Sep 21, 2021 News
As economic pains of COVID-19 increase…
By Kiana Wilburg
Kaieteur News – Nigeria, the largest oil producer in Africa, is now at the feet of oil companies begging for their mercy. It is appealing for the companies’ cooperation in scaling back operational costs. This the government believes would be helpful in increasing its share of the profits which would be used to purchase crucial medical and food supplies for its 200 million citizens who are crumbling under the pressures of the COVID-19 pandemic. Exposing the extent of the economic despair that has gripped Nigeria is the Natural Resource Governance Institute (NRGI).Founded in 2013, NRGI has been recognised by industry experts as one of the leading independent nonprofit organisations which has been dedicated to improving countries’ governance over their natural resources. Headquartered in New York, it has also been at the forefront of promoting sustainable and inclusive development in countries such as Nigeria.
In its latest assessment of the state of affairs in the oil-producing State, NRGI found that like other nations, Nigeria was, and still is not prepared to deal with the economic effects of the pandemic. Though it was expected that given its enviable reserve of natural resources, it would have been in a much better position than most; corruption, chronic mismanagement, and poorly administered deals have played major roles in leaving it in a most disadvantageous position today said NRGI.
The Institute was keen to note in particular, that the pandemic has exposed just how vulnerable the oil-producing State is. As a result of tough lockdown requirements that took effect last year, and some of which still remain in some corners of the world, there has been a significant decline in oil demand.At a central bank meeting in March, Nigerian authorities noted that low prices followed from the declining demand and this led to the country being left with 50 cargoes of oil and 12 of liquefied natural gas that could not find buyers. Since this incident which resulted in a significant revenue shortfall, Nigeria has been pushing to curtail costs and production as much as possible hence it approached upstream partners this year to reduce their costs, said NRGI. A presentation on this matter had shown that at an oil price of US$50 per barrel, US$22 would go towards operational expenses and US$12 for capital expenditure. This leaves only US$16 as profit to be split, hence the government sees this area as a matter of priority and vowed to bring operational costs to US$10 per barrel by the end of this year. After producing oil for more than five decades, the authorities have finally said the costs have been too high for too long. (See links: https://www.energyvoice.com/oilandgas/africa/ep-africa/298246/nigeria-cut-opex-upstream/ and https://www.energyvoice.com/oilandgas/africa/245102/nigeria-talks-tough-on-production-costs/)
The transparency body also said that the government is aggressively rolling back operations at its underperforming refineries as well as examining ways and means of lowering its import bill.
As it looks to cut corners, Nigeria has already approached several financial institutions for urgent help. NRGI noted that the government is seeking US$11 billion in fresh loans from the International Monetary Fund (IMF), domestic banks, the World Bank and others. If successful, these would grow the debt stock by close to another 50 percent, though some lenders have delayed signing, saying they need to see more reforms on transparency and accountability so that they can be guaranteed the money would not fall victim to corruption.
NRGI also noted that Nigeria is in such a state of desperation that in August 2020, the Nigerian National Petroleum Corporation (NNPC)–the oil corporation through which the federal government of Nigeria regulates and participates in the country’s petroleum industry–had signed a $US1.5 billion oil-backed loan with trading giant Vitol and other lenders. It was considered a troubling development, as Nigeria had until then avoided the risky, opaque world of taking loans from traders and backing same with their oil reserves.
2021 GOVERNANCE INDEX
In its 2021 Resource Governance Index Report, NRGI was keen to note that Nigeria’s governance of its critical oil and gas sector has been concerning, with cases of corruption, fiscal mismanagement, and environmental degradation all reported in the six decades since production began.
Even prior to the coronavirus pandemic and the 2020 oil price shock, the sector was stuck in a cycle of high uncertainty, boom-and-bust spending and diminishing returns, the transparency body stated.
It concluded, “Production has mostly stagnated, foreign direct investment has declined, and oil revenues have come up short of what has been budgeted. Overall, Nigeria’s oil and gas governance is weak and falling short in key measures of transparency and accountability.”
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