ALTHOUGH government would debunk it, a leaked report, commissioned by oil minister to probe the financial side of the sector, said $29bn was lost in the last decade in an apparent price-fixing scam involving the sale of natural gas.
The document also claimed that the country loses $6bn a year to oil theft. Four months after the report from a committee chaired by Nuhu Ribadu, the former Economic and Financial Crimes Commission (EFCC), former World Bank Vice President, Oby Ezekwesili, stoked a new debate at her University of Nigeria, Nsukka (UNN) Convocation Lecture, when she alleged that two administrations alone frittered $67 billion reserves, part of which were accruals to the Excess Crude Account (ECA), in the last six years. These “allegations,” for several weeks, remained issues of public discourse, eliciting statements from US’ bill Clinton and western governments over the way Nigeria’s oil wealth were managed over the years.
Even after moderating for time value of money, there is no doubt that Nigeria earned far more from oil, in the last 10 years, than was the case within the 20-year stretch of between 1979 and 1999.
Going by official figures from the Nigeria Bureau of Statistics (NBS), exclusively procured by The Guardian, the country, in the last 31 years, has raked in about N51.50 trillion as proceeds from oil.
Between 2000 and 2011, it earned N48.40 trillion, as against N3.10 trillion it received between 1979 and 1999.
Further analyses show that, except for some evidence of volatility, revenue from the sector had maintained an upward swing, from N724.4 billion in 1999 to well over N4.4 trillion in 2007. The trajectory of growth continued, with N6.5-trillion revenue in 2008, (dropping to N3.2 trillion in 2009 and picking up again to N5.4trillion the following year) to hit N8.8 trillion in election year, 2011.
The 12-year revenue of N48.40 trillion, going by the nation’s average budget strength (capital and recurrent) of over N4 trillion in the last six years, could comfortably fund 12 years of annual budgets — recurrent and capital expenditures — without any deficit (borrowing).
Worries Over Infrastructure Decay
HOWEVER, many Nigerians believe that the state of physical and social infrastructure would have been pleasantly different if the huge revenue from oil and non-oil sectors were judiciously utilised for the good of “one and all;” it would have, for instance, done a lot of good for the nation’s road network of 193,200km — 34,123km (federal), 30,500km (state) and 129,577km (local government).
The huge budgetary allocations made for road construction and rehabilitation in the last 13 years notwithstanding, over 70 per cent of the 34,123km federal roads still remain in wretched state.
Mr. Godwin Nkwegu, an Abakaliki-based auditor, alluded to this in a telephone chat when he observed that, apart from few road dualisation and maintenance projects, no new Federal road has actually been constructed in the last 20 years.
Probably prompted by the avalanche of complaints, the Federal Government, through the Ministry of National Planning, in May 2011, released a two-year ambitious plan to “bequeath better road infrastructure in the next two years.”
It promised a road construction and rehabilitation spending of some N700 billion between 2011 and 2013; meaning that, by the turn of this year, the ugly issues of carnage on bad roads would have petered into thin air.
The document specifically said that N461.8bn would be spent on rehabilitation and expansion of Trunk ‘A’ roads across the country, while N5.5bn would be used in dualising the Onitsha-Owerri Road, and the Onitsha Eastern Bypass.
Under the plan, N2.6bn would go for the dualisation of the Section 1 of the Ibadan-Ilorin Road; N6.97bn on the construction of the Kano Western Bypass; and N565.3bn on routine maintenance and strengthening of road failures.
But how much of the N700 billion has been specifically expended for that purpose remains a matter of public conjecture. At least, 61 projects, valued at N214bn, were, at the time, awarded under the zonal intervention programme of the Ministry of Works; the majority of the projects remain not completed.
The plan, for instance, envisaged that the entire road network would be kept in useable condition through the activities of the Federal Roads Maintenance Agency (FERMA) across the various locations in the country by 2013. Independent checks reveal otherwise.
For instance, the long-stretch Ibadan–Ilorin Road, which is divided into three segments — Ilorin-Ogbomoso, Ogbomoso-Oyo and Oyo-Ibadan roads — was awarded to three different contractors by the Obasanjo’s administration but is yet to be completed.
