NNPC, oil industry operators seek diversification of Nigeria’s economy
Nigeria’s Gross Domestic Product and average Organisation of Petroleum Exporting Countries (OPEC) oil price reveals a strong correlation of 0.87, according to a recent report.
This, therefore, depicts a heavy dependence of the country’s economy on the oil industry.
With this huge anomaly, the need for the country to diversify from being an oil-dependent economy cannot be overemphasised.
This is very imperative considering the developmental stage of the economy and the need to secure the future of the Nigerian people.
“In the next half-century or less, the place of oil and gas in the global market place may not be very much favorable for such an undiversified economy as ours,” SPE recently warned.
At the 42nd edition of the Nigeria Annual International Conference and Exhibition (NAICE 2018) held in Lagos, all stakeholders in the hydrocarbon industry, in one voice, stressed the urgent need for economic diversification beyond the lip service currently being paid to the model.
The Group Managing Director, Nigerian National Petroleum Corporation, Dr. Maikanti Baru, said for Nigeria, oil has remained the major source of revenue, as it contributes approximately 90 per cent of total national revenue.
The GDP growth, he pointed out, has a strong correlation to the oil industry performance and contribution; of which the economy remains exposed to global oil price fluctuations.
With rising government expenditure, Baru said competition between oil industry and other segments of the economy for available funds has intensified, which has equally increased the call on the oil industry for funding critical national infrastructure and sustain government programmes.
Given the current pressure on the oil industry, he said the government must remember to: “Keep the goose , that lays the golden egg alive (which is the oil sector), maintain the oil industry growth momentum , arrest declining production from traditional production sources (Joint Ventures), and drive the aggressive growth required to meet targets – reserves (40 million barrels) and production (4MMbbls) by 2020.
According to him, the change must start from within the oil industry as the Federal Government has less cash to fund its JV cash calls; there is 50 per cent reduction in capital expenditure across industry; and approximately $7bn annual incremental funding requirement above current levels.
The NNPC boss, who lamented over JV under-funding, noted that the development had led to significant decline in JV production over last ten years with significant Production Sharing Contract (PSC) volumes contribution due to funding constraints
“The oil industry needs to aggressively pursue, unlock innovative funding strategies to arrest base decline and grow production. Public spending cuts and falling investment point to a weaker outlook for the Nigerian oil industry,” the NNPC boss said.
He stressed, “Huge investment is required to fund and grow production (by government and new players). There is an urgent call for action, or else, we would have no Industry.”
In the same vein, the Chief Operating Officer, NNPC Upstream, Bello Rabiu, said to diversify the economy, the country must increase the non-oil sector export earnings from current level of less than 15 per cent; reduce the contribution of oil sector to government revenue from current level; and strategically link the oil and gas sector with other sectors of the economy for overall economic growth and development.
On the role the petroleum sector should play in the diversification efforts of the Nigerian economy, he said domestication of the sector through maximum utilisation of human and material resources required in the business (estimated at over $18 billion annually), remained germane.
To enable the linkage of the oil sector with other sectors of the economy, Rabiu said sustainable energy supply to the domestic market at competitive prices must be guaranteed.
To enable the realisation of the roles outlined, there must be: security of lives and assets; sustainable funding by all stakeholders including government through NNPC; sufficient infrastructure necessary for the processing, transportation and effective distribution of oil and gas derivatives in-country.
In aaddressing current challenges bedeviling the oil industry and the Nigerian economy at large, he lauded some strategies deployed by government, which include: The three-point agenda of government on security, economy and corruption; JV cash call exit and implementation of self-funding mechanism; implementation of Nigeria Gas Master Plan; rehabilitation of refineries and other downstream infrastructure through Public-Private Partnerships (PPP); establishment of Gas Aggregator Company of Nigeria to serve as a one-stop shop for potential investors in this area, simplifying access to feedstock and conclusion of commercial agreements; and implementation of a secto- based gas pricing policy that aimed at attracting investments to Nigeria amid global competition, among other moves..
The Vice Chairman/Chief Executive Officer, Emerald Energy Resources Limited, Dr. Jude Amaefule, said there is a linkage between the oil and non-oil sectors through the exchange rate channel as falling oil prices affect monetary and fiscal policies.
He urged the country to develop a broader-based economy, diversifying its exports to ensure its growth is not dampened by global price or demand shocks.
According to him, threats to petroleum export market create opportunities for refining, gas utilisation and other spin-off sectors.
He said in today’s globalised economy with very complex industry interactions, the Global Value Chain methodology remained a useful tool to trace the shifting patterns of global production, link geographically dispersed activities and actors within the oil and gas industry, and determine the roles they play in developed and developing countries alike.
The GVC framework focuses on the sequences of value added activities from conception to production and end use; thereby examining and engaging the job descriptions, technologies, standards, regulations, products, processes, and markets in specific industries and places competitive advantages.
In effectively diversifying the economy, the Emerald Energy boss said NNPC should assume the status of an Incorporated Joint Venture.
“This will allow the NNPC and operators raise money for their operations outside of the government’s budgets and controls and allow it to run as a private company and take decision privately rather than awaiting the approval of the national assembly before it can make counterpart funding available to its partners,” he explained.
Under the IJV arrangements, NNPC JVs will be turned into a firm that control its own budgets, similar to existing gas firms such like the Nigeria Liquefied Natural Gas (NLNG) which sources for its own funding, pays taxes and royalties and also pays dividends to the government from its operations.
Thus, the Chairman, SPE Nigeria Council, Chikezie Nwosu, said: “This is the right time (some say we may already be running late) to effectively take advantage of the oil and gas industry to drive other sectors of the Nigeria economy such as gas to power and gas based industries, manufacturing, agro-allied, alternative and renewable energy, banking, ICT, public health, among others, to full maturity and self sustainability.”
“To remain competitive and relevant in the global economy, the position of the oil and gas industry as the bedrock of the Nigeria economy requires a paradigm shift from a consumer product to an enabler for diversifying the economy.”
Worried about the status quo, the Director Projects/Technical Service, Thompson & Grace Invests Limited, Ekemini Amos, said: “Raw crude is what we have, that is most sought after for now.
Hence revamping the value addition along the chain of production from reserve to finished product is necessary. True value addition cannot be achieved in isolation, as there exist series of activities that inter-play before a finished product is delivered for human utilisation.
“In the oil and gas industry, there are several activities; from prospecting to flowing of raw crude or gas.
All of these are capital intensive; they require high and precision skilled labour, high tech engineering, friendly government policies, and so on. Unfortunately, these tools are in short supply in our location.”
“Today’s world is driven entirely by innovative thinking. The oil and gas industry is not left out.
The challenge remains that we are not a design and manufacturing nation.
“As a nation, we may need to ask ourselves if we had any blueprint; if we don’t have, then we need one.
As we have operated on trial and error for too long. We need institutions that will start converting knowledge to products.”
Amos said polices that would impact on manufacturing should be formulated with stakeholders participation, adding that banks should play the role of banking and stop ware-housing money for sale.
“Picking our pieces is not impossible, if we would sincerely return to the point we got it wrong and sign-up for revamp, there is hope for all of us,” he said.
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