How oil deals favouring few oligarchs fuel North’s inequality, insurgency

The tale of the northern oil barons is symptomatic of the general dysfunction in Nigeria’s oil sector, where a long history of corruption has enriched a few elites and provided them with hefty profits while two-thirds of the population live in poverty.

Just as in the freewheeling days of military rule when the government dispensed favours by gifting off state-owned oil fields to friends and cronies, Nigerian oil ministers today still hand out licences at their own discretion, refusing to follow international best practice of using open bids.

“Nigeria’s oil sector is currently structured to benefit a few rent-seekers, either through opaque oil swap deals, fraudulent petroleum subsidies or noncompetitive licensing of oil blocs,” said a senior oil industry source who formerly worked in the state oil company, the Nigerian National Petroleum Corporation (NNPC).

“This has led to the emergence of a new jet set of high-flying oil traders and oligarchs usually lacking the technical know-how to operate their oil leases,” the source said.

The Berne Declaration, a non-governmental organisation based in Switzerland, had in the past criticised Nigeria’s method of selling its oil, saying it was opaque and offered no guarantee that the oil is sold at fair value.

London-based think-tank, Chatham House, estimated in a report on Nigerian oil last year that local traders could make up to 40 cents a barrel, amounting to around $5 million a year on 12 cargoes, just by “flipping” the contract to a bigger trading company.

A 2012 study commissioned by Nigeria’s oil minister, Diezani Alison-Madueke, and headed up by Nuhu Ribadu, former head of the anti-corruption agency (EFCC), criticised the sales system whereby contracts were given to “briefcase traders with little or no commercial or financial capacity”.

The extreme wealth disparity arising from beneficiaries of the arbitrary gifting of Nigerian oil assets controlling a disproportionate amount of the Nigerian economy is fuelling instability across the nation, especially in the poorer, less-educated north.

The three Nigerian states of Adamawa, Borno and Yobe, the hotbed of the Boko Haram insurgency, had internally generated revenues (IGR) of N4.6 billion, N2.4 billion and N1.75 billion, respectively, for 2012, according to the National Bureau of Statistics (NBS).

The corresponding figure for Lagos State was N219.2 billion, a sign of the low level of economic activities and the dire straits in which the states currently under emergency rule find themselves.

“There is the need to spread the oil wealth to the poorer regions of the country via a marshal plan, as was done in Europe and East Germany,” said a Lagos-based economist speaking on condition of anonymity.

“The oligarchs and oil barons from the north also need to consider listing their companies on the Nigerian Stock Exchange (NSE), so their citizens and even the northern states can purchase shares and participate in the wealth creation that is happening down south,” he said.

BusinessDay’s analysis of available public data shows that 96 companies are currently active in Nigeria’s upstream oil and gas sector, in the form of exploration and production, of which only two – Seplat and Oando – are listed on the NSE.

Twenty-three of them are listed on foreign exchanges and collectively own Nigerian oil assets with average value of $89.4 billion, according to data compiled from a November 2013 report by CBO Capital Partners and Rystad Energy.

Nigeria is Africa’s largest crude oil exporter, shipping more than two million barrels per day (bpd). The murky oil dealings of Nigeria’s military and political elite have, however, led to a handful of oil barons from northern Nigeria controlling billions of naira worth of oil assets, even as states in the region battle with revenue shortfalls and a raging insurgency.

Analysts say the northern oil barons must be in the forefront of spreading investments to the blighted regions of the north.

“Spreading wealth cannot happen if it is only mouthed and action does not follow,” said the economist.

In ‘Boko Haram Comprehensive Assessment’, James Hall and Chigozie Ogwuegbu-Stephens, two ex-soldiers, contend that security forces alone won’t tackle the extremist violence.

Good governance; using equipped and well-trained security forces intelligently; reconstruction of the dilapidated northern economy; encouragement of investment, development and jobs will curb the spread of the terror campaigns, they argue.

“It is the road builders, educationalists, water, power, health and agricultural experts who will make the necessary changes,” they say.

PATRICK ATUANYA