Democracy day: Progressing energy sector beyond projections

For 12 years now, Nigeria has been able to hold its forth in the democratic arena, a development that has earned it tremendous respect and support from the comity of nations.

At the inception of democracy, the national budget inherited from the military regime was a mere N164billion, but today, the national budget is about N4.485trillion; even as the majority of Nigerians expect to derive greater benefits from such budgetary spends.

The quantum leap in budgetary proposals is all on account of the massive investments in the nation’s energy sector, mainly from oil and gas. Indeed, since the discovery of commercial oil in Oloibiri, Bayelsa State in 1957, the sector has remained the backbone of the economy, accounting for about 90 percent of Nigeria’s foreign exchange earnings and over 80percent of its total government revenues.

However, analysts argue that the over-dependence on oil and gas wealth stunted developments in other sectors of the economy, particularly agriculture and manufacturing.

The realisation of the need to diversify the economy led to massive economic reforms, especially as the oil and gas contribution to the Gross Domestic Product, GDP, is still less than 40 percent.

Ever since the advent of the country’s renascent democracy, the federal government has tried to improve the fortunes from the oil and gas sector, with a view to deriving higher dividends for all Nigerians, and particularly those from the oil-rich Niger Delta region      where the resources are domiciled.

The industry reforms was aimed at boosting rapid developments in other sectors of the economy, notably, gas-to-power, petrochemicals, manufacturing, agriculture and a host of many others, while also retaining more of the wealth from the sector, hitherto exported offshore, through local content development.

Jonathan’s administration
President Goodluck Ebele Jonathan’s administration is widely regarded as “circumstantial” right from his ascent to power as the governor of Bayelsa State, and later on as the President of the Federal Republic of Nigeria.

Diezani-Allison-Madueke

Also, his administration was widely criticized as “slow in action,” possibly because in both instances, as the governor and later the president, Jonathan was not the one who stood for and won the elections. In these instances, leadership was literarily thrust on him and all he could do was merely to carry on with the inherited programmes.

But times have changed. Jonathan worked tirelessly to stand for the Presidential elections, and won it in a transparent, free and fair election; reputed as the best the country has known in decades.

So, the President has talked the talk that won him the presidential seat, and now is the time to work the work to retain the confidence of the electorates who bought into his ideologies and voted for him massively.

Oil and gas policies
Coming from the Niger Delta and from the state where oil was first discovered in commercial quantity, there are great expectations from Mr. President’s new administration, not only to increase the economic benefits derivable from the sector, but also to assuage the yearnings of the host communities in having greater share of the oil wealth.

Nigeria’s current crude oil reserves is put at about 35 billion barrels and with production capacity of 2.6 million barrels per day, it is the world’s 12th largest supplier of crude oil. The country also ranks 7th globally in terms of proven gas reserves with 187 trillion cubic feet, tcf. With about 600tcf additional undiscovered potential, analysts say Nigeria could easily be in the world’s top three in gas reserves.

However, despite the abundant resources, Nigeria remains one of the less developed and poorer countries of the world, as successive administrations failed to harness the rich natural and human resources to promote rapid economic development.

Corruption and mismanagement prevented past administrations from channeling these resources, into improving the dilapidated infrastructure and sustaining economic development.

Against this backdrop, President Jonathan cannot afford to fail Nigerians. Even as he has made some appreciable progress in the golden oil and gas sector, a lot more is expected from him because the majority of his programmes for the sector are still mere projections.

Consolidating on achievements
In the past one year of Mr. President’s administration, he tried to continue with the programmes inherited for the energy sector from the late President Umaru Musa Yar’Adua, while also introducing some of his own flavours.

His appointment of Mrs Diezani Alison-Madueke, as the Minister of Petroleum Resources, initially attracted a lot of mixed reactions; but as time went on, it became apparent that she needed some time to properly assess the strength and weaknesses of her ministry in order to chart a proper way forward.

