By Dr. Ahmed Adamu
 |
| Vandalized petroleum pipeline |
It took Nigeria seven years to subjugate Boko Haram
militancy in the north eastern part of the country, and this cost lives of many
gallant soldiers and innocent lives, it also cost the country huge amount of
money. It caused instability and economic downturn as resources that would have
gone for critical sectors were directed toward fighting the insurgency. Now,
with relative peace in the North-East and restoration of democratic veracity in
the country, one will think the country is on the brink of stability and
prosperity. Alas, the re-emergence of the Niger Delta Militancy has cast doubt
once again on the ability of the current administration to overturn the socio-economic
downturn in the country due to the extensive implications of the ongoing
petroleum pipeline vandalisms and destruction of facilities by the Niger Delta militants.
IMPLICATIONS
The effect of this militancy is multidimensional, and
include, but not limited to the followings:
1.
Revenue: The Petroleum sector contributes around
98% of the Nigeria’s foreign earnings, as such the country’s economy hugely
rely on income from petroleum exports. Any shock in the supply of the petroleum
will directly affect the country’s economy. As a result of the recent petroleum
pipeline vandalisms, the government revenue drastically reduced by 25%. In the
third quarter of 2015, the government revenue was N994.02 billion, and in early
this year, it came down to around N746.99 billion. This is a reduction by
N247.03 billion in just three months. This monetary loss resulted by the
vandalism could have been sufficient to share N1 million each to 250,000 young
entrepreneurs in the Niger Delta area. Unfortunately, this is entirely lost,
and by extension led to other social cost.
Alternatively, we can look at the volume of
the petroleum production to quantify the implication of these vandalisms per
day. For example, at the end of the first quarter of 2016, the daily oil
production in the country reduced to 1.4 million barrels of crude oil, falling
short by 800,000 barrels of the estimated average daily production of 2.2
million barrels. Using the oil price of $50 per barrel, this means that on
daily basis Nigeria lose $40 million, which is equivalent to N10 billion daily
as a loss.
The effect of income reduction has extended
to the feeble state governments, most of whom were recently rescued. And now,
they had to share the lowest allocation in recent years. The state governments
shared N281.5 billion in May 2016, which is 28% lower than what they shared in the
month of May last year. So, the revenue reduction as a result of the vandalism
will again affect the Niger Delta states.
2.
Political: The reduction in income will entirely
affect the implementation of the 2016 budget, and government will have to
prioritise and leave other projects. This will reduce the performance of the
current administration. The political implication will be that the people will
be disappointed given the higher expectation on the current administration, and
voters may try other options in the next election. An average Nigerian has high
tendency of blaming government for his plight, and with the current economic
hardship, the government is becoming helpless especially at state levels. The
implementation of the expansionary fiscal policy will be less effective, which
will make the economic recovery even stickier. The popularity of the current
administration will reduce if this continues.
3.
Expenditure: The cost constructing and laying
down of petroleum pipeline in any oil and gas venture is huge. It will cost
$82,000 to construct a gas pipeline per kilometre in Nigeria, which is equivalent
to N20 million. Now, for every one kilometre vandalism, the government will
have to spend N20 million to reconstruct and it may take long time to fix
depending on the enormity of the destruction. This will add to the overall
government expenditure in the petroleum sector and undermines its expenditure
in other sectors.
4.
Default in Contractual obligations: Some of the
Petroleum Fiscal Regimes require contributory payments to operator who fund the
petroleum production on behalf non-operating partners in JOAs. Nigeria has so
far being unable to answer operated cash calls of $7 billion as contributory
payments to oil and gas operators for the risks and cost incurred in petroleum
production in the country. And this was caused by reduction in the government
petroleum revenue and increase in petroleum expenditure as largely caused by
vandalisms in recent months.
The expensive LNG business is hugely
affected. Some of the LNG supply are time, volume and destination specific, and
once the contract is signed the entire risk is on the supplier. These pipelines
vandalism has reduced supply of gas to the NLNG plant in Lagos, which may delay
fulfilment and add to the cost and risks of the business on the Nigerian
government.
5.
