28 Oct

The week ahead – New oil finds should not derail our focus

Yesterday, Exxon Mobil announced significant offshore discovery of oil in Nigeria. The estimates of the quantity discovered in the Owowo-3 and Owowo-2 fields ranged from 500 million to 1 billion barrels. The joint venture partners who hold interests in the field include Exxon Mobil (27%), Chevron Nigeria Deepwater G Limited (27%), Total E&P Nigeria Limited (18%), Nexen Petroleum Deepwater Nigeria Limited (18%) and NNPC (10%).

The Niger Delta Avengers on Tuesday bombed a Chevron Nigeria Limited offshore Export Pipeline at Escravos, Warri South-West LGA, Delta. The militant group in a tweet by its spokesperson, the self-styled Brig. Gen. Mudoch Agbinibo, confirming its involvement, said: “At about 3:45am, our strike team 06 took down Chevron Escravos export pipeline at Escravos offshore.” It stated:”This action is to further warn all IOCs’ that when we warn that there should be no repairs pending negotiation/dialogue with the people of the Niger Delta, it means there should be no repairs.” Attacks by the NDA and other militant combines have sent Nigerian crude output to a more than decade-low and deepened an economic crisis brought on by persistently low oil prices.

This week, the NNPC admitted that the sale of petrol at the current market price of ₦145 per litre was unsustainable due to the prevailing exchange rate. NNPC also admitted that despite the preferential exchange rate made available to oil marketers to import petrol, many were reluctant to do so because they would be selling at a loss at the prevalent pump price, implying that NNPC that continues to import it was subsidising petrol. Speaking in Lagos at the 2016 Oil Trading and Logistics (OTL) Conference, the Group General Manager, Crude Oil Marketing Division at the NNPC, Mele Kyari, said there was no way petrol would continue to be sold at the current pump price. Kyari was however quick to add that the present administration would not announce another increase in the petrol pump price, because Nigerians would not accept it. According to him, legislation by the National Assembly would be required for petrol to be sold above ₦145 per litre.

A new report by NEITI has shown that disbursements from the Federation Account to the three tiers of government plunged by 31 per cent in the first half of this year relative to the corresponding period of 2015. According to NEITI, the drop in revenues may negatively impact budget implementation across the three tiers of government this year, increase the size of budget deficits, and deepen the debt burden. The report, ‘FAAC disbursements in the first half of 2016 and possible implications’, is the maiden issue of the NEITI quarterly review. It analysed disbursements by FAAC in the first halves of 2015 and 2016, and highlighted possible implications for public governance and management in the country. It stated that revenues shared to the federal, states and local governments were less by over ₦800 billion from ₦2.89 trillion in the first half 2015 to ₦2.01 trillion in a similar period this year. This 30.9 percent decline reflected in lower allocations across the board.

Cross River State governor, Ben Ayade, on Tuesday appointed 1,106 persons into various positions. The positions were in the categories of special advisers, special assistants, personal assistants as well as the chairmen and members of boards, commissions, departments and agencies. The governor had, in a parley with journalists in August, reiterated his decision to appoint over 1,000 political appointees for poverty alleviation in the state. So far, there are 28 commissioners in addition to 65 special advisers and over 100 special assistants, personal assistants and community relations officers. A breakdown of the appointments shows that 799 were appointed into various boards, commissions and agencies, while the remaining 307 appointees were categorised into special advisers (six), senior special advisers (30), special assistants (75) and Personal Assistants (25). Others are personal assistants to paramount rulers (16), representatives of each local government in the state food bank unit (90), liaison officers for the 18 local government area and three senatorial districts (21), special assistants on religious affairs (18) and permanent secretaries (26). The appointments would take effect from November 1.

The Ogun State governor, Senator Ibikunle Amosun, has called on the federal government to accord a special status to his state, explaining that about 423 companies with a minimum of over ₦2 billion investment capital are currently operating from the state. Amosun said that of these companies, over 100 have opened shop since the beginning of his administration, and added that 14 new ones are in the process of inauguration. The governor, speaking at an industry conference, said Ogun State was next to Lagos State in terms of non-oil revenue to the federal government.

The Miyetti Allah Cattle Breeders Association of Nigeria (MACBAN) has angrily reacted to the recent attack and arrest of its members’ cows in Ekiti state by Governor Ayodele Fayose. In a statement the group released over the weekend, Baba Othman Ngelzarma, the general secretary condemned Ekiti Governor, Ayodele Fayose for actions against its members who are “bonafide citizens of the country.” The governor reacted strongly, saying that “Ekiti people must be prepared to defend their land against these Philistines whose attributes and characters are extremism, violence, bloodshed and destruction.” In a related development, the Secretary to the Delta State Government, Festus Ovie Agas, was held hostage by some youths from Osissa community in the Ndokwa-East Local Government Area of the state, who are protesting against the attacks and killing of three members of the community by Fulani herdsmen. The protesters intercepted the SSG’s convoy who was travelling to Asaba after spending the weekend with his family in Ughelli at about 6:55am along the Ughelli-Asaba expressway on Monday. Finally, an Enugu State-based Fulani herdsman, who’s name was simply given as Alhaji Sodu claimed that over 100 cows belonging to him were missing as a result of an alleged attack on a Fulani settlement in the state. He accused the youths of Aku community in Igbo-Etiti Local Government Area of masterminding the attack, adding that a herdsman sustained three gunshot wounds following the incident while three others were claimed to be missing. Residents of the Agu Obodo, Obeagwu Ozalla community in Nkanu West local government area of Enugu State on Monday staged a protest over the attempt made by over 200 Fulani herdsmen to relocate to the community with their families and cows.

