By Gideon Osaka
Nigeria yet again celebrated another Democracy Day on June 12, 2022 with the traditional fanfare that hallmarks the Day notwithstanding the dire political and economic constraints that have bedeviled the country since independence.
The razzmatazz displayed on the Day undeniably lend credence to the fact that June 12, originally moved from May 29 by President Muhammadu Buhari in 2018, has become one of the most significant days in Nigerian history – a day of sombre contemplation on the tragic annulment of arguably the nation’s freest and fairest election in1993.
Since the return of the country to civil rule in 1999, politicians and civil society organisations have been marking the day as a day that indirectly gave birth to the democracy the nation has been enjoying now, effectively bringing to an end 16 years of military rule after the termination of the second Republic by the current President on December 31, 1983.
Democracy Day 2022 marked 23 years of the return to civil rule and the longest period of unbroken democratic government since independence in 1960. As is customary on every Democracy Day celebration, the President would address the nation. Political office holders, particularly elected governors, also use the opportunity to present their score cards for assessment and this year’s commemoration was no different.
Nigeria’s endowment in terms of natural resources, particularly crude oil, has never been in doubt. The country’s proven oil reserves are estimated at between 40 billion with 203 trillion cubic feet gas which is three-time as substantial as the crude oil reserves. Its reserves make it, the tenth most petroleum-rich nation, and by far, the most affluent in Africa.
Since the late 1950s when Nigeria discovered crude oil and moved from an agricultural commodity exporter to a rentier state, oil defines the strength and weakness of the Nigerian state. Nigeria’s politics, the exercise and projection of state power have risen and waned as a result of vicissitudes of the oil markets. The Nigerian economy has been intricately intertwined with the developments in the oil sector since the oil boom of the early 1970s. Nigeria is the largest oil producer in sub-Saharan Africa and since 1971 a member of Organization of the Petroleum Exporting Countries (OPEC), with an estimated production volume of two million barrels/day and at some point, the world’s sixth-largest producer. Crude oil exports constituted about 70 per cent of total export revenue, according to OPEC. The country’s fiscal policy is strongly controlled by oil volume, value and volatility in price.
To this extent, Valuechain undertook an objective study of the important milestones and developments around the oil and gas sector within two political system (Democracy and Military administrations). Since independence, the sector has served two different political regimes, namely the civilian rule (democracy) from 1960 to 1966, 1979 to 1983 and May 1999 to 2022, and the military rule from 1966 to 1979; 1983 to May 1999.
It is pertinent to mention that there has not been a consensus about which of the two regimes have used oil sector resources more than the other to impact greater economic benefits to Nigeria or Nigerians. While some Nigerians affirm that there is no remarkable difference between the last 23 years of democracy and 30 years of military rule in the sectors in terms of positive achievements, others assert their preference for the civilian regime and vice versa.
The analysis presented by Valuechain is intended to assist policymakers and investors to have the requisite knowledge and make informed decision about the industry.
How the military ruled the oil sector
Nigeria’s foray into oil production did not pay off until the eve of the country’s independence when oil was found in commercial quantities. Two decades of search and investment yielded significant find in Oloibiri in 1956 where oil was found. During the first decade of its discovery, oil did not play a significant role in the economy. However, agriculture which was the key productive sector of the economy at the time, was gradually crowded out by the growing oil sector. Oil became an ever more important commodity in the Nigerian export economy during the 1960s even though the civil war of 1967-1970 hampered the expansion of the industry.
The turbulent military interventions of 1966 yielded nearly a decade of rule by General Yakubu Gowon who presided over the early years of the petroleum boom. It was only in the late 1960s that the Federal Military Government took decisive steps to gain greater control of the oil industry. This was accomplished through the promulgation of the Petroleum Decree 1969 (later called the Petroleum Act of 1969).