Environment: The aftermath of most of the
petroleum pipeline vandalism are associated with environmental costs due to the
oil spillage or gas emission or explosions. These cause both water and air
pollution, which affect the health and economic activity of the affected community.
This externality is costly and may not easily be quantified. The activity of
reconstructing the damage facilities also adds to the pollution.
6.
Investment: At this important economic turning
point, when Nigeria needs more investment in other sectors of the economy, the
pipeline vandalisms add to the country’s business risks and sends bad signals
to potential investors, not necessary in the petroleum sectors, but other
sectors. So, there will be reduction in capital transfer to the country. This
will weaken the effectiveness of the country’s economic diversification
programme.
7.
Energy: From the beginning of this year to date,
the total electricity generation has reduced on average by 30%, and this was
caused by the sharp reduction in the gas supply to the power plants as a result
of these vandalism. The gas powered plants provide up to 80% of the country’s
power generation capacity, and they are operated mainly with gas. Any shock in
the supply of gas will make these expensive power plant redundant, which will
affect their viability and put the nation in darkness. The vandalism has
contributed to making cost of production more expensive due to the electricity
shortages that it caused. This is tantamount to discouraging local
entrepreneurs and reduce their efficiencies. It will also lead to inflation as
energy is an integral part of the factors of production. Any reduction in the
supply of electricity will add to the cost of energy in production, as producers
have to spend extra for autonomous energy supply.
8.
Refining output: With the recent deregulation of
the downstream petroleum sector, the petroleum pump price has increased up to
N145 per litre. However, for a litre of petrol refined and transported within
Nigeria, it can cost as low as N60/ per litre. Efforts have been made to revive
the existing refineries in the country so as to improve local supply and reduce
cost of petrol. However, the operation of this refineries have drastically
reduced as the supply of crude oil to the refineries have reduced due to the
oil pipeline vandalism. This made the refineries redundant, and make the
country rely more on the imported refined petroleum, which will eventually lead
to further depreciation of Naira.
CAUSES
Now, one will be curious to know what motivates these
militants to engage in this kind of activity that is tantamount to national
destruction. So, before addressing the problem, there is need to identify the
causes:
The militants are not asking for money or amnesty, they are
only asking for sovereign state. They don’t want to belong to Nigeria again.
But, what make them want to have a separate nation? Maybe, they think, they are
politically irrelevant within the current country settings or they think
someone from their region is more deserved to rule the country. The current
leader of the country defeated the former president who came from the Niger
Delta area, some believe that, it is a deliberate attempt to scuttle the
current administration that defeated the candidate from Niger Delta. This is
just a theory, and it has not been substantiated yet.
It is apparent that the militants have political motive, and
is likely that they act on their own to protect the interest of some of their leaders
and agitators from their region. These leaders may not have to give them
orders. The representative of the region in the central government, Hon. Rotimi
Amaechi lacks the command to convince the militants, because, he is considered
a political sell-out.
The current administration is committed to arresting some of
the former leaders of the Niger Delta agitators, prominently Mr. Tompolo, for
alleged corruption in some petroleum contracts during the last administration,
and despite some bloody attempts to arrest him, the government was not able to
achieve that yet. The government accused him of diverting the sum of N45.9
billion belonging to the government during the last administration. However, Mr
Tompolo said, it was a legitimate contract and due process was followed before
he was granted the contract to protect petroleum facilities in the region, and
his services were effective as there were no vandalisms or destruction at that
time. If there is any question regarding the legitimacy of the contract, he
said, the Economic and Financial Crime Commission (EFCC) should summon the
government officials that granted the contract first. So, Mr Tompolo felt
aggrieved that his Business bank accounts were frozen, and he thinks that he is
innocent and the government owes him.
Mr Tompolo has an unyielding command among the armed
agitators and militants in the region, and by seeing that the government is
against their idol, the militants don’t need command from him to retaliate. And
for them to see their mentor humiliated unduly, they rather separate from the
country. There are anticipations that more leaders from the region are likely
to be arrested and tried for corruption charges. The militants will do
everything to protect their leaders or retaliate. That is why they first
attack, because, attack is the best way of defence.
It was not coincidence that few weeks after declaring Mr
Tompolo wanted, the vandalism resurface in the region. So, the vandalism is
aimed at avenging the harassment on their leaders.