Out of the three segments, only two —Ilorin-Ogbomoso (completed by the Yar Adua government) and Ogbomoso-Oyo roads— have been dualised. Although the Ogbomoso-Oyo Road is appreciably completed, it has not really been put to use, as motorists still ply alternative old road.
Indeed, the Oyo-Ibadan (third) segment of the road appears abandoned, as the contractors are scarcely seen on duty.
For the Onitsha-Owerri Road dualisation project, the Federal Government has recorded appreciable progress using Julius Berger and the RCC as contractors. But the Enugu-Onitsha Expressway and the Enugu-Port Harcourt Road remain death traps, taking no hostages, even though they are being slowly rehabilitated by the Federal Government.
Reacting to widespread discontentment over infrastructure decay in the last 20 years, Central Bank of Nigeria (CBN) governor, Mallam Sanusi Lamido Sanusi, however, said the country would need a yearly investment of $10 billion over the next 10 years to address the staggering infrastructure deficit, as well as check deterioration.
The number one banker was quick to add, “government cannot really provide this amount.”
Admitting that the current infrastructure situation poses significant “problem”, Sanusi, at a recent forum in Abuja, agreed that the challenges of development in the country were hinged on provision and maintenance of “adequate infrastructure.”
REGRETTABLY, the oil sector — the goose that lays the golden egg — shares a very big chunk in infrastructure decay, its current technology having been adjudged incompetent and obsolete by foreign experts.
Seventy-year-old former British Minister, global investment advocate and coordinator of the Honorary International Investment Council (HIIC), Baroness Lynda Chalker, in a recent interview with The Guardian, added her voice to the debate on mismanagement of oil revenue.
She said Nigeria would have an impressive record in Foreign Direct Investment, especially in the energy and financial services sector, only if it reviewed extant policies and think of modernising its oil infrastructure, among others.
Of particular concern to Chalker is the yawning gap between existing oil technology in Nigeria and global expectations. She observed that the country, having been producing oil in the last five decades, needed a holistic overhaul of its production technology and to make the upstream really efficient for competitiveness.
“No industry, she said, “carries on succeeding unless it maintains the equipment and…update their their systems. In the upstream, there are things that can be done to make it more efficient,” Chalker said.
Chalker also emphasised the need for the country to lay more emphasis on sustenable energy and work to “technically” overcome the twin challenge of oil bunkering and gas flaring, which, according to her, “pull” the country “down.”
In the same vein, there have been several issues concerning the maintenance of the Abuja National Stadium complex and Games Village, which construction contract was approved by the Obasanjo’s civilian administration on July 18, 2000, in preparation for the October 2003 All Africa Games.
Taken over by weeds and rodents, the dilapidated state of the Abuja sports complex, last week, came into focus, forcing the government to send Julius Berger on an ad hoc maintenance mission. The neglect of the N54 billion world-class stadium was the reason national football teams — the Super Eagles and the Golden Eaglets — abandoned it for the UJ Esuene Stadium, Calabar, even as the Flying Eagles still wander from one state to the other in search of “football nests”.
The poor (or lack of) maintenance culture for the Abuja edifice becomes even more significant considering the fact that the National Stadium in Lagos, the most populous and industrialised city in the country, that was built for the 1972 All Africa Games, has come to fall below international standards, at least, in terms of facilities and “environmental friendliness.
Politicians as Oases of Plenty in Desert of Need
WHY then has the colossal revenue done far less for the country in terms of infrastructure? The answer, many would argue, points to corruption and the constraints in the obvious shift towards a political class economy — a recurrent expenditure economy — where the amount of money used in maintaining politicians, public office holders (and their assistants) and civil servants is so much more today than was the case in the past.
“Most of our monies are going more to recurrent expenditure, travels around the world by Senators, attendance of all kinds of seminars all over the world by senior civil servants than in infrastructure and capital expenditure,” says Pat Okedinachi Utomi, a Professor of Political Economy and Founder of the Centre for Values in Leadership (CVL).
Most regrettably, the activities of political and economic managers of the Nigerian state, the very ‘giant of Africa’, now depends largely on oil proceeds.
From the Aso Rock to the National Assembly, the underlying motive for every political altercation is who really determines how the oil money is distributed.