The Act, which superceded the Mineral Act of 1958, Petroleum Act of 1958 and Petroleum Control Law of 1967, gave extensive power to the Minister of Petroleum, acting on behalf of the Nigerian state to exercise ownership and control of oil. Under the military regime in 1965, the old Port Harcourt refinery was established with an original installed capacity of 35,000 BPD. It was subsequently debottle-necked in 1972 to 60,000 BPD.
Immediately after the war, Yakubu Gowon then Head of State was compelled to reform the petroleum industry for its assuming potentiality in the Nigerian economy. Crude oil production had grown 5,100 barrels per day (bpd) in 1958 to over 417,000 bpd in 1966 on the eve of war. However, after the war in 1970, the total production rose from 396 million barrels to 643 million in 1972 and 823 million in 1974.
The end of the 30-month civil war in January, 1970 brought unprecedented economic fortune to Nigeria occasioned by the oil boom – the unexpected rise in oil price and consequently oil revenue for Nigeria. The most significant development of that era was the emergence of Nigeria as a major producer of oil. Nigeria was Africa’s highest oil producer, ranked sixth in the world, and was supplier of crude oil to major and developed countries of the world including the United States.
The reason for this oil boom was attributed to a global scarcity even as Nigeria had joined Organization of Petroleum Exporting Countries (OPEC) in July 1971 which in late 1973 set up an embargo on western countries over their support of Israel in the Yom Kippur war in October of that year. More so, the journey of OPEC gave Nigeria three major advantages over the Middle East market, shorter haulage to America and Western Europe markets, and crisis-free oil stabilizing and regulation of prices. Other achievements attributed to Gowon’s junta was the construction of petroleum refinery and laying of pipes carrying crude oil from Port Harcourt to Kaduna in Northern Nigeria.
By May 1971, the Nigerian National Oil Company (NNOC) was established to supervise oil extraction and provide guidelines to the multinationals that carried out oil production. In 1976 the NNOC was merged with the Ministry of Mines and Power to form the Nigerian National Petroleum Cooperation (NNPC). By 1975, Decree 6 increased federal government share in oil sector to 80%, with only 20% going to states. By 1978, perhaps one of the most important steps taken by the federal government was the creation of the land use act which vested control over states lands in control of military governors appointed by the federal military regime. Eventually this led to the passing into law Section 40(3) of the 1979 constitution which declared all minerals, oils, natural gas, and natural resources found within the bounds of Nigeria to be legal property of the Nigerian Federal Government.
In July 1979, the Olusegun Obasanjo military regime nationalized the interest of British Petroleum (BP) when the government established that the company had oil deals with apartheid South Africa. Apart from overseeing the transition to civilian rule, the Murtala-Obasanjo government advanced an ambitious programme of state-led industrialization. The government in 1973 initiated the First Participation Agreement and secured 35% shares in IOCs – which by the Petroleum Act of 1969 were now incorporated in Nigeria.
Barely a year after this, government upped its stake to 55%. By 1979, government’s equity increased to 60%. Following the nationalization of British Petroleum the same year to influence British position on the independence of Zimbabwe, the Nigerian military government extended its holdings to 80%. However, with declining investments in the oil and gas sector, the government decided to revert to 60% equity in 1989 in the Fifth Participation Agreement and 55% in the Sixth Participation Agreement in 1993.
Alongside strategic management of equity holdings, the military government created institutions to exercise control over the industry.
The Department of Petroleum Resources (DPR) and Nigerian National Oil Company (NNOC) were created in 1970 and 1971 respectively. In 1974, the DPR was upgraded to the status of Ministry of Petroleum Resources. However, in 1977 both the NNOC and MPR were abolished by the Act establishing the Nigerian National Petroleum Corporation (NNPC). The Act, made the NNPC government’s sole agent in exercising control and ownership of oil in the upstream, downstream and service sectors. Warri Refinery was commissioned in 1978, with a throughput capacity of 100,000 BPD. It was subsequently de-bottle-necked in 1987 to a capacity of 125,000 BPD under Ibrahim Badamasi Babangida’s military regime.