During the last administration, the government signed a
contract with the militants that they will drop arms and stop vandalism in
return for pipeline protection contracts. With the coming of this new
government, this contract was cancelled, and the pipeline protection is now
saddled with the Nigerian army. Despite the presence of Nigerian army in the
oil production region, the militants still vandalise pipelines, because, the
creek is their home, and they can navigate and ambush soldiers. The militants
can even stay inside water for three hours and some believe that they use magic
in their fight.
So, the justification of this fight from the militant
perspective is that, their leaders were granted the contract through due
process, and now the contract is reversed and their leaders are hunted for
crime they did not commit. This to them, is a breach of the contract terms, and
as such the condition of peace cease to exist as well, and they will have to
avenge. That is why they have no further confidence on the government and the
country.
With the economic hardship and unemployment in the region,
it is very easy to recruit and brain wash new members in the struggle. Even
though, some of the leaders are literate, but they leverage on the illiterate
ones to add more forces. And it is very easy to convince new recruit by
preaching political and economic isolation of the region, due to apparent
infrastructural deficit and poverty in the region.
SOLUTION
So, knowing some of the causes, we can easily draw the
solutions:
The government must plan for short term, midterm and long
term measures. In the short term, the previous contract signed by the previous
administration should be revisited with a view to identify exaggerated figures
and suspicious clauses, and then sign a reviewed contract within weeks. The
government must drop all charges against Mr Tompolo, and reinstate his business
accounts. If government still find any foul play in the execution of the previous
contract, should invite government officials from the previous government for
inquiries. In addition, heavy military power has to be deployed to prevent any
further destruction.
In the midterm, the President must personally meet with the influential
agitators from the region. The President should not rely on the regional
representatives in his cabinet, he must engage with the former president and
invite all the agitators for a peace talk. The president must agree not to
arrest or try anyone of them for any crime committed in the past. The president
should consider some political appointments to few of their respected leaders,
whom they listen to. In return, they must drop arms and help the Nigerian army
protect the pipelines and other petroleum facilities. The President should use
power to convert enemies to loyal friends.
Any special consideration for the militants has to be done
moderately and strategically not to promote violence for economic benefit. The
special consideration will have to be through investment in education,
agriculture, and environment to increase the inclusive economic participation
of the young people from the region. The Amnesty programme of President Yar’adua
was very effective and it has addressed the economic motive of the militancy.
The current vandalism is politically motivated, so there is less need of
monetary investment on the militants.
There is need for general awareness and campaign for social
cohesion and tolerance, as well as regional integration. The six regions are
integral part of each other, and the young generation must appreciate the
contribution each region give to achieve the Nigeria of today.
There is need for awareness to understand the national and
international laws of land and natural resources. All minerals and natural
resources on land and in sea belong to the Nigerian state, not to any
particular state or region. And the sea where the oil and gas operation take
place belong to the Nigeria, because, nobody can own a sea except the
government. Nigeria is lucky to own a longer nautical miles in the sea because of
its wider land mass. So, even the north that contribute 72% of the land mass,
which resulted to wider sea ownership to Nigeria, cannot claim ownership of the
petroleum deposit in the sea. So, petroleum resources within the country’s
territory belong to Nigeria exclusively.
The theory that groundnut money were used to build oil wells
may not be substantiated, as the beginning of petroleum industry in Nigeria was
based on concessionary fiscal system, where international oil companies invest
their money in exploration, development and production of the petroleum
resource. Commercial discovery and production of oil was first made in 1956 in
Oloibiri (in present Bayelsa state) by Shell D’Archy, not by Nigerian
government.
In the long-term, the Nigerian economy must be independent
of petroleum sector, to avoid being vulnerable to any shock in the sector.
Alternatively, petroleum deposits can be explored in other parts of the country
to diversify its sources of supply. Development of renewable energy sources can
be another option.
It is just my opinion!
Dr. Ahmed Adamu,
Petroleum Economist and
Development Expert,
Pioneer Global Chairperson of
Commonwealth Youth Council,
University Lecturer (Economics)
at Umaru Musa Yar’adua University.
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