• Sunday, June 16, 2024
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BusinessDay

Nigeria’s oil industry failing woefully as rivals Iran, Iraq plot recovery

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Nigeria’s oil and gas industry is continuing to plunge further down a dark dire slope, while other OPEC nations are plotting their way out of a most debilitating oil price crisis that has brought Africa’s largest economy to its knees.

A month long investigation by BusinessDay shows that Nigeria’s oil industry crisis preceded the global price crash of 2014 despite the lies told by government agencies.

The price slump has merely amplified the impact of the crisis which today means that the Federal Government  in humility says it cannot fund its 2016 budget, while up to 27 state governments across the country are unable to pay their workers salaries.

With oil price now nearing $50 a barrel, OPEC nation Iraq which remains in war, will expand crude oil export, not just production, to a staggering 3.28m barrels a day by end the of this month (July) as producers around the world ramp up production to take advantage of the chaos in Nigeria, our investigation reveals.

On the other hand, Iran, another OPEC nation, is nearing completion of talks with giants like Mitsui & Co. of Japan and Total, for a fresh $60bn investment needed to double its petrochemical output to 150m million metric tons per year by 2026.

In contrast, Nigeria’s oil industry woes which first became an issue 10 years ago, are worsening and investment fleeing, amidst persistent poor management by government officials supervising the industry. The industry has never witnessed the spate of divestment as it has seen in the last four years, as the IOCs sell down in Nigeria and move their capital elsewhere.

Senior oil industry executives, as well as retired senior government officials, say the mess in Nigeria’s oil and gas industry is exemplified by four major failures which combined, have helped to hold down the industry, with Angola now well on the way to becoming the top oil producer in Africa.

The first cause of Nigeria’s oil industry woes was identified as the complete loss of confidence in the Nigerian National Petroleum Corporation (NNPC) as a viable partner, by the oil industry, especially government’s mainly western joint venture partners, commonly called the IOCs.

According to one official, “The NNPC has consistently failed to meet its obligations in the joint ventures and other partnerships and if you as a partner is scared and you are forced to ask the questions, “should I continue to bring in my cash to run the joint business,” at some point, you will slow down.”

Secondly, BusinessDay learnt that there is also the issue of compliance with contracts legally signed by parties. The NNPC has been accused of failing to respect the letter and spirit of agreements it signs with the partners. For instance, the NNPC and oil companies have set up operating committees for the joint ventures and this committee is charged with taking a final decision.

One frustrated industry source said, “when you go to the operating committee meeting, you expect that crucial matters will be discussed and decisions taken, but what you get is the government party simply saying I have over ruled and it is as if you are in a monarchy.”

About $7.1 billion is today owed by the Nigerian government in cash call arrears. Whereas the joint venture agreement stipulates that if any of the parties failed to pay its cash obligation, it should be levied interest for the time that the payment is not made, BusinessDay learnt that the Nigerian government has in the last 10 years failed to pay interest on its debt, despite consistently falling behind in cash call payments.

Thirdly, BusinessDay learnt that the government unilaterally decides what operating cost it will pay and which it will not countenance, to the shock of its partners who expect that if there be a dispute over a bill, the government should call in a third party to arbitrate, instead of lording it over its partners who have been bearing the burden of raising the cash to keep the industry where it is today.

Finally, BusinessDay leant that since the government must sanction every contract in excess of $250,000, the joint venture partners often have to wait for between two and three years to receive the requisite government approval and this delay has often meant that contract costs rise astronomically between when the proposal is sent to government and when the approval is received. In Angola, it usually takes the industry no longer than six months to receive government approval for any contract that has to be sanctioned by the state.

To address the cash call crisis, the NNPC has now proposed a new funding mechanism to the state governors meeting under the auspices of the National Economic Council (NEC) last Thursday, which will allow the deduction at source of government cost of producing any barrel of oil.

The proposal was presented to Nigerians later that day, with the impression given that government’s cash call burden would be so resolved.

Our investigation showed that either the government or its senior officials at the NNPC are being miserly with the truth, as the proposed new cash call funding mechanism does not make more cash available to the tiers of government. If anything, this proposal will even lead to a reduction in the cash take by the governments.

In the past, governments did not pay cash call at all, with $7.2bn owed today, and under the proposed scheme, government’s cash call obligation will be taken upfront once the oil is produced. If the new proposal works, our investigation showed that some in the industry believe it might solve the cash call crisis, it will exacerbate government’s cash availability crisis as the net cash to be available to the government will be less than is the case today.

Oil production from the troubled JVs has fallen by more than half in the last ten years, despite government taking an incredible 94 per cent of the gross revenues in a $50 a barrel environment, either in NNPC profit, petroleum tax, NDDC levy and royalties, according to our investigation.

Sources tell Business-day that OPEC members like Iran, Iraq and Saudi Arabia are increasing output because they believe the end of the oil age might be near and crude oil might be worth more now than in the future, due to technological innovations such as electric cars and emissions controls by developed countries.

Prospects of ramping up production of petrochemicals is constrained by the fact that there is only one major company in Nigeria producing the oil and gas derivative.

Indorama is building a mega sized urea fertilizer plant in Nigeria under the helm of “Indorama Eleme Fertilizer & Chemicals Limited (“IEFCL”). The project consists of 2300 TPD Ammonia plant, 4000 TPF Urea plant, 83 km long Gas Pipeline, and an Export Port Terminal.

The main plant, measuring approximately 40 hectares, will be located within the perimeter of Indorama’s existing petrochemical site in Port Harcourt.

The Gas Pipeline for the fertilizer plant is being constructed by IEFCL within an existing 15 meter wide Right of Way (“ROW”). The new Port Terminal (Jetty) will be built at Onne Port on a plot of land measuring approximate 6 hectares

The Port Terminal will comprise of a 320 m long Quay / Jetty along with terminal infrastructure including all material handling facilities necessary for urea and a urea storage facility with a capacity of 45,000 MT.

Analysts say Nigeria’s oil and gas reserves are so massive that the country probably needs ten times the capacity that Indorama currently provides.

By Our reporters