Only recently, the 2013 Budget almost suffered a stillbirth over whether, or not, the per-barrel benchmark price for expected oil revenue would be $70 or $75.
Outside of the characteristic horse trading and settling of scores between the Presidency and the National Assembly, the crude oil matter became the biggest singular reason for the delayed implementation of the N4.9-trillion budget.
Now, President Jonathan has reportedly sent back the Budget to the lawmakers for “amendment,” demanding they rescind their decision on superintending over the Securities and Exchange Commission (SEC) budget as well as reduce capital votes.
Beyond the 2013 budget, the lawmakers, weeks ago, took on the controversial Petroleum Industry Bill (PIB) and provided unsolicited entertainment for their passive global audience over what Okechukwu Unegbu, a former banker and public affairs analyst, would see as an unnecessary display of arrogance and indifference to the plight of helpless oil-bearing communities, whose means of livelihood is already torn to shreds by activities of oil companies.
The staged fight, coming from an emergency coalition of Northern Senators, was unleashed on the PIB-proposed 10 percent fund for oil-bearing communities. Battle-ready, the distinguished senators opposed the provision, alleging, instead, that governors of the Niger Delta (they actually meant ‘oil-producing’ states, which enjoy special 13 per-cent derivation fund from the Federation Account) had squandered N11 trillion since the start of this dispensation in 1999.
But pro-Niger Delta senators would not take any more of that. Led by Ita Enang, they returned vitriolic for vitriolic; and reeled out statistics to prove that Northern oil merchants exclusively own 83 percent of oil blocks located in the very communities they are denying the 10 percent revenue gesture. Nothing else was heard on the matter after the President of the Senate, David Mark, a retired General, intervened to take the Bill to the crucial Second Reading.
Those, who make policies appear to have come to a self-defeating view that oil prices will always stay high; hence, the usual altercation about oil price benchmark for national budgets.
Of course, crude oil prices have stayed high beyond what is natural, following the traditional volatility and the cycles, and the reason is very simple: India rising; and China rising.
The beginning of the rise of the Indian economy, when Manmohan Singh, the current Prime Minister, as finance minister, began to open up the country resulting in a new surge of investments into India; and, of course China rising, meant that there was a global commodities boom (because India and China needed as much crude oil as they could find to power their great economies).
Consequently, there were unseasonal high prices that now affect Nigeria’s policy makers, especially lawmakers, who keep arguing about oil benchmark for budgets.
Perhaps, the failure to be sensitive to price volatility and having a major stabilisation account remains the tragedy of Nigeria’s leadership in the last 10 years.
Across the 36 states and the Federal Capital Territory, the country is dotted with abandoned projects worth several billions of dollars due to failure to make savings in times of abundance. Major projects were abandoned as oil prices fell; and this was reinforced by rapid change of governors in the states during the many years of military interregnum.
SADLY, oil has continued to push to the fore a culture of complacency so much so that public discourse on resuscitating agriculture, enhancing small-scale enterprises or local manufacturing and boosting non-oil exports have become mere exercise in futility.
How The Distraction Began: A Historic Perspective
Nigeria’s history and destiny was to take a dramatic twist when, suddenly in 1956, commercial quantities of oil was discovered in Oloibiri in present-day Bayelsa State. Its exploitation and subsequent exports had waited for a while, a waiting period similar to Ghana’s current experience, meaning that the revenue did not really start coming until the early 1970s.
In fact, there was a legendary commentary from a Federal Minister from the North, many years ago, about the day (in 1963, in the days of true federalism) it was announced at the council of states meeting with the Premiers of the Regions that the then Eastern Nigeria would begin to export oil. The legend goes that a very excited Sadauna of Sokoto returned to Kaduna after that meeting and summoned a cabinet meeting that same night to happily announce that Eastern Nigeria would begin to export oil “soon”. “Why the excitement”?, he was asked by one of the cabinet members, when his regional ministers gathered that night.
“Well, today, it was announced in Lagos that Eastern Nigeria would begin to export crude oil,” the Premier of the Northern Region told his cabinet. But one of the Ministers wondered why it should make the Sadauna happy, especially as the Eastern Nigeria, in line with the practice of true Federalism, would keep most of the proceeds, paying only a little into the Federation account.
