Recently, the Central Bank Governor, Mr. Godwin Emefiele, called on the incoming administration of General Muhammadu Buhari (rtd), to consider selling off 30 per cent of the Federal Government’s majority stakes in Joint Ventures (JV) with multinational oil companies to shore up government finances and raise fund for infrastructural development. Emeifiele hinged his advice on the fact that over $75 billion is a realistic target for the deal, and that private equity groups could be encouraged to compete with the oil companies for acquisitions to ensure the price is competitive. He was of the opinion that if the Nigerian National Petroleum Corporation (NNPC) could substantially reduce its 55 per cent equity in the joint ventures with oil giants, including the Royal Dutch Shell, Chevron, ExxonMobil, Total and ENI, which pump about half of Nigeria’s 2 million barrels a day of oil production, the country would be better for it. In this special report, Sylvester Enoghase, Phillip Oladunjoye, Emma Okwuke, Bamidele Ogunwusi, Abel Orukpe and Saheed Bakare, examine if the President-elect, Buhari should go ahead with the deal of raising more fund to rebuild the macroeconomic buffers damaged by collapse in global oil prices.
The President of National Association of Nigerian traders (NANTS), Ken Ukaoha in his reaction said selling down its majority stakes in joint ventures with multinational oil companies to shore up state finances and raise funding for infrastructure development, should not be taken as a priority, rather, the Buhari led Government should ensure a conscious transformation of the budgeting procedures
Ukaoha, who argued that there is a need for a conscious transformation of the budgeting procedures by the Buhari led Government to fast-track the much needed economic development in Nigeria said there is a need for a clear departure from the traditional annual budget, often done on incremental basis, to a more realistic multi-year budget is herein advocated.
“Multi-year budgeting is becoming popular in developing nations in the quest to draw up Poverty Reduction Strategy Programmes and Nigeria cannot be an exception as it has proved very successful”, he said.
He emphasized that only Government strong hold on the budgetary process rather than selling off joint venture is needed now as the process has of late become the conduit pipe for public servants to siphon budgetary allocations and the citizens’ common wealth.
“We are opposed to selling part of the joint venture rather, we totally support the recent move by the federal government to diversify the economy by investing in other non-oil sectors in order to salvage and grow the nation’s economy in response to the dwindling oil prices”, he said.
He however said: “We would therefore give Mr President elect all the support to continue with progressive policies and programmes started by the present administration to continue with inward and forward-looking projects and policies such as the Growth Enhancement Scheme that provide inputs for small scale farmers ; the auto policy that would facilitate the production of vehicles in Nigeria to reduce unnecessary imports and capital flight; local content policy that would retain and generate more jobs for our teeming unemployed population ; the national rice policy targeted at increasing local production of rice in Nigeria; the power sector project”
Analysts have expressed the feelings that if the Buhari led Government agree to sell 30 percent of its joint ventures, especially for the Chinese multinationals biding to buy part of the joint venture, the deal could place the Chinese company, name withheld, in competition with major western groups including Total, Shell, Chevron and ExxonMobil, which operate the 23 blocks in the country.
Citing the Bonga licence which does not expire until 2023, while Agbami expires in 2024, a reliable source from the oil and gas industry, who craves anonymity, said the ExxonMobil-operated Erha field is one of the Chinese targets.
“Well, what do we stand to gain from selling our resources to outsiders at a time like this when we ought to take the diversification of the economy in the real sector serious”, the source queried
“What exactly is the CBN Governor trying to advise the Buhari led government to achieve when all eyes are on how the Government would curb corruption?. I weep for Nigeria because these crop of leadership in Government are mortgaging the future of youth in the country, the source added
The analyst noted that it is unfortunate that while Nigeria was the world’s fourth-biggest exporter of liquefied natural gas in 2012, it is struggling to meet local demand for the fuel used by plants that generate at least 70 percent of the country’s electricity needs.