It would be recalled that President Muhammadu Buhari served under the late General Sani Abacha as head of the Petroleum Trust Fund, (PTF), when hundreds of millions of dollars generated from the increase in the pump price of petrol in the mid-nineties were injected into critical infrastructure structure, namely, roads, healthcare, education, urban renewal, transportation among others. Some of the infrastructures put in place by the Trust Fund are still in existence to the credit of the Abacha regime, repressive though it was.
In the 1980’s and 1990’s, the military governments conducted several attempts to reorganize the NNPC in order to increase its efficiency. However, not much could be achieved. Red tape and poor organizational standards, with the NNPC being divided into several sub-entities each fulfilling a particular function. This is despite the NNPC’s growing participation in the industry, including development and exploitation of numerous off-shore wells. As a result, the functionality of the industry has been dependent on foreign Corporations, not the NNPC.
The New Port Harcourt Refinery was commissioned in 1989, with an installed capacity of 150,000 BPD and a mix of units to enhance the yields of PMS and light products. So also the Kaduna Refinery, originally commissioned in 1980 by President Alh. Shehu Aliyu Shagari with a throughput capacity of 50,000 BPD, the plant was expanded in 1986 to 60,000 BPD capacity.
Another milestone development under the military was the establishment of the Oil Minerals Producing Areas Commission (OMPADEC) in 1993 as a result of the agitation by self-determination movements in the oil-producing areas. The OMPADEC was endowed with three per cent of oil revenues to address the ecological, social and economic challenges of the region. OMPADEC was a federal intervention to address developmental challenges in the region.
At the twilight of the military exit from the political scene was the delivery of the NLNG project. The Nigeria LNG Limited which was incorporated as a limited liability company on 17 May 1989 under the military administration of Babangida, to produce LNG and natural gas liquids (NGL) for export came into operation in 1999 with its first train that year.
The oil sector 23 years of democratic governance
There have been divergent views about milestones achieved in the sector in Nigeria, since the return of the country to civil rule in 1999. The country’s economy has seen a boom since the return to civilian rule. The boom has also been fueled by crude oil. The nation in the early years of democratic rule witnessed the highest production of barrels of oil per day, figures never seen since independence. Under the democratic dispensation and for the first time in the annals of the nation’s history, the Presidency directly supervised and presided over the petroleum sector.
Persistent pressures for Nigerian participation in the lucrative sector led to the enactment of the Nigerian Oil and Gas Content Development Act (NOGIC Act) 2010. The main objective of the NOGIC Act was to increase the level of Nigerian Content in the Country’s oil and gas industry. The enactment of the Act which led to the creation of the Nigerian Content Development and Monitoring Board (NCDMB) has recorded some promising results with indigenous companies increasingly entering into the upstream and service sectors and also taking over onshore holdings currently being relinquished by the IOCs.
Consequently, Nigeria moved from near zero participation in the oil and gas sector to the point that indigenous operators such as Seplat, Aiteo, Eroton, and others are now responsible for 15% of Nigeria’s oil production and 60% of domestic gas supply. During the early years of democratic rule, several states based and civil society initiatives were being mobilized to ensure that oil delivers benefits for a greater proportion of both living and unborn Nigerians. These mobilizations crystalized with the enactment of the Nigeria Extractive Industries Transparency Initiative Act (NEITI) 2004 and subsequently the creation of the agency, NEITI. The initiative, which drew inspiration from the advocacy of groups such as Transparency International, Extractive Transparency Initiative (EITI) and Revenue Watch Institute (RWI), sought to enhance monitoring, disclosures and publication of revenue flows in the industry and to governmental institutions.
One of the additional cleavages that came with democracy rule was the unprecedented sharp departure from the typical use of state force to suppress dissent by indigenous civilian and militia groups in the host communities of Niger Delta region. This manifested in June 2009, following Nigeria’s President Umaru Yar’Adua announcement of a 60-day amnesty for combatants in the region. The amnesty was to be operationalised through a Disarmament, Demobilisation and Reintegration (DDR) scheme. The relative stability that accompanied the decline in oil-related violence, conflict and criminal activities following the amnesty programme, resulted in improved crude oil production.
