• Saturday, March 02, 2024
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BusinessDay

Phantom oil revenues

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The way money disappears in Nigeria suggests that those involved are magicians with nimble fingers that can make billions of dollars disappear. What’s more, they’re greater than Houdini, the foremost escape artist. Not so fast.

Imagine Nigeria was a household of 170 million people with a budget constraint. It can’t afford to do nothing when its major source of income is disappearing. Right? Wrong: we – you and I – have been vaccinated against depleting or missing oil revenues. So, we do nothing. Carry go, all be well. This is Nigeria.

There’s a chasm in Nigeria’s Federation Account, that’s the crux of the wahala over unremitted oil revenues; the spat between the Nigerian National Petroleum Corporation (NNPC) and the Central Bank of Nigeria (CBN) is a pointless side attraction.

As expected the bacteria and fungus from the headline grabbing arguments about how much has been lost will soon be buried in the graveyard of long lost memories. How unfortunate.

The thought that we’re vaccinated from corruption is a delusion: we’re not protected from its consequences. Three-quarters of what Nigeria earns in foreign exchange is from oil. To ignore a continued decline in oil revenues is to stupidly expose the economy to an oil price or output shock. Nigeria’s foreign reserves, the Excess Crude Account (ECA) and the Federation Account are thus at risk.

Something is really wrong when a household cannot account for its income and chooses to do nothing. Inaction, indifference, ignorance isn’t and can’t be bliss. As things stand, our options are limited. The oil savings in the ECA, our rainy-day fund, is dwindling. Those who expect a bloated government – the executive and legislative – to cut down on expenses should get their heads checked.

Sale of assets, like the state-owned refineries, is out of the question. When you can borrow from banks, why spend $9bn to refine your own petrol, diesel, aviation fuel (kerosene), bitumen and on petrochemicals for dyes, detergents and plastics?

Nigeria may be investors’ flavor of the moment but investors’ interest is only as high as the price of crude oil. Many are preparing to scurry for the exit once the oil price falls below a threshold level, for example, $90 per barrel.

Creditors keep buying government bonds because oil prices are stable and interest rates are high. The dilemma, however, is that the stable oil prices are not appearing in government’s coffers.

Since the 1980s the NNPC, notably one of the most opaque in the world in terms of sales, revenues and physical oil flows, has been exploited by organised criminal interests.

What’s new is the disclosure by the CBN; the banker of the federal government. When your banker alerts you of a massive shortfall in your revenues the proper thing would first be gratitude, then an investigation of the leakage and punishment of those indicted. Plugging leakages means fighting oil theft.

Industrial-scale oil theft has two branches: large scale illegal bunkering and theft at the terminal (corporate “white collar” fraud). Both are drilling holes in the national account. Most of the corporate corruption is allegedly shrouded in SSS: subsidies, “Strategic Alliance Agreements” and swaps, i.e. crude-for-refined products.

Industrial-scale oil theft in Nigeria comes with a triple threat of lost income, conflict and corruption. Stolen oil is as lucrative as cocaine; oil theft and illicit drugs generate $1 billion annually in the West African region.

What’s more, “bunkering” directly fuels other transnational organised crimes e.g. piracy, drug- and arms-trafficking. The proceeds buy more than real estate, banks and businesses. It buys elections, candidates and parties. In short, oil thieves are the highest bidders for power (not electricity) in Nigeria.

Those who take the trouble to follow the news relish more the personal attacks rather than the concrete facts, and have other issues to sort out. Is there petrol scarcity, will petrol subsidy be removed? They have petrol-guzzling four-by-fours to fuel.

Besides why bother? Talk about how much crude oil Nigeria produces is as opaque as the stuff. The production and sale of light sweet crude is a heavily guarded secret that leaves a sour taste when thrown open to public discourse.

Production details are difficult to come by and deliberately unavailable. Though the pricing of crude oil is like a black box there are international benchmarks that reflect a price. Locally, crude oil production and income from its sale is treated as a caisse noire (a slush fund) with dangerous consequences.

Discontent over the disparity foreign exchange remitted into the Federation Account has been underwhelming. The governors and their commissioners for finance have squeaked foul forcing further depletion of the ECA.

Aren’t “progressive” opposition governors, senators and legislators dissatisfied? Are they not concerned about getting to the bottom of this dense dark pit? Are they willing to do the reasonable thing: douse the political tension and have a dispassionate discourse?

Instead than discuss the message, the precise proportions and quality of figures, the messenger is being slurred, the debate over how much is unaccounted for has been adulterated and the opportunity to set the records is being diverted.

In short, it’s a classic Nigerian response to a classic Nigerian problem: mix petrol with water, sell kerosene as aviation fuel, divert subsidised petrol across the border to Benin Republic. Do anything to generate heat, acrimony, doubt but don’t shed light.

That said, tackling grand theft oil in Nigeria will be difficult. Beneficiaries of the trickle-down effect or circular flow of grand theft oil include politicians, government security forces, militants, oil industry personnel, oil traders, community members and organized criminal networks. Transparency, the best disinfectant, is a contamination in the case of the oil industry.

By:  Tayo Fagbule