WITH global oil prices low and corruption in Nigeria’s energy sector endemic, President Muhammadu Buhari has put reform of the industry at the top of his agenda. However, any meaningful change will threaten vested interests, challenge popular expectations and fundamentally alter the relationship between big business and politics in the country, writes World Review Expert Professor Dr. Jaime Pinto.
Nigeria, Africa’s largest economy and biggest oil producer, is facing a period of economic decline. Despite its competitive advantages – first-class quality, plenty of exploration potential and geographic convenience for Western markets – Nigerian crude has been hit by low prices on global markets. Oil revenues have fallen by a third since 2014. According to estimates from PwC, a consulting firm, Nigeria lost about $18 billion in oil income in 2015.
This year, even with oil prices above the 2016 budget benchmark of $38 per barrel, price volatility and lower production levels will remain major risks for Nigeria’s economy. There are also structural problems: pervasive corruption, regional imbalances, inadequate infrastructure and an outdated legal and fiscal framework.
President Buhari and his right-hand man for oil affairs, Minister of State for Petroleum Resources Emmanuel Ibe Kachikwu, have the experience and political will to reform the oil industry and confront entrenched interests. Mr. Kachikwu was formerly executive vice chairman and legal counsel at ExxonMobil. Both he and Mr. Buhari seem committed to structural reform and have gained the goodwill of international partners.
They have been following a strategy of small steps. The starting point was a change in the leadership structure of the Nigerian National Petroleum Corporation (NNPC), which manages the joint venture between the government and a number of foreign oil firms.
Established in 1977, the NNPC remains the core of Nigeria’s oil industry, though corruption and poor performance have compromised its image. A lack of transparency and accountability when oil prices were high allowed the company to get away with massive corruption schemes and huge financial losses.
Now, President Buhari’s plans face a major challenge within the country’s legislature, the National Assembly, which is working on a new version of the long-awaited Petroleum Industry Bill (PIB). The measure is intended to overhaul the sector’s institutional framework, establish commercially driven petroleum entities, combat corruption and increase transparency.
To avoid legislative deadlock, the new version of the bill omits two of the most problematic aspects of Nigeria’s oil industry: the distribution of oil revenues and the subsidization of petroleum products.
But even if the difficult aspects are put aside for now, President Buhari and Minister Kachikwu will have to deftly manage the reform, which will have significant social and political consequences. This will be particularly difficult amid an economic slowdown and given the need to seek funding from international financial institutions, which will likely demand fiscal discipline and painful austerity measures.
The combination of low oil prices and political will offer Nigeria a unique opportunity to eliminate domestic fuel subsidies. Here, again, weak regulation and corruption schemes resulted in big losses. Back in 2012, when President Goodluck Jonathan (2010-2015) attempted to remove fuel subsidies, thousands took to the streets in protest.
Now international lenders are putting tremendous pressure on President Buhari to follow the example of Middle East producers like the United Arab Emirates and Saudi Arabia, which are eliminating their energy subsidies. However, most Nigerians tend to see fuel as a public good. Any move toward ending subsidies will likely face strong popular resistance.
Discontent in the impoverished oil producing Niger Delta region is another major challenge for the Buhari administration. Long-term solutions for the region’s pervasive problems – including environmental degradation, high unemployment rates and poverty – are yet to be found.
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Publication Date:
Wed, 2016-04-20 05:00
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