Nigeria’s President Muhammadu Buhari who has just won a re-election set out Nigeria’s most expensive budget in history and now his aides must grapple with how to fund the ambitious appropriation plan.
One way out of the dilemma as has been suggested is for Nigeria to sell part of its share in oil ventures with international companies as Buhari advances his post-election plans to boost state finances and also accelerate energy reforms.
Udoma Udo Udoma, budget minister, said Nigeria was seeking to improve government revenues with the “immediate commencement of the restructuring of the joint venture oil assets”, according to Reuters.
He said the government wanted to reduce its ownership of joint ventures to 40 per cent and expected the restructuring programme to be completed this year.
The Buhari administration, which begins its second term in May following elections last month, has proposed the most expensive budget in Nigeria’s history, relying on a strategy of state-led growth and mostly government infrastructure spending instead of aiming to open up the economy and attract private capital to ease the burden.
Oil and gas companies such as Royal Dutch Shell, Chevron and ExxonMobil operate facilities in Nigeria through joint partnerships with the state-owned Nigerian National Petroleum Corporation, which usually owns about 60 per cent of each venture.
Nigeria has toyed with cutting its stakes for years, but an oil crash in 2014 and failure to attract the private capital that is needed sabotaged those plans, energy analysts said.
Africa’s largest producer, which pumps about 1.7m barrels a day, was also hit by the collapse of its currency, inflation and a recession.
That stalled government plans to bolster its domestic energy sector and enact much-needed reforms. Nigeria’s relationship with its energy partners has been fraught for decades, with the government struggling to pay for its share of oil production costs.
The government has maintained, too, that existing contracts are unfair to the state and have called for improved terms. The state has also pushed regulators to collect back taxes owed by international oil companies.
Gail Anderson at energy consultancy Wood Mackenzie said as the state already received 90 per cent of the sale of each barrel produced in taxes and royalties, the move to reduce the government share of each venture would only alleviate the burden of initial operating costs.
As oil prices recovered, from a 2016 trough of less than $30 a barrel to almost $70 today, Ms Anderson said the Buhari administration had found an “opportune moment” to revitalise its efforts to reform the energy sector. “He’s making up for lost time,” she said.
During the presidential campaign, Atiku Abubakar, Mr Buhari’s opponent, said he backed a move to sell off state-owned refineries and privatise NNPC — which he called a “mafia organisation”.
Energy analysts have questioned the appetite of international oil companies to increase their share of joint ventures. Cheta Nwanze, head of research at Lagos-based consultancy SBM Intelligence, noted that selling their oil stakes would be complicated and wondered whether the government would be able to follow through with its pledge.
“Nigeria is looking for money but selling assets under pressure isn’t really the best way to get value for money,” said Mr Nwanze, who has been critical of the administration.
“You have to go through a process, and the current government does not do process very well . . . It won’t fly.”
