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NIGERIA
A new business climate |
 Business - Economy - Lean and clean - Core issues - Home truth -
Oil business - Private sector - Banking 
 OIL BUSINESS
The challenge the Obasanjo administration has accepted is that of turning the economy around by enlisting the efforts of the private sector. There has been further deregulation of the various sectors of the economy.
Operators in the various sectors have been responding to signals emanating from the government. Obasanjo is keen to increase nigeria's earnings from gas and plans to encourage maximum investment in the sector. nigeria's gas will be supplied to neighboring countries." Similarly, he said, "a trans-nigeria pipeline will supply our domestic industrial and household demands. Both project will be fully supported by private capital". President Obasanjo said nigeria has more gas than oil and should not be seen as an oil country only. He added: " Within four years, revenue from gas should not only be substantial but nearly equal to that from crude oil."
Companies in the industry have been matching the president's words with action.
Mr. Andrew Jefferson, managing director of nigeria Liquified Natural Gas company confirms: "the focus in the industry is now gradually tilting towards gas". He sees a vast "opportunity to explore the tremendous gas reserves in the country". Mr. George Kirkland, CEO of Chevron nigeria Limited says the gas pipeline to be constructed at a cost of US$ 400 million to supply nigerian gas to three other West African countries is a major leap by the nation's oil and gas sector into the international market outside the crude oil market.
Under its new managing director, Mr. Jackson Gaius Obaseki, the government owned oil company, NNPC , has been active in promoting new markets. The NNPC says its vision is to diversify the economy.
Customers for nigeria's liquified natural gas project include ENEL of Italy and the Spanish utility company, ENAGA, among others. Hyundai Heavy Industries is constructing two new 138, 000 cubic meters LNG carriers. Shell and the nigerian government are committing US$ 600 million for the completion of the third train of the NLNG. The Central Bank of nigeria says development of the gas subsector and proceeds from gas exports will improve nigeria's balance of payments position.
Chevron Overseas petroleum incorporated (COPI) and Sasol Limited of South Africa have signed a joint venture agreement to execute a gas to liquids project at the Escravos, Delta State, operations base of Chevron.
COPI managing director Dick Matzke said: "gas to liquids technology is so promising that its development would create an entire paradigm shift throughout the petroleum industry. It reflects Chevron's strategy to grow our international business. We are optimistic that the new global partnership will contribute to the realization of our first GTL joint venture project in nigeria".
Mr. Matzke said the alliance has the "potential to deliver market based economic solutions to reduce the need to routinely flare associated gas, creating what we see as a win/win/win situation".
Shell Petroleum Development Company, the largest oil producing company in nigeria, has embarked on a major reorganization and restructuring. Chairman and Managing Director of the company, Mr. Ron Van Den Berg said the new structure became necessary as Shell is now an integrated oil and gas company. Shell nigeria Gas and nigeria Gas Company are both supplying gas to industrial firms in Lagos. The NNPC/Mobil joint venture has completed the Oso-Natural Gas Liquids recovery project to process 600 million cubic feet of gas daily. The vibrancy in the oil and gas sector has been in the face of disquiet in the oil producing communities.
However, the democratic government has been more responsive than previous administrations. A Niger Delta Development Commission is to be set up to channel part of oil revenue back to the communities where the oil is produced. As the managing director of NNPC, Mr. Obaseki puts it, peace must reign in the oil communities for any meaningful development to take place. That the oil companies are making progress in executing their various projects is an indication that, to some extent, the oil communities are being pacified on an on-going basis.
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By end of this year, Shell nigeria will write-up its fourth annual report on community and environmental issues. Unrest amongst communities in the Niger Delta has been a thorn in the flesh of the major oil companies. Shell managing director shows concern. "A major cause of the underlying discontent is the communities sense of grievance that a fair share of oil revenues has not been returned in the form of development in the oil producing areas. We have great sympathy with communities who believe more needs to be done. This issue needs to be addressed urgently by government and other stakeholders". Shell in 1998 spent US$ 43 million on various community projects.
Obasanjo says the Niger Delta development commission will involve funding from the federal and state governments plus the oil companies, "There is now additional money coming from the federal government. To show the involvement of the states they also have to put money into it. For the first time, we are asking the oil companies to put money into it in addition to whatever they are doing for the community. We are now having all the stakeholders and we are saying that development will be the focus".
Clearly the root cause of the community problems in the oil producing areas is the prevailing state of gross underdevelopment and gross abuse of their environment. The communities see an unfairness in the laws which vests on the federal government, the mineral resources found on their land. Their agitation is for a change to this arrangement so they will own the mineral resources on their land. The existing concession from the government assigns 13% of oil revenue of the federation to the oil producing states. This is in addition to the tri-partite funding of the Niger Delta development commission.
The communities also complain of the abuse of their environment. The charge against oil companies is that they have over time failed to meet internationally acceptable environmental management standards. Government is blamed for neglecting its duty of enforcing environmental compliance by the oil companies. The backlash from decades of exploitation without adequate compensation is the current threat to peace in the oil exploration and production sites. Shell is the most exposed with a whole lot of facilities and installations on land in Warri and other parts of the Niger Delta.
The fund the oil companies are committing to assuage the aggrieved communities where they operate, is merely a show of corporate social responsibility which does not address the fundamental problem. Only the government, through a change in laws and a commitment to developing the areas can meet the aspirations of the communities.
As it is, the oil companies have had to revise their community relations strategies. Chevron, for instance, is planning some initiative with input from the UNDP. Part of the dynamism in the oil companies efforts is a down-to-top development thinking which gives the communities a full say in what projects is executed for them.
President Obasanjo says the present government is trying to redress past neglects that has led to conflict in the Niger Delta. He says the development commission is one of the steps to resolve the crisis once and for all.
While the community issues are being tackled, analysts note that oil has been an enclave sector as activities there have little linkage with the rest of the economy. Furthermore, the operational arrangement that allows giant multinationals to efficiently manage the high-tech production processes and generate profit for all stakeholders has not been extended to other government investments in the rest of the economy.
Whereas dominant private investments have accounted for the thriving upstream of the oil sector, the downstream refining operations have long faltered due to the absence of private investments. But this will change with privatization and deregulation. Mr. Uma Abba Gana, managing director of African Petroleum, a petroleum marketing company says poor performance of the refineries affected his company's operations in the past. "But now that they have been restreamed, we should notice a marked increase this year". Abba Gana says a lot of positive decisions have been taken on the sector by the new government in the areas of partial deregulation, higher pricing and higher margins. He thinks everything is coming back into shape in the oil sector. The refineries are being repaired so oil marketers are more optimistic. New production sharing contracts are being signed by the government with companies exploring oil in the deep off-shore. "I think it is all positive, it is all growth", Abba Gana says. |
© World INvestment NEws, 1999.
This is the electronic edition of the special country report on nigeria published in FORBES Magazine,
October 18 th issue.
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nigeria