“We are more worried that the nation, which holds Africa’s biggest gas reserves of more than 180 trillion cubic feet, is expanding pipeline networks so that they can service power plants and industries and not just exports”, the analyst claimed.
“We should encourage more exploitation to bring out the gas for domestic and not to be thinking of selling part of the joint venture agreement, which serves as asset for the raining day because a lot of it needs to come quickly as there is an existing power side that requires a lot of gas”, the analyst affirmed
Arguing that some oil experts believe that the NNPC should be sold off altogether, both to eliminate associated corruption, and to help free up commercial oil firms to invest in new production, the President of Senior Staff Association of Electricity and Allied Companies (SSAEAC), comrade Bede Opara said the suggestion made by the CBN Governor is an idea that should be seriously looked at before taking any decision whether to sell, or not.
“It is an idea that should be seriously looked at by the Buhari led Government, but I do not think it can be the immediate priority because the Government need to get back to a position where revenues that belong to the people are getting into the federation account, all the financial leakages blocked,” he said.
“I am quite convinced that Buhari, who cut his teeth in office at a time when the oil and gas sector was the main driver in the economy, may be harder to convince to carry out policy formulations that would halt the economy”, he added
“I do not think Buhari will just wake up overnight and sell the NNPC. I am of the view that he will first, need to see how much damage has been done and how can his Government stabilise the situation”, he further said
He however said if reformers in the economy believe the otherwise, especially “if oil prices remain depressed given the scant alternatives to finance the ambitious changes he has promised, time will tell the direction the advice of the CBN Governor will swing to in the next few months to come”.
Chief Executive Officer of Financial Derivates, Bismarck Rewane, says the CBN governor’s suggestion is “bold and innovative”.
“While it cuts inward revenues from oil sale going forward, since the oil market is soft, you might well sell and get instant cash today, so government can meet urgent needs.
“Our circumstance suggests we need cash, therefore, it makes sense, as long as you sell and scrap NNPC and then become more efficient in tax collection.”
“It may also open up the industry and really allow hidden benefits to impact the rest of the economy, ” argues Rewane.
However, selling state assets without first plugging leakages or restoring government credibility may be putting the cart before the horse.
Chief Executive Officer of Economic Associates, Ayo Teriba says, “The biggest challenge of the incoming regime is to plug leakages in government revenue receipts.
“If leakages from import duty waivers, fuel subsidy scam, and revenues from currently underperforming MDAs can be harnessed, Nigeria will not have to forfeit current healthy returns from existing JV investments.
“If leakages are not plugged, the risk that proceeds from asset liquidation will similarly leak off should not be ignored.
“Restoring government credibility that extant revenue inflows will be transparently managed is the more pressing challenge of the President-elect,” Teriba wrote in an email response to questions.
“It is an option now because our revenues have dropped and we don’t need to pile on more debt. The alternative is to look for ways of releasing value from some of the government’s assets,” Teriba said, adding that petroleum profit taxes could be adjusted upwards to compensate for the state’s reduced stake in crude oil sales.
According to him, the suggested remedy could prompt opposition from those ideologically opposed to selling off state assets, and resistance from politicians dependent on oil resources for patronage.
But it will find sympathetic ears among the more liberal, market minded reformers in the administration in waiting.
Some of them believe that the NNPC should be sold off altogether — both to eliminate associated corruption, and to help free up commercial oil firms to invest in new production.
Also speaking, the Chief Executive officer of WealthGate Advisor, Mr Adebiyi Adesuyi told our correspondent in a telephone interview that taking such action as advised by CBN cannot be in the best interest of Nigerians. According to him, past privatization exercise had shown that government lacked transparency in the way divestments are carried out.
He said, “I will not support the sale of majority stake with international oil companies. This is because the way we do privatization here is not transparent .Oil is our price asset and what Nigerians have are being managed on our behalf by the government. But if we go back to the way it has been managed, you will realize that we don’t have any reason selling our stake.
