Nigeria: Oil-for-infrastructure policy a failure
NIGERIA's oil-for-infrastructure programme has produced no benefits for either the country or the Asian national oil companies (ANOCs) that participated in them, says London-based think tank Chatham House. That failure contrasts strongly with China's much more successful collaboration with another African government, in Angola.
While the difficult business environment in Nigeria's energy sector is no secret, the report, Thirst for African Oil, illustrates the poor execution of the government's plans to attract Asian investors. It also suggests that the Chinese, Indian, South Korean and Japanese companies that were attracted by the preferential terms on offer, misjudged the underlying agenda of the Nigerian government, which was eager to raise funds quickly to bolster political spending, rather than taking a long-term view of possible economic benefits.
The report says of the ANOCs participation in Nigeria: "Not a single barrel of oil has yet been produced by them. Not a single barrel has been added to Nigeria's reserves. Not a single downstream commitment has been started. There has been no impact on the Nigerian economy. There has been no tangible benefit."
This failure has occurred despite agreements that promised around $20bn of investment by ANOCs in Nigeria's downstream development and general infrastructure in return for stakes in oil blocks. The oil-for-infrastructure programme was fashioned during the presidency of Olusegun Obasanjo, who left office in 2007 after eight years in power.
A series of ill-thought out and "dubious deals" were signed, whose financial arrangements did not favour Nigeria, the report claims. China and South Korea offered only partly to fund infrastructure projects with government-to-government loans, leaving Nigeria to find the balance for itself. Meanwhile, India planned to invest directly in projects on a build-own-operate basis, but not until oil was being produced from the blocks in which Indian firms held stakes – and that could have taken years. Both approaches prevented effective infrastructure development and led to the demise of the oil-for-infrastructure programme.
"There were no legally binding agreements that would have tied the development of oil blocks to the simultaneous delivery of the infrastructure. This was the main weakness of the whole concept," Chatham House says.
Having implemented a review of the licensing rounds of the Obasanjo era, the present government of Umaru Yar'Adua looks set to abandon oil-for-infrastructure in favour of a more conventional oil-block bidding structure. That has pleased the Western firms operating in the country that felt they were operating in an untransparent environment, on an uneven playing field against their Asian counterparts. But they must still contend with uncertainty over proposed reforms to state-owned Nigerian National Petroleum Corporation (NNPC), which could see the government taking a larger share of oil and gas revenue (see p27), and continued unrest in the Niger Delta oil-producing region.
The new business model may mean Asian firms are more inclined to follow Sinopec's lead by investing in existing operations in Nigeria, rather than starting afresh. The Chinese company's recent acquisition of Canada's Addax for $7.24bn gave it acreage in the Joint Development Zone (JDZ) offshore Nigeria and São Tomé e Princípe (PE 8/09 p2).
Meanwhile, the repercussions of past deals rumble on. A judgement was expected in late August on a court case brought by Korean National Oil Corporation (KNOC) challenging the present government's decision to revoke two exploration licences granted to it in 2005. The government says the consortium failed fully to pay a signature bonus, while KNOC says the payment had been written off by the previous government in return for the proposed construction of infrastructure, including a power plant and gas pipelines.
The Chatham House report contrasts the Asian experience in Nigeria with a much more successful one – for China at least – in Angola. There, three decades under the presidency of Jose Eduardo Dos Santos have helped provide more policy continuity for oil-sector investors than in Nigeria, where there have been eight, often radically different governments in the same period.
China, in particular, has nurtured a close relationship with the Angolan government. Its oil investments have focused on joint ventures with Sonangol, the state-owned oil company; it has facilitated around 120 post-conflict development projects since 2004 and provided around $15bn in loans by early 2009, the report says. India, South Korea and Japan, which have not cultivated such close diplomatic links with Angola, have fared less well there.
The success of the Sino-Angolan relationship is highlighted by the growing role of Angolan oil exports to China, which were second only to exports from Saudi Arabia in the first half of 2009. Angola's relatively harmonious relationship with international investors in general, as well as the absence of unrest directly affecting its oilfields have also seen production rival that from Nigeria, despite the latter's much greater reserves. According to the International Energy Agency, Angola produced 1.70m barrels a day (b/d) in July, compared with Nigeria's 1.68m b/d.