The growing interest in saving for the rainy day became the conventional wisdom as periodic fluctuations in oil prices undermined macro-economic stability of the nation. This led to the creation of Excess Crude Account (ECA) where government saved oil receipts in excess of projected incomes as a result of positive price fluctuations. The ECA was established in 2004 by President Olusegun Obasanjo to ensure that resources are saved to bolster revenues in periods of falling production and low prices.
The ECA dispensation was fraught with controversy as many actors, especially state governors challenged its illegality. It is against this background that President Goodluck Jonathan proposed the introduction of a Sovereign Wealth Fund (SWF). The proposal was adopted by the National Economic Council and the National Assembly, which passed the Sovereign Wealth Investment Authority Establishment Act in 2011.
Recent milestones
The historic Signing Ceremony, in May 2021, of the Execution of Oil Mining Lease (OML) 118 Agreements between NNPC Limited and its Contractor Partners: Shell, Exxon Mobil, TOTAL and NAOC. These Agreements settled long-standing disputes that stalled development in the sector.
Under the current democratic dispensation led by President Muhammadu Buhari, construction is ongoing on the 614km Ajaokuta-Kaduna-Kano Gas Project, the largest domestic gas project in the country ever. This is in addition to the US$45 million financing secured from the Islamic Development Bank, for the Front-End Engineering Design (FEED) Study for Nigeria–Morocco Gas Pipeline (NMGP) project.
Recent democratic leadership in the country have spearheaded the successful completion of Nigeria’s first Marginal Field Bid Round in almost 20 years, expected to raise in excess of half a billion dollars, and open up a new vista of investment in the sector likewise the financial close and signing of the contract for NLNG Train 7, which will grow Nigeria’s LNG production capacity by 35%, has been recorded.
In December 2020, the new NPDC Integrated Gas Handling Facility in Edo State, the largest onshore LPG plant in the country, with a processing capacity of 100 million standard cubic feet of gas daily, producing 330 tonnes of LPG, 345 tonnes of propane and 2,600 barrels of condensate, daily was commissioned.
Other notable infrastructure investment recorded in the sector include the completion and commissioning of the 5,000bpd Waltersmith Modular Refinery at Obigwe, Imo State; the refinery is currently in operation with the products completely sold out. Ending decades of uncertainty concerning the future of Nigeria’s oil and gas sector.
The long-awaited reform petroleum industry reform which was kick-started since 1999 immediately after the nation returned to civil rule, which had suffered from inconclusive passage or turn-down by the executives due to disagreement between the Legislature, Executive and Stakeholders, was finally passed by the National Assembly, and signed into law by President Muhammadu Buhari in August 2021. Petroleum Industry Bill now Law, is a piece of legislation that will serve as the framework for the operations in the oil and gas industry.
The law midwife the establishment of an Upstream Petroleum Regulatory Commission to oversee upstream petroleum operations which replaced the DPR, and the establishment of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (replacing the PPPRA, PEF) which would be responsible for the technical and commercial regulation of midstream and downstream petroleum operations in the petroleum industry in Nigeria. It will also see the transformation of the Nigerian National Petroleum Corporation (NNPC) into a profit-oriented company devoid of political interferences.
Conclusively, industry watchers believe that any form of comparative analysis of events in the oil and gas sector during the military regime and the current dispensation must not be misconstrued as a tacit way of scoring the military era higher than democratic administration.
However, key stakeholders argue that given the quantum of resources that have accrued to the sector in the past 23 years, the democratic dispensation – all things being equal – should have faired better, but despite the imperfection Petroleum Industry Act (PIA) as insinuated by many, it is hopeful that things will change for better in the industry if the law is implemented to the letter.