“Take for instance, Brazil owns Petrobas, Malaysia owns Petronas, Russia owns Kalstrom, and yet it is being managed effectively. If three companies in all these countries can manage their stakes properly, I don’t think Nigeria should find it difficult managing NNPC’s stake well. So far, these countries have been able to manage their stakes properly without putting them into private hands because of the physical nature of the investment. I see no reason why we cannot manage ours. It is in the national interest that government should hold on to it and manage it effectively”.
“Besides, if you go through all the assets that have been privatized, you will notice that they were not managed by competent hands. Most of them, as you are aware, were sold to organizations that were technically incompetent to manage them”.
“For example, let’s look at Daily times whose assets are located in various places like Agindigbi, Kakawa, what happens to those assets?They are nowhere to be found as most of them have been sold out .The painful part is that most of the people who buy these assets engaged in asset stripping rather than investing more on the asset. That is, instead of the so called investors investing to enhance the value of the assets, they sell; remove the property including buildings, cars, machineries and other valuables. As you know, if the value of the assets is not enhanced, employment will not be generated. Since the essence of privatization is to ensure that government has no business in infrastructural development, selling the stake to competent hands would have been the right option.
As I said earlier, the essence of such idea in modern day administration would help government in achieving its goal as quick as possible. In modern day administrations, business is not the business of government. Government must hands off business administration and focus on public administration with a view to delivering public goods in terms of infrastructure, good airports, and good security services. From historical perspective i.e 1999 to 2014, all the money realised or the windfall realized from the assets privatized were not used for capital expenditure but rather on r current expenditure. Often times, our budget has clearly proven that we don’t place much premium on capital projects.
“We would rather prefer to waste funds on recurrent expenditure which include stationeries. The resources available for recurrent expenditure are used to pay rents, take care of personal aggrandizement. In the past, funds were used to take care of few people in Nigeria which explains why infrastructures are not provided
On the way forward, Adesuyi advised government not to accede to the suggestion noting that it would set the economy on a dangerous path.
He said “I will suggest that the government retains its interest in the joint venture project. I believe if they are properly managed and sound corporate governance are adhered to, there won’t be any problem. But I think with the situation on ground, it is not in the country’s best interest. We should not continue to be short changed. We must not allow the inheritance of our children to be lost forever. We will not enjoy them if we take heed to the decision. We will not enjoy the proceeds of the investments the way we are enjoying them now”.
Analysts have expressed the feelings that if the Buhari led Government agrees to sell 30 percent of its joint ventures, especially for the Chinese multinationals biding to buy part of the joint venture, the deal could place the Chinese company, name withheld, in competition with major western groups including Total, Shell, Chevron and ExxonMobil, which operate the 23 blocks in the country.
Citing the Bonga licence, which does not expire until 2023 while Agbami expires in 2024, a reliable source from the oil and gas industry, who craves anonymity, said the ExxonMobil-operated Erha field is one of the Chinese targets.
Also reacting, the Acting Director General, NACCIMA, Mrs.Janet Omisore noted it was not advisable on the part of government to heed to the call noting that there is the need for proper assessment.
She said” I will say that the incoming government should not accept such advice in the interest of Nigeria. They should see what is on ground and do proper assessment before tinkering with such idea if need be. For me , I think the incoming administration should not be too hasty in taking such vital decision that may likely put the economy in trouble. It is better for them to come to the table with the outgoing administration, see what has been achieved and then build on it. You are aware part of the reason why we have not been getting it right could easily be attributed to corruption. Now, that the incoming administration has made it intention known to tackle the issue, I believe leakages would be plugged which would help in turn assist in raising little funds to address the infrastructural deficit. Besides, the investment portfolio are huge investments that should not be disposed off because they are public properties”.
Speaking on the way forward, Omisore said the incoming administration must begin to see the need for diversification of the economy as this would help to facilitate the needed fund to solve infrastructural challenge.