And the Sadauna’s response was instructive: “You mean it’s not obvious to you the advantage that we (the northern region) have? Once they (Eastern Region) begin to earn money from crude oil, they will begin to mismanage what they do well and they will begin to be more dependent upon us for food. It is important for us now to set in place a strategy to become more dominant in agriculture so that when the money comes into Nigeria, it will flow to us.”
This legend became the platform on which the legendary groundnut pyramids was built and reinforced in the north. In fact, the policies that made the North the breadbasket of Nigeria, it is claimed, began during that period.
But, Bad enough, the nation currently grapples with the dangerous alchemy of the convergence of soldiers and oil.
The Military has a way of centralising authority, which is the very reason the Eastern Nigeria never got to export the crude that was celebrated by Ahmadu Bello, the Sadauna: Soldiers took the reins of power in 1966, created “divisive” states aimed at “unifying” the country.
The Prime Minister, in the fist Republic, had very little power over the all-powerful premiers.
Anambra State-born renowned economist, the late Pius Okigbo, in his unofficial description of events during the time, painted a vivid picture about the awesome powers of the premiers over the Federal Government when he unofficially told the story of how the premiers, in having their say, unwittingly scuttled the project of steel development in Nigeria.
According to the economist, the Alhaji Tafawa Balewa government had wanted to build a steel mill and had introduced the idea to the Council of States meeting. When he announced it, the premiers were said to have argued that the Federal Government could not build steel mill just in one region: If it wanted to build steel mill, then, it should build one in every region.
A heated debate had ensued following Balewa’s insistence that government at the centre could not afford to build one steel mill in every region. The debate, according to Okigbo, got so hot that, at a point, technocrats, including Okigbo himself, were asked to withdraw from the meeting, leaving the Prime Minister and the Premiers to continue the debate.
When Okigbo and his colleagues were called back, Prime Minister Balewa announced that the Federal Government would then build steel mill in every region. Dr. Okigbo said he looked at Balewa, knowing it was impossible, especially as the country could not afford it; and the Prime Minister simply looked away from him.
After the meeting, the surprised economist walked up to the PM and Balewa reportedly said: “ Dr. Akiigbo, the powerful premiers have had their say; we will have our way.” “Mr. Prime Minister, what is our way?,” he inquired. “We will do nothing,” Balewa responded.
That was how Nigeria missed the steel age when it was important, due to the quibbling among the premiers. A very important lesson about Nigeria’s federalism!
Mismanaging oil revenue
WHEN the military rule came in 1966 and centralised authority— and the Brigadier General at the centre sent out small Colonels to go and become governors, the kind of challenge that the premiers gave Balewa on steel could not happen anymore.
The nature of policy making was such that the impact of oil revenue was not the problem of one region anymore; it became the problem of the entire country.
First of all, oil revenue meant that the government of the day did not need to collect taxes from the people to do anything; hence, government stopped bothering about taxes anymore, which also meant that the people lost interest in holding government to account because, in their mind, public officials were not spending their money anymore.
It is, therefore, argued that the disconnect between the leaders and the led, due to oil, became Nigeria’s first major fracture that led to economic mismanagement.
Colossal revenues coming from a mineral commodity, like oil, tend to create a lot of distortions in patterns of expenditure.
With plenty of money, the Federal Government, at a time could afford to start building stadia— like the Tafawa Balewa Square — and more Army barracks, among others. Such expenditures started to boost the non-tradable goods sector of the economy, the outcome of which projected the Julius Bergers of this world as dominant companies and de-emphasised agro-based and export-oriented organisations.
The first shock is that when such revenue does not come quite as often as it used to come — and it happens with the volatility of oil prices — the government immediately stops paying the Julius Berger, or whoever that is constructing things; and the construction company lays off workers that it hired to build the stadia, as the case may be. The workers, in the first place, used to be cocoa farmers, who took up the positions because of impact on exchange rates: the more easy money comes from oil, the stronger the currency becomes in terms of exchange rate, and it means that the farmer exporting cocoa would get far less Naira than he or she used to get.
And that was how being in the cocoa farm became far less attractive than being a messenger at the Nigeria National Petroleum Company (NNPC), or being a bricklayer for the Julius Berger construction company.