Suggestions

  • The new oilfield announced by Mobil is a great find for two reasons. Nigeria desperately needs good news to come of its oil industry that will assure future supply especially as it seeks to do the kinds of deals recently announced with India. Since this is a deepwater location, it is unlikely that militant activity will affect production when it commences. However, a note of caution, along the lines that Exxon itself placed in its press release. First, this should not stop the Nigerian government from continuing to seek to diversify its revenue sources and the economy from oil. Second is that there is still a time lag between this announcement and when production will commence, and many factors can affect this. Hence this is not the “get out of jail card” the government seems to be finding to turn the current recession around. Finally, it remains to be seen how Nigeria will negotiate increasing its OPEC quota to take advantage of this discovery.
  • The latest attack by the Niger Delta Avengers only serves to illustrate the damage that the government’s inability to advance a coherent response to the persistent issues in the Delta region. The issues are fundamental to how Nigeria is structured and until that is addressed or a clear path to that restructuring is created and embarked upon, it is clear that other solutions are mere temporary palliatives. In the absence of an effective strategy, the conflict will likely escalate, putting Nigeria’s production revamp in the near term, and wider economic recovery in the long term in question, further affecting global oil The Avengers are back supply at a time of increased volatility. One thing which is clear is that the Avengers seem willing and able to make good on their threats to launch a second wave of attacks on anyone that defies its order to let sabotaged infrastructure lie until the government meets its demands. That should worry Abuja more than anything else, since the plans for economic recovery are hinged on securing oil supplies at record high levels.
  • Upon the release of the updated PPPRA template that moved petrol price from ₦87 to ₦145, SBM pointed out two things: the first was that there was no unequivocal statement as regards the removal of fuel subsidies contrary to various reports that circulated at the time. Second was that fixing the price of the largest FX consumer in the economy while simultaneously The Avengers are back “floating” the FX rates was unsustainable. We have repeatedly called for the PPPRA template that fixed prices to be ditched, and market forces allowed to determine fuel prices. After months of subsidies to the oil marketers in discounted foreign exchange, we are back at square one and a serious petrol scarcity looms except the government makes one of three choices – commence payment of fuel subsidies to oil marketers, or shift the ceiling of the pump price while still fixing the price. These two will be bad decisions that do not augur well for Nigeria. The only solution which is advisable is to allow prices to be market determined. There will be immediate inflation, but Nigerians will adjust demand, and equilibrium will be found, without straining the public purse and creating subsidy billionaires.
  • This comes as a surprise to a total of zero people. One of the key communications that this government has failed to keep up, which the previous government did credibly, is publishing quarterly budget performance reports as stipulated by law. It is important the government begins to do this. It is also important that government aligns its planning to realities. We have already pointed out that the MTEF for example expects The common pot shrinks even more crude prices and production levels to be at a point which is not in tandem with reality, a recipe for a repeat of what we have experienced in 2016 happening in 2017. The planners in the government need to strip away presenting wishful thinking as budgeting, to enable them explore more realistic and creative means to fund the ambitious budgets.
  • In Cross River, Ben Ayade’s thinking that government is essentially the most efficient poverty alleviation scheme ever created by man is worrying for two key reasons. Firstly, the essence of government is to act as an engaged observer, like a referee, setting rules, enforcing standards, providing the basic building blocks that make a modern society function – infrastructure, policy direction and security. Governments do not produce anything – cultivate the farms, teach kids in schools, manufacture cars. History has produced an overwhelming body of evidence which shows that when it tries to do so, it is often lacking in quality, poor at meeting demand and inefficient Secondly, there are only so many people who can be appointed into senior (or even any) government positions – the state is home to 2.8 million resident according to the 2006 Census. The government of the nation’s 11th largest economy is best served sticking to what it is actually designed to do, creating the best possible space for the people of Cross River to unleash their potential and create value. But first, it must cut its coat according to its size.
  • Ogun’s call for special economic recognition is the second by a Nigerian sub-national government since federal legislators from Lagos introduced a motion calling for the city state to be recognised as Nigeria’s commercial capital, yet another sign that fiscal federalism is fast emerging as one of the main structural pillars that the current administration will have to address in some form in the near future. There are only four states in the country where it is easier to start a business than Ogun, and it is harder to register a property, obtain a construction permit and enforce a contract in $90 billion Lagos than in its next door neighbour, the country’s 9th largest economy – hence the migration of businesses across the Isheri Bridge. Conventional thinking often views Nigeria as a two-speed economic system where the more economically prosperous southern states prop a poor but resource rich north. We think this problem requires a more nuanced understanding and foresee a situation where states with larger, more viable economies will increasingly demand autonomy, irrespective of geographic locale. As Africa’s most populous democracy, the devolution of powers to sub-national governments and proper implementation of fiscal federalism is not only sensible, it is required. We also think that governors must demonstrate that they have taken real responsibility for their states and leveraged their advantages while negotiating for more from the center. Ogun does not take advantage of its proximity to Lagos. It has not developed infrastructure in the locations that border Lagos. We think the Ogun governor needs to focus his efforts on doing this.
  • The worrisome trend of accusations by members of various cattle herding groups leading to the wholesale slaughter of people seems to be shaping up with regards to the Aku community in Enugu state. Chatter suggests that there is already a build-up of herdsmen in the area. Considering that Aku is a few kilometres from Ukpabi-Nimbo, where a massacre occurred earlier, this is extremely distressing. In the same vein, the reaction of MACBAN to the actions of the Ekiti state government leaves a lot to be desired. In theory, if not in practice, the governor of a state is in charge of the security of his citizens, and Governor Fayose owes his citizens that much. As the protest in Delta State, and other similar protests have shown, people are losing patience with the complacency of the federal government in sorting out this matter, and we fear that, as shown in Kaduna State just over a week ago, more and more people will begin to take matters into their own hands.