With a domestic petroleum sector in crisis, Rory Johnson explores the direct and indirect impacts of corruption on Nigeria’s most lucrative market.
Africa’s largest crude oil producer and exporter once again faced the dark irony of acute national fuel shortages over the festive season. This is because, lacking the domestic capacity to exploit, refine and distribute its vast natural crude reserves, Nigeria still imports more than 80 per cent of its petroleum. The nation currently possess just four refineries, all of which are operating far below optimal levels. An additional 18 refinery licences were issued by former President Olusegun Obasanjo back in 2005 to various private investors but not a single one of these led to any new facility being built. Additionally, a parallel lack of investment into the maintenance and expansion of the country’s energy production and distribution capacities has resulted in all areas of the country experiencing frequent and widespread blackouts. This consequently forces Nigerians to use petrol generators to produce electricity, placing even more pressure on the domestic fuel sector.
There is a pervading belief that the country’s woefully inadequate production and supply network stems largely from embedded and rampant corruption within the sector. In May 2016, President Muhammadu Buhari’s government removed state fuel subsidies that had been in place since the 1980s. The rationale behind this was firstly to save the government a substantial sum of money, easing pressure on foreign currency reserves, but also to try and combat corruption, diversion and inefficiency by stimulating competition in the petroleum sector. However, Buhari’s government made no simultaneous efforts to break the de jure monopoly powers of the state-owned Nigerian National Petroleum Corporation (NNPC). The NNPC is above all accused by the Petroleum Marketers Association (PMA) of artificially depressing import rates for petroleum to roughly 8 cents below real landing costs, meaning that it still remains impossible for competitors to enter the market. The maintenance of market privilege through such schemes incentivises corruption. For example, critics within the Nigerian government recently decried the fact that, in spite of NNPC claims that US$20bln has been spent on Turn Around Maintenance (TAM) projects across the country, Nigeria’s refineries continue to have the worst performance record in Africa, running at just 11 per cent of capacity.
During this latest period of shortage NNPC, for its part, accused the Depot and Petroleum Marketers Association (DAPPMA) of deliberately hoarding Premium Motor Spirit (PMS) to artificially stimulate the crisis and inflate prices. A combined team of NNPC and Department of Petroleum Resources (DPR) representatives together with state security agents did uncover several illegal reservoirs of fuel in the capital, Abuja. Hefty fines were imposed, and the pump stations were closed down with immediate effect. These rogue petrol stations provided a convenient scapegoat for the NNPC which cited them as being universally representative. Such claims should be approached with distinct caution. When the financial stakes are so high, and transparency levels are so low, it becomes hard to believe anyone.
The black market for petrol thrived during the crisis with prices almost doubling in the space of a few weeks. This incentivises criminal activities such as piracy, attacks on oil rigs and pipeline sabotage – known colloquially as ‘bunkering’ – as it alters the cost-benefit considerations. It is perhaps no coincidence that on 15 January the notorious militant group, the Niger Delta Avengers, gave up on amnesty talks with the government and threatened to launch a fresh wave of assaults against off-shore oil facilities. The militants stated that they would focus their attacks in the seas off the swampland delta region including around the Bonga Platform, the Agbami, EA and Akpo fields. During the last wave of concerted attacks on pipelines and other facilities by various militant groups in 2016, Nigeria’s crude production fell from 2.2 million barrels per day (mbpd) to around 1 mbpd. The damage they can wreak is clearly significant. Militant groups draw upon local resentments over embedded poverty, unemployment and environmental damage to garner support and aid them in evading security forces. Seeing foreign investors exporting large quantities of crude oil while domestic pumps run dry only serves to heighten discontent. American firms in particular now also face being prioritised as targets following the recent antagonistic remarks made by President Donald Trump, which serve as a propaganda tool for the militants.
The army’s campaign against these illegal activities across the Niger Delta has had some success. However, the government struggled to maintain security investments during a period of recession in 2016 and a concurrent sharp depletion in foreign exchange reserves. Although a third military operation in the delta region – Operation Jagunlabi – was launched on 28 December 2017, the ongoing counter-terrorism campaign against Boko Haram in the northeast of the country and a fresh wave of inter-communal violence in the centre have stretched the army’s resources. To compensate, foreign investors will have to increase their own security expenditure. It is currently estimated that 15 per cent of an oil platform’s budget is already spent on security, equating to roughly US$1m per month.
There is a growing consensus that all aspects of Nigeria’s fossil fuel industry, be it the domestic petroleum industry or foreign crude export market, would benefit from greater deregulation and diversification of the Nigerian economy. This is seen as essential to achieving sustainable economic growth and addressing the root causes of many issues. The delayed release of a new Petroleum Industry Bill is eagerly anticipated as it is held up as having the potential to be a key component of this process. Passed in the parliament’s lower house on 18 January, this piece of legislation aims to increase transparency and stimulate growth across the country’s oil industry. However, the Bill has already had to sit dormant in the National Assembly for 13 years just to reach this point. It is embedded in a system where legal and illegal activities occur in parallel. It is beyond doubt that many legislators benefit from an unregulated oil industry, and even foreign investors realise the power that comes from perpetuating the state’s dependency on crude sales. It therefore remains to be seen whether President Buhari has the political will and leverage to overcome the stiff resistance to change on all sides from those that benefit greatly from Nigeria’s dirty secrets.
Rory Johnson is a research intern at the United Nations University Institute on Comparative Regional Integration Studies.
Photo from Wikimedia Commons