezuela's problems were made by mismanagement, Nigeria's must be unmade by good management. The private sector is playing its part. OPEC is playing its playing its part. We await the passage of the PIB to see if the Federal Government is capable of holding up its end of the bargain. 

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