Q: Would the banking industry have financed the oil and gas projects a few years back?
A: The industry could not have been in a position to support the financing of our refineries few years ago. To really finance some trading companies, one would have needed to put up syndication. Today, the capital of the top five banks in the country is close to $10 billion. And with $10 billion dollars, that means we have significant capacity to support the energy market. This is separate and distance from the Euro bonds which the stronger banks are raising. Those Euro bonds also means that apart from raising money locally, Nigerian banks are capable of raising money internationally in Europe and America to support the economy.
Funding oil and gas projects by banks
Why will they not support the oil and gas industry, which by far remains one of the most important sectors of the economy? It provides 95 percent of our foreign exchange. We have done it in the cement industry where billions of dollars investments have been put up. We have equally done it in the industry. We have 37.2 billion barrels of crude oil reserve and out of which production is about 2.3 million. We export 2.2 million barrels per day, which means that everything is pretty much exported leaving very little for local refinement because the refineries are not working. Again, because of insecurity, a lot of money has been going into deep water production. And of course, you will understand that it is more expensive and is carried out largely by the international oil companies (IOCs).
For the local players, it introduces a different dimension in the sense that one, how will they access funding when the level of insecurity in the Niger Delta has posed serious challenge to investors? This is a problem even though people are beginning to overcome it. The deep water production as at 2010 accounts for 40 percent of the production of this country and it is still growing.
But of course, what has happened is that we have increased the depth of our production, but we have not been able to increase the volume of production beyond some of what we have been producing for year.
We have a low resource production ratio which can be addressed easily. This can be addressed through funding and increased investment. Equity investment must typically follow investment that will come from the financial service sector. If we compare Nigeria to neighbouring countries like Angola who found oil only a few years ago, you see that currently there are lots more investments there.
If Angola can have about 150 oil wells today coming up and Nigeria only has 85, then it says something about what we are going through. And we must do something to logically solve our problem.
Again, like I said, the critical issue has to do with security, fiscal regime and of course, the poor financing structures that exist. We have enormous resources. We have the reserve even where they are right now. There is need for more investments to basically continue to support production. The additional problem we face is that the world is not standing still and waiting for us. Foreign investors will continue to look and seek for other areas, where to invest money.
Now, oil has been found in several African countries like Guinea, Ghana and Liberia. Those are very tiny countries where there cumulative population is not up to what we have.
Insecurity crippling investments in oil and gas industry
But the truth of the matter is that investors will most likely invest in countries where there are less security issues. Now the problem as far as I am concerned is our security problem which I consider can be solved very easily. And when I say solving the problem, it is not a function of sending military men or Amnesty. It is an all- encompassing strategy that we all need to come up with to solve this problem because solving this problem revolves round a whole lot of the issues that we face as a country. It revolves round issues that have to do with power and infrastructure. The oil theft alone that we see by way of bunkering is a problem that must be resolved.
Though, people will say in absolute sense what comes to Nigeria is more than what goes to these other countries, the truth of the matter is that as investors continue to go to a particular place and they feel more comfortable, what happens is that more and more capital will start to find its way to those countries. If we thought we have problems in the upstream sector, I think the downstream is perhaps a lot more notorious. We have refineries with capacities for 450,000 barrels per day. But they are operating at 15 percent capacity. And yet we produce this crude and export it and bring it back as refined products at higher prices. I think there is absolutely no need for this. The subsidy alone that has gone into this can support the creation of five new refineries.
Q: What do you think the government should do?
A: Now, what can we do today, is just to put in the right institutional framework. I don’t think it would cost so much to put a refinery of about 200,000 barrels per day in place. I don’t think that it would involve a lot of money.
We don’t even have to look offshore for the money because the local banks can support it. The local banks can support it, with this we would begin to see what would happen and the confidence that it will bring on the international banks to bring in more money to support more and more of these refineries.
But first things first, the downstream sector of the oil and gas sector must be deregulated to make that industry stable.
In an interview with OluSola Bello