By ENG. EBEDE JAMES
President Bola Ahmed Tinubu, PBAT, by his investment drive to Saudi Arabia, has obviously spotted capable investors that could potentially help rescue Nigeria from her self-imposed malady essentially caused by corruption in Government and the Oil and Gas Sector led by the Nigerian National Petroleum Company, NNPC (L?) and its subsidiaries.
I am speaking up out of Love for Nigeria and respect for Saudi Arabia. I simply suspect there are bigger medium to long term risks to Nigeria if the OIL sector is opened up without adequate counter measures to a more formidable competitor in the oil and gas business such as Saudi Arabia. This is because we all know how much we have failed in the past in managing the IOCs and the most recent PI&D saga further dampens out credibility. I am not a believer “that Nigeria can manage the most stringent contractual terms in investment Agreements,” not to talk about the fact that the agreements that will result in this case is with a much stronger force like Saudi Arabia.
Simply put, Nigeria and Saudi Arabia are competitors in the Oil Business. Yes, we have advantage in Gas deposits and since gas is an energy for the future and not so susceptible to the high wire politics of OPEC, we certainly have some opportunities to explore gas developments with Saudi Arabia which is not as blessed with gas resources as it is blessed with oil.
The Assets Nigeria has to offer to Foreign Investors are either NNPC stakes in the JVs or new Oil Blocks. Return on Investments are more in longer term so may not address our immediate FX deficit.
Let us apply the common sense of a big trader who has a shop next to an upcoming confused smaller trader. The big trader will obviously jump at the opportunity to buy off the small trader as a way of shoring up his prices and influence in the Market. I have run a supermarket in the 90s and I know this is common practice. So I expect Saudi Arabia to accept the opportunity easily if it offers them the possibility to buy substantial part of the Nigerian Oil Assets and maintain control (in a weak regulatory environment such as ours).
This obviously will give Nigeria the needed short term FX gain but I think the misery that will most likely follow will be of epic dimensions never witnessed in Nigeria. I will give my reasoning using common Historical OPEC information and Political instability in key OPEC members.
Anyone who is used to OPEC knows that a 3% to 5% cut in production will generally nearly double the price of Crude. The pricing impact of drastic production cuts by OPEC or due to political instability in key producing countries is the only obvious advantage that will make any savvy investor to leave Saudi Arabia where the unit cost of production is about a quarter of Nigeria’s Unit Technical Cost to come and invest in Nigeria for approximately the same selling price of crude oil. Nigeria’s Unit Technical Cost is about the highest in the world and is arguably driven high by the endemic corruption in the Industry. The simple logic here is that the only opportunity that is obvious from the Saudi Arabia point of view is to buy the assets and work towards shutting it down as a means of shoring up oil prices when the need arises. There is nothing else on the table for the Saudis in the Oil Sector.
Shutting down the less than 2 Million Barrels a day production of Nigeria certainly achieves the necessary production curtailment that will keep oil prices high for the benefit of the Saudis but to the loss of Nigeria and Nigerians. The Saudis produce nearly 10 Million Barrels Daily, and doubling the prices guarantees them a much higher return which outweighs any benefit from any investment in the volatile Nigerian Oil and Gas Sector. This significant strategic Benefit which can accrue to the Saudis from the shutting off Nigeria oil is my major worry and it should be the major worry of Nigerians. It will expose us to a pain of unimagined dimensions.
Rather than go cap in hand begging the Saudis, President Tinubu should mobilize Nigerians to fight corruption and improve our earnings via the already existing Assets. We have a singular problem and that is Corruption. The President alone cannot fight it. He needs to sincerely mobilize every Nigerian irrespective of their political leanings. Elections are over. It is time to build our country!
Why does anyone think the Saudis or anyone else will invest in a business we have struggled to sustain or keep erstwhile investors due to corruption? It will only be for other strategic reasons. I am open to debate this issue with anybody that thinks the risk I mentioned above does not exist. Capitalists such as the Saudis will certainly take this very obvious simple step: “Shut the Production in an area you have the least control since this gives you the most desirable benefit of higher selling price of a product you have in abundance.”
The question is what becomes of Nigeria if such an unfortunate situation is foisted on us?
It is my opinion, that Nigeria should ring-fence the existing Oil Assets and open up the Gas business to Saudi Arabia and other Investors to prevent this obvious risk. You can almost argue that Nigeria’s production has been dwindling since the US local production outpaced her domestic consumption. Their strategic interest has only shifted and there is nothing legally or morally wrong with such shifts. We should work to protect ourselves.
That Nigeria is in dire need of Foreign Investment is not in doubt but all well-meaning citizens should help President Tinubu to look inwards and be patient with Nigeria. We should only open up in an area that does not destroy our future.
I respect the strategic disposition of PBAT and I know he can help Nigeria address more fundamental issues to our development through acceptable Restructuring Programmes to position each region in Nigeria to be more productive and less corrupt. By doing this, more foreign capital will come and Nigerians will be better served.
Long live my beloved Federal Republic of Nigeria.
Ebede James, a Consultant Engineer, who has managed two Oil and Gas Export Terminals for an IOC in Nigeria, wrote via @Ebedejames.