Home » OIL » CRUDE OIL: FOREIGN EXCHANGE EARNINGS FROM RAW MATERIAL IS OLD FASHION-PROFESSOR ILEDARE

CRUDE OIL: FOREIGN EXCHANGE EARNINGS FROM RAW MATERIAL IS OLD FASHION-PROFESSOR ILEDARE

Nigeria must think outside the box and domesticate the use of her oil and gas resources. This is Professor WUMI ILEDARE take on the dwindling revenue from the country’s crude oil sales. He told Ben Ndubuwa that Nigeria must embark on this new objective of domesticating her oil and gas even as the global LNG market is now at risk.

Covid-19 is a global pandemic ravaging the whole world and impacting heavily on businesses particularly the oil industry and reducing the revenue of oil-producing countries like Nigeria. What do you think Nigeria should do as a country as well as the ompanies to stand the challenges of this time?

In th short run, the government is attempting to prioritize its budget appropriately which is good. Next is finding away to sustain economic activities through a well design stimulus package. It may seem odd, but government needs to avoid loans for consumption of goods manufactured mostly from abroad. To me, even if it sounds out of the box thinking, CBN knows how to assist the government in making sure the people do not lack money during this period. Better to print secured currency than being in a perpetual paper money loan from abroad, more so from countries that do not ever forgive debt.
In the long run, government need a strategic thinking Team. This is where going against the constitutional mandate or the National planning act needs a rethinking. Let us go back to have a National Planning Commision headed by VP with Commissioners strategizing for situations like this.
And if goverment should get loans, it must be for tangible expenditures for infrastructure and must not be paid for by swapping oil.
Regarding the oil and gas industry, in the short run government can spur activities using fiscal incentives. It was in times like this in the 80s that Nigeria increased its reserves and activities. Incentives are like prayers spurring outcomes that would not have materialized. Let us revisit those possibilities so the industry does not collapse with extreme difficulties to revamp it. I am not asking for perpetual incentives but output targeted and result oriented. Examples, relax ring fencing, give tax holiday on new assets, suspend royalty on new production when they come on stream.
In the long run, reform the industry, especially the governance structure. Too many administrative burdens eating up the tax an royalty revenue. Let NNPC concentrate on commercial activities and empower DPR with the legislative backing to bark and bite and not through the prism lenses of the NNPC Act of 1977 as ammended.
Next is a petroleum policy institution. Here is to think of a restructure MoP beyond just civil servant maturity. Think of the Minutry of Finance and Ministry of Justice. Do you have a sociologist managing criminal division. Or do you have a medical doctor lead an audit division of the MoF

Do you think that oil companies should downsize their workforce or cut down operational costs post covid-19 in order to survive?
I am sure the oil firms are very aware of the need to manage costs without compromising safety. I read a position paper on what Chevron is doing.
Of course, it is common practice in the oil and gas business to rationalized the work force, during business downturn. However, that has not been a common practice in Nigeria and understandably so. In Nigeria, there are no social nets to fall into, so Unions are always weary. But the industry has a way to downsize through early retirements and redundancy packages. I want to believe these are lessons to take advantage of , beyond Covid-19. Unions need public education too on business decision making business. People do not go into business for corporate social responsibilities or social investments. This is the responsibility of the government!

Right now prices of oil is low and our cost of production per barrel in Nigeria is still very high what do you think the government should do and how will technology help to reduce the cost of production?
Yes, price is low and cost is high. Let us look at why in my opinion, technical cost is high in Nigeria.
a. Insecurity of assets and life of the operating environment
b. Admistrative burden and lack of cost bench marking
c. Uncertainty and risk burden due to governance inefficiency and ineffectiveness
d. Contractual approval delays and business ethic issues
e. Incompetence and ineptitude supervision and enforcement of guidelines
f. Patronage and sentiments in the appointment of key industry team leaders across the sectors and contractor selections!
Regarding technology, it is a long run phenomenon and this is what aches me the most. Graduates from local universities are not as they use to be in terms of readiness because of inadequate exposure to new technology. Nigeria now depends on foreign experts mostly. That was not the case in my days in the 80s.
These are cost drivers that must be nip in the bud going forward. Cost and indutry output are within the control of the industry not price.

Sir, OPEC+ recently agreed to cut down production to soar up prices in the international market but the prices, ever since then have remained volatile. What is your take on this sir?
OPEC+ cutting 10 mlm barrels per day came rather late. It was not also big enough to counteract the global demand slide due to a complete shut down in global economic activities.
The 105 -110 MMbbl/day demand projections at 50-60 dollars came crashing but supply did not respond because of the market share protection fight and geopolitical power struggle .
Where we go from here is a new normal with, perhaps, a rationalized used of petroleum till perhaps 2021 when the economy is fully open worldwide. Here is where Nigeria must think outside the box and domesticate the use of its oil and gas as a new objective. Even the global LNG market is at risk. Foreign exchange earnings from raw material, be it oil, gas, skill or agriculture must be considered old fashioned to pursue.

In one of your felicitation to members of the regional SPE you appealed to them to set their priorities right, in research and development at this time. Do you think this the best time for them to direct their attention to R&D?