Again, abandoning the cocoa farm, for example, meant that the quantum of cocoa that would be available for export had declined; which, perhaps, became the template for the gradual collapse of Agriculture in the country.
Sometimes, the exchange rate was so poor that it was not in the interest of the farmer to actually harvest the cocoa — as the trouble of harvesting, processing and eventually moving it to Lagos for the Naira he would get, would not be attractive enough.
Consequently, they (the farmers) began to abandon the farm, a situation that added up to the “Dutch disease” syndrome.
Similarly, the era of Cement Armada, in the 1970s, has remained indelible in the annals of commercial events in Nigeria. So much cement was imported into the country just to construct all of those stadia, barracks, among others; and the cash was available to do all of those.
The result was that all the ports were congested, forcing the government of the day to create task forces for decongesting the ports.
Indeed, that era brought the current PDP Chairman, Bamanga Tukur, to limelight, as he reportedly handled the part of the port clearance business at the time.
In fact, cement-laden ships had to wait for months to berth on Nigerian ports. The situation became so bad that demurrage to be paid by ship owners became so huge that it was probably more profitable for them to empty the cargo into the Atlantic and return to base; it was, indeed, cheaper to do so.
Of course, managing the situation became another racket of its own, forcing the country to sacrifice a vey brilliant Permanent Secretary in the Ministry of Defence at the time, Ibrahim Damcida, who recently died in the Dana plane crash in Lagos.
Accused of complicity, those, who ordered the cement importation, allegedly used Alhaji Damcida as the sacrificial lamb.
Asked to comment on the era of Cement Armada, Professor Pat Utomi painted a rather graphic picture: “ If one were able to fly in those days and look into the water, ships were lined up for miles into the Atlantic, waiting to enter our underdeveloped harbours.”
Flow of Oil Revenue
GLOBALLY, oil revenues were modest for a very long time. It was, by the way, very low in the 1960s, prompting the emergence of the Organisation of Petroleum Exporting Countries (OPEC) to force additional revenue for oil-producing third world countries at the time.
Shortly after the death of Venezuelan President, Hugo Chavez, few weeks ago, international TV host and CNN journalist, Fareed Zakaria, tweeted a question about how difficult it would be to find his (Chavez’s) replacement.
And part of the response, as trailed by The Guardian, was that the same forces that brought Betan Court — economic justice — would bring someone else.
That response, no doubt, evokes a reflection on history — the fact that a barrel of oil in the 1950s cost far less than a gallon of water; even though it kept the economies of the West running at the time. They (western governments) paid very little for oil.
But a pro-American Venezuelan, Betan Court, who ran for president and won the election, then flew into Washington for a bargain. In line with US’ interest, he needed to fight Communist insurgency but could not do so without improved revenue. So, western governments should pay more decently for oil, he requested.
Disappointingly, the US government gave the new Venezuelan President hard lessons on Economics — using the concept of Demand and Supply as the take-off point: Simple Economics made a barrel of oil worth about $1 at the time. The guys, who produced the oil, were in the third world; the guys, who use it, were in the First world; so, it was in US’ interest to pay so cheaply for it.
Pained by the treatment he got from his American friends, President Betan Court, in 1960, got on a plane to Bagdad; and that was how OPEC was founded.
The cartel that was OPEC, miraculously forced prices up, even though the hike was historically not too significant. But, as more countries joined the cartel, the prices gradually crept up, until Nigeria joined much later in early 1970s.
Perhaps, the major turning point in this scenario was in October 1973 when the Arabs and the Isreali nation fought the Yom Kippur war.
The Arabs decided to use oil as a weapon against the West and this led to the quadrupling of oil prices.
Hence, Nigeria became so rich that it did not know what to do with oil money.
But the major factor after the war ended, and the issues were resolved, was that so much money was being paid for oil by Western nations that a country like Nigeria and the Arabs had so much money that they hardly knew what to do with it.
Economics is all about incentives, and Nigeria, at a point, had all the incentives to spend its huge wealth. For instance, those who like to taunt the former Military Head of State, General Yakubu Gowon, during the heyday of the “oil boom” in Nigeria, would often remember a statement allegedly credited to him to the effect that Nigeria had money and the only problem was how to spend it.
