The future prospects for unborn generations in Africa’s largest oil producing country are beginning to look ugly due to little or non-existing oil savings, lack of exploration of new oil fields and serial abuse of the Excess Crude Account (ECA).
In an oil producing country like Norway, the government is toiling night and day to protect its unborn generation by reducing the aggregate exposure of its economy to oil price volatility and insulating its rainy-day fund from political pressure which has promoted fiscal prudence.
However, for Nigeria, actions by its government show it is often less concerned.
Nigeria’s ECA has long been exploited to fund non-budget expenditure, particularly national elections – all under the name of security.
The primary objective of stabilisation funds like the ECA or sovereign wealth fund (SWF) is to smooth fiscal volatility in the economy by ensuring that excess oil earnings are being saved and managed prudently in periods of economic boom. It’s a popular regime in resource-rich countries.
The main universal principle guiding a stabilisation fund is to smoothen expenditure within the budget limits. The accruals were expected to be the amount above the benchmark of crude oil sales.
“Save for Obasanjo administration, the abuse of the ECA has become serial. It is deeply disturbing that the Buhari government has not demonstrated a better way of handling Nigeria’s ECA,” Charles Akinbobola, a financial analyst at Creditville Limited, said.
Nigeria currently has just over $2 billion saved in its SWF ($1.4 billion) and ECA ($637 million) for a population of 198 million people, forecast to more than double to 450 million by 2060, equivalent to a per capita oil savings of only $10 per person.
This compares poorly to other oil producers with rainy-day or sovereign wealth funds like Norway, UAE, Russia or Saudi Arabia.
According to US-based Sovereign Wealth Fund Institute, Norway has amassed an oil savings of $1 trillion, or roughly $188,000 for each of the 5.32 million Norwegians; UAE has oil saving of $697 billion, or roughly $74,148 for each of its 9.4 million citizens; while Saudi Arabia has oil saving of $875 billion, or roughly $27,343 for each of its 32.94 million people.
When former President Olusegun Obasanjo left office on May 29, 2007, he left $25 billion in the ECA. However, between 2007 and 2014, there was an upward trend in withdrawals from the ECA which was particularly incessant right before national elections.
Fast forward to 2018, and the stabilisation fund faced a similar fate. The Minister of Finance reported that the revenue accrued to the account had depleted to only $637 million from $2.31 billion in three weeks, a drawdown of about 73 percent.
Just like former Presidents Umaru Yar’Adua and Goodluck Jonathan, President Buhari, a supposed poster child for fighting corruption, also dipped his hand into the stabilisation fund. Between 2016 and 2018, he dramatically increased the monthly security allowance allocated to the 36 states. In 2017, he withdrew $1 billion from the ECA without any formal consultation from the appropriate bodies. When confronted, he played the “Boko Haram” card like his predecessor, an explanation many citizens did not buy.
“Nigeria has no reason to continue to allow its economy to be decimated simply because it is endowed with petroleum resources. Nigeria needs to explore development strategies, which Botswana, Chile, Malaysia, and Indonesia utilised successfully to avoid the phenomenon called ‘Dutch Disease’,” Wummi Iledare, a professor of Petroleum Economics and Policy Research at the Centre for Petroleum Energy Economics and Law, University of Ibadan, said.
Another major issue that is detrimental to the welfare of future generations of Nigerians is the number of dormant oil fields in the country.
Owowo oil field, discovered in October 2012 by United States’ oil giant, ExxonMobil Corporation, with about one billion barrels of oil reserves offshore Nigeria, capable of earning huge oil revenue, has been abandoned.
According to energy experts, the field would have boosted Nigeria’s effort in increasing its crude oil reserves from the current 36 billion barrels to 40 billion barrels target, which was set for 2010 but could not be achieved as a result of lack of investment in exploratory activities.
Emmanuel Agboola, head of energy infrastructure at Sofidam Capital, said the Owowo oil field has the potential of providing new employment opportunities for Nigerians once production starts. However, exploration activities are still hanging which is a cause of concern.
“Some of the fields are idle because the funding is not in place to develop them, especially the government’s part of the funding,” Agboola said.
The Owowo field spans portions of the contract areas of Oil Prospecting Licence (OPL) 223 and Oil Mining Licence (OML) 139.
ExxonMobil holds 27 percent interest and is the operator of the OPL 223 and OML 139. Joint venture partners include Chevron Nigeria Deepwater Limited (27 percent interest), Total E&P Nigeria Limited (18 percent interest), Nexen Petroleum Deepwater Nigeria Limited (18 percent interest), and the Nigeria Petroleum Development Company Limited (10 percent interest).
Ayodele Oni, energy partner at Bloomfield Law Practice, said apart from the uncertainty and lack of legal framework scaring away investors, many of oil fields went into wrong partnerships because there was also no strong consultant that understands the sector.
“Many of these field owners are at war with their technical partners because there were no good agreements,” Oni told BusinessDay.
Another scary fact is the delay in regulatory consent on Ogo oil discovery frustrating Africa-focused oil and gas exploration company Lekoil’s $1 billion investment.
The OPL 310 licence is in the Upper Cretaceous fairway that runs along the West African Transform Margin. The block extends from the shallow water continental shelf close to Lagos out to deeper water.
The crisis which is already a legal tussle between Lekoil and the Ministry of Petroleum Resources may eventually deny the country about $1 billion in upstream investments while several thousands of jobs are likely to be lost in the process.
Stakeholders, however, believe that the development is a setback to the Foreign Direct Investment (FDI) drive of the Federal Government and its Ease of Doing Business initiative, as it may be a deterrent for would-be investors.
DIPO OLADEHINDE