However, no sooner did this happen than the tenure of the past administration came to an end; and one thing investors in the sector look forward to, is the continuity of programmes and policies for investments to thrive.

Given the history of leadership changes in Nigeria, the practice is usually for the new helmsman to set aside existing programmes in order to earn credit for newly initiated ones; which, more often than not are usually not properly executed or implemented due to a plethora of reasons.

Irrespective of the criticisms against Jonathan’s previous administration, it stands out that he was able to implement the Federal Government’s Amnesty Programme, which saw restive youths in the Niger Delta region giving up their arms for various rehabilitation programmes.

The development saw the leap in Nigeria’s daily crude output, which fell to all lows of about 1million barrels to current 2.6million. This rekindled the hope for achieving 40billion barrels reserves and 4million barrels daily output in the shortest possible time.

Also, the Nigerian Content Development Act, aimed at expanding local capacity in the Oil and Gas sector. Prior to the Act, Nigerians had very little share of the oil and gas businesses, because local participation was very low. To stem capital flight; the local content policy was put in place to significantly increase the contribution of the expenditures in the upstream sector to the GDP over a defined period of time.

In the downstream sub-sector, the distribution of petroleum products stabilized more, mainly due to increase in products importation and the partial deregulation of the sub-sector.

There is also the gas master plan and the gas revolution, which seeks to harness the nation’s gas resources for increased domestic use, particularly gas to power. According to Diezani, the gas policies are focused on fast tracking the implementation of the Gas Master

Plan, to attain clear-cut short-term and some medium term objectives as well as to position Nigeria as a major player in the global gas market.

This is also aimed at implementing a sustainable commercial framework for domestic gas through a review of the gas pricing, encourage investors by enabling them secure bankable agreements, and the transformation of Nigeria into a regional hub for gas-based industries by signing up world class investors in the petrochemicals, methanol and fertilizers sectors.

All of these policies are meant to attract increased private sector participation in the sector, which will lead to the creation of over 30,000 jobs that will reduce the high unemployment rate in the country.

Challenges

One of the biggest challenges of the Jonathan’s administration is the controversial, omnibus, Petroleum Industry, PIB, which has been tweaked for so long in the National Assembly.

Explaning the delay in the passage of the bill, Diezani said, “There were a number of issues with the bill that we saw and we set up a very high powered committee made up of some top quality people within the sector and without, the private and public as well as in administration and management consultancy.

“A wide range of people had to look at the major areas of the bill that were of concern – the fiscal terms particularly the deep offshore PSC, and impact on indigenous operators because some of the terms were bound to be very stringent.”

She equally agreed that “There would still be a few knotty issues, which will be worked out in addendums as we go forward. This is the first time we had a bill of this magnitude in any case, but we have done a lot of work over the last few months to actually get it to the stage that it is in now, in terms of the amendments that were made outside the original bill.”

Indeed, it is how government is able to resolve these knotty issues that will determine the success or failure of the bill.

Right now, the International Oil Companies, which were the worst critics of the bill are now singing a new song, so government must ensure that in giving them the freedom to maximize profit, it should also protect the interest of Nigerians. As such, issues such as cost recovery must be critically looked at since only one party, the IOCs determines the cost.

Also, government must ensure it does not give in too much to the dictates of the multinationals, whose major interest is return on investments at the expense of national interest.

Furthermore, there is the need to ensure global practice in operational issues, as most of the foreign operators have been accused of double practice in their procedures, especially with regard to health, safety and environment.

To achieve these, industry regulators must be firm in enforcing industry standards, and imposing sanctions, as so far, the penalties for default are too cheap as to cause any change in attitude.

If President Jonathan’s new administration can focus on infrastructure revamping – power, roads, transportation and a host of others, most of the cost elements associated with the industry would be more than half eliminated, and then, Nigerians can actually benefit more from their God-given natural resources.

By Clara Nwachukwu May 28th 2011