In fact, a veteran politician, who used to share his jokes with young adults in Onitsha, sometimes in 1999, said Nigeria, at a point, had so much money coming into its coffers that its leaders could afford to stand on the streets, handing out Naira to Nigerians.
Truth is that the government, at the time, needed to find somewhere to spend the money, because, left on their own, the soldiers would simply keep building more and more barracks and buying military hardware.
It was also argued that excess revenue from oil accounted for the Udoji Awards and the problems of how it was distributed.
…And then corruption sets in
Subsequently, most government officials dumped money in Western banks in New York; and the banks — trying to make sure they got some value for the money — turned to these same countries, including Nigeria, with the mantra of being “under-borrowed.” Using the Gross Domestic Product (GDP) ratio, the ‘Maths,’ soon, gained ground on the global stage.
Even though the country was basking in money at the time, it appeared so impressed by this logic in 1976/1977 that it sent off General J.O.J Oluleye, as Federal Commissioner for Finance, to go for jumbo loan because the government thought the country was ‘under-borrowed.’
The loans basically put Nigeria in what many considered a debt trap because the facilities were subsequently mismanaged.
OF COURSE, the Buhari/Idiagbon coup of 1983 instituted a lot of probe of the Shagari men; and the verdict was that the loans taken by quite a number of governors did not really get to Nigeria to develop anything.
Perhaps, it is important to note that oil prices, then developed a character of volatility — rise and crash — but the next major leap after the Yom Kippur war, came in 1979, during the Iranian revolution: Shah Mohammed Rheza Palhvi, a friend of the West, sitting on the Peacock throne of Iran was toppled in a revolution led out of Paris by an old Muslim cleric — Ayatollah Khomeni, who brought down the Peacock throne.
The moment the Americans found that the Iranian ground was boiling, they allegedly shifted grounds from supporting the Shah, who incidentally died in the US while on medical treatment.
The revolution, which cut off Iran, as major source of crude oil to the world, also shot up oil prices such that it hit a mind-blowing $40 per barrel in 1981, causing the Time Magazine and Newsweek to cast the historic uniform headline —The World Over A Barrel.
Oil at below $10 per barrel
But oil prices continued its pattern of cyclical volatility before going into “the deep freeze” in 1997/998, during the years of General Sani Abacha, as Nigeria’s Military Head of State.
Interestingly, oil prices, at the time, went below $10 a barrel, about $9.5 at a time.
Although many, to a reasonable extent, would argue that Abacha deserved to be called names, it is interesting to note that the Nigerian economy was more tightly, if not better, managed with less than $10 a barrel of crude oil than it was in 2002 when prices was over $100 a barrel.
“Quality of life in 1997 under Abacha, I am willing to bet, was superior to the quality of life of Nigerians in 2002. This is the tragedy of Nigeria. Because they are not educated, they believe in wild, bombastic statements; and we do not have the rigour of analysis, patiently understanding things,” Chibuzor Okeke, an Onitsha-based public affairs analyst, said.
“The story about Abacha is that he stole a lot and did not allow others to steal. Whatever that means, the bottomline is that, at less than $10 a barrel of crude oil, Nigerian economy did not collapse,” said Utomi.
“This is why I have continuously argued that this joke in the National Assembly about benchmark for crude oil is a treachery that will only be judged by history because the country does not need to put more than $40 a barrel into its budget.
“Everything above $60 should go into a stabilisation account and future fund because we managed the country well enough with less than $10 a barrel. Whatever is happening now is a function of lack of patriotism by a political class that is consuming the wealth of its children and their grandchildren.”
Arguably, the country experienced several challenges between 1986 and 1993. Although the policy thrust was, in the main, aimed at the bottleneck in the economy, some critics, including General Obasanjo alleged that the era was challenged by “the four A’s” – Abuja, Ajaokuta, among other gigantic projects— that were funded from dedicated accounts.
Although he later got a spiteful reply from the late Admiral Agustus Aikhomu, Obasanjo had attacked the Babangida regime with that controversial commentary at a presentation of Major general Joseph Garba’s book. Obasanjo’s allusion to “Four A’s,” including the war in Liberia, that were funded through the “first-charge” Dedicated Account, was in synch with some commentaries that the gigantic projects were mired in corruption.
Source: OgoniNews