Oh yes and this is why there must be a collaboration between government, industry and the university. University is where research into technical, policy and economic research is conducted at a cost effective manner. Government develops policies based on research results and industry runs with the looks to expand economic output for social wellbeing. Professor Ajienka, Emmanuel Egbogah Chair in Petroleum Engineer, calls it Tripple Helix Model, I think. Let me also add, to build a research academic environment, we must disavow the current university setting. Nigeria has ethnicised its universities in staffing, professorship, studentship and admistrative governance. Research and development cannot thrive that way and industry has also gotten adaptive to such prebendalism. It is only in Nigeria that you can find two or more IOCs partner to build a R&D centre together in one university because of prebendalism. So after 60 years to boast about compare to what is done in the US, Brazil, Malaysia, Venezuela among others.

Over the year sir, you have been an advocate of R&D in the oil and gas industry and as well as an advocate for the collaboration between the academia and the industry players how will you rate the industry players in terms of compliance particularly in Nigeria and Africa as a whole?
I did allude to some aspects of this question when I said there is an urgent need to reform the industry. Nigeria started the reform in 2000. A bill was submitted in 2008, it failed. Another bill was submitted in 2012, it failed. Another sets of bill submitted in 2018, three failed and one succeed but failed to become an Act. The industry needs to be reformed. The governance is amorphous regulatory overlaps, commercial ineptitude and policy institutional dysfuntionalty. I found the reasons insufficient enough to kill the bill even after the issues were addressed. Going forward, I an hopeful that Coronavirus 19 has given Nigeria a great lesson to imbibe.
First is to rationlize the governance sector of the industry, NNPC for commercial only, Ministry of Petroleum for Policy and a CBN type regulatory Institution. I have advocated this framework since 1999 and I have had the privilege to discuss the frame work with NASS over these years.
My fear is this and God forbids. Venezuela’s economy collapsed because the oil and gas industry economic populism strangulated its economy to its knees. The country is still struggling for political stability. The saving grace is their homogeneity. We are heterogeneous basically. The collapse of the oil industry because of governance ineptitude is worrisome to some of us who know the industry inside and outside. Yes, I was not in government but a distinguished student of the industry since 1974.

What are the necessary reforms that Nigeria should undertake post covid-19 in order to be competive to attract investment given the emerging regional oil producers (e.g Angola, Ghana etc.)?
Regarding attracting investment after Covid19, I have a new school of thought. Dagote provides a lesson with its 650 Mbbl refiner capacity. How did it make it happen despite the visible price control regimes. Patriotism, disciple and business ethics that has nothing to do with sentiments and patronage. We made significant mistakes the way we invited local or indigenous participants into the oil and gas in the early 90s. Unfortunately, it did not augur well then, but we can do it again devoid of patronage and sentiments this time. So in 30 years we can have a Dangote type of projects in the upstream. He did it with cement and now we are exporter. May be we need to allow him to bid for an upstream assets! May I suggest we review all the assets given out in the 90s to ensure enticing the terms.
Let me conclude answer to the above question using priliminary results from a recent study with my associates comparing fiscal systems in Nigeria with Angola, Ghana, Equitoria Guinea and Brazil. Yes, Nigeria attains its objective of higher access to revenue with less regards to mutuality of interests consideartion when it comes to company perception of rewards commensurate with risks despite the majorly geoprospectivity advantages of Nigeria. Interestingly, the project is not funded by Nigeria. The country seems adverse to funding anything intellectual. I might be wrong!

The oil marketers, under the umbrella of Major Marketers Association of Nigeria (MOMAN), recently called for full price liberalisation of Premium Motor Spirit (PMS), commonly known as petrol, instead of price modulation canvassed by the government what is your take sir?
The cry for liberalisation and deregulation of the down stream by MOMAN is certainly noteworthy. I support the call and I have said quite frequently tha burning at the tail pipe nearly one quarter of Nigeria’s budget annually over the last ten years leave much to be desired. It is on record that Nigeria subsidized PMS consumption in 2019 in amount far greater tha government spending on education, health and infrastructure. That is economic populism and prebendalism at work. So it is true that subsidy must go.
Having said that, I am not sure MOMAN helps the matter. And here is why. AGO price since deregulated has not follow in a synchronized manner with low oil price. And if course exchange rate arguement does not help, but it is not good enough to justify not seeing a pump price that reflects market expectations!
Well, there is no crystal ball, but we have no choice than to liberalize the downstream sector. PPPRA needs to go or restructured. PEF is antithetical to liberakizatio and deregulation. It has to go. Yes, sentiments and patronage in the governance and the administration of the oil, gas and power business must discontinue. Yes Venezuela experience is already at the door but we don’t have to open the door to it by doing the right thing. I love Nigeria so much that my prayers against what is plausible if we do nothing and just procrastinate about doing the right thing now is the Yugoslavia experience. May God forbid! The ball though, is our court. May God bless the Federal Replubic of Nigeria.

Share about us

About admin

Leave a Reply

Your email address will not be published. Required fields are marked *

*