Olusegun Obasanjo
NNPC used as a ‘cash cow’ by leaders.
The Director of Regional and Security Studies at Chatham House (the Royal Institute of International Affairs, London) and head of the Institute’s African Programme, Mr. Alex Vines, has said former President Olusegun Obasanjo’s administration failed to honour his words on oil-for-infrastructure scheme with core oil investors in the country.
Vines said the failure of the oil-for-infrastructure deals in Nigeria was due to the failure of the Obasanjo’s government to manage the scheme, whereas Angola has been much more successful in managing its relationship with China and its oil companies which had since recorded huge progress.
He also described the Nigeria National Petroleum Corporation (NNPC) as being dysfunctional especially during Obasanjo’s era, which he alleged was being used by successive leaders as a little more than a ‘cash cow’.
The director of the institute made the assertion while speaking to a cross-section of postgraduate students on Global Leaders Programme (GLP) at the Coventry University in England recently.
In a paper titled: ‘Oil and Gas Politics in Africa-Future Trends’, Vines maintained that there was a widespread perception that the timing of the deals had a strong political undertone which adds an important dimension to the story. He noted that the unspoken need to generate funds for President Obasanjo’s failed bid to change the constitution to allow him run for a third term was seen as the key to the unravelling of the deals. But in a report he published with a co-author titled: ‘Thirst for African Oil: Asian National Oil Companies in Nigeria and Angola’, he revealed that there were credible reports of large amount of money paid to Obasanjo to support an extension of his tenure by certain beneficiaries of the ‘oil-for-infrastructure’ deals and compromised the arrangement by putting personal profit above national interest.
But Vines was quick, and with sense of modesty, to tell the GLP members at the event that the opinions expressed either in speech or slides were entirely his responsibility and not that of the Chatham House. However, both the slides and report published on Chatham House website, provide a comparative study of the impact of Asian companies on two leading oil producing countries in sub-Saharan Africa-Nigeria and Angola. The report showed that Asian companies that gained a foothold in the Nigerian oil sector in return for their commitments to invest in the downstream and infrastructure projects failed to understand the political context of the time.
It also considered why in contrast, the Chinese oil strategy has been so successful in Angola to the detriment of other Asian national oil companies and international oil companies-how Angola emerged as the second largest supplier of oil to China in 2008; how Chinese oil companies have negotiated deals and what the benefits are for Angola.
The report, accordingly, was drawn largely from Nigerian government official document (not in the public domain), library research and over 60 confidential interviews with a broad range of senior Nigerian government officials, including cabinet minister, presidential advisers, members of the National Assembly and oil industry personnel. Other groups, it was revealed, were domestic and foreign, Nigerian civil society, local energy correspondents and diplomatic missions in Abuja, both bilateral and multilateral.
Vines, who understands the intricacies of doing business in Nigeria and Angola, both in the oil sector and others is critical for the success or failure of any venture. He alleged that India and Japan both also seem more risk-averse and more cautious about spending public money than China, and South Korea has been badly frustrated in Nigeria and has turned to the courts.
“In Nigeria, President Obasanjo who was in office from 1999 to 2007 actively sought Asian players from China, South Korea and others to acquire oil blocks in Nigeria in return for their commitments to invest in downstream sector and on infrastructure projects-overall projects valued at about US$20 billion were promised,” the report said.
The director said the Asians were offered preferential terms and they took the bait, adding that even the Indian former Minister of Petroleum admitted: “We salivated in anticipation of what could be off the shores of Nigeria.” He said crucially, there were no follow-up mechanisms to enforce the deals. The factors, he said, compromised the whole “oil-for-infrastructure scheme from the beginning which led to its failure.
“The estimated US$7.22 billion acquisition in June 2009 of Addax by Sinopec may be a better strategy for Asian companies in Nigeria to buy out existing producers rather than engaging in cumbersome and protracted oil-for-infrastructure deals. Out of the 137,000 barrels produced per day by the group in 2008, over 65,000 were pumped in Nigeria.”
According to Vines report, “In what could have appeared to be a saving grace for the country was when he said that an ad hoc committee of the House of Representatives recommended that all oil blocks awarded to Asian companies by Obasanjo should be cancelled,” noting that the House argued that the introduction of the principles of Right of First Refusal (RFR) before the 2005 bidding round took place compromised both the fairness and the transparency of the auction.
“The committee blame for the last minute introduction of this principle on President Obasanjo himself who acted simultaneously but contrary to the constitution as Petroleum Minister.
Subsequently, a separate investigation by the successor government also concluded that the manner in which the oil blocks had been allocated in 2005, 2006 and 2007 had been irregular and late President Umaru Yar’Adua abandoned the RFR principle.
“This saga illustrates both how poorly Nigeria manages relations with its business partners and how political consideration interferes with commercial decisions in the vital oil industry,” the report maintained. Vines said while no Chinese or India oil blocks acquired in 2005 and 2006 on RFR terms have been similarly revoked, the threat remains because the Asian companies have not kept to their own side of the bargain. He said none of the infrastructural projects linked to the acquisition of oil blocks have got off the ground as at the time of publishing the report.
The director of the institute said Nigeria’s failure to put in place a formal mechanism to enforce these deals, combined with hidden political agenda, largely explains the outcome. “In Nigeria, the Asian oil companies failed to understand the intricate politics or indeed the hidden political agenda that had first driven the Obasanjo’s government to seek an Asian presence in the oil sector.
“China found it easier to come to terms with the Angola system, which is characterised by a strong, long-established and stable central government and a functional oil company, Sonangol, with which it could do business,” he stated in the report.
Vines alleged that the NNPC was dysfunctional and has been used by successive Nigerian leaders as a little more than a ‘cash cow’, adding that moreover, frequent changes between civilian and military rule have led to inconsistency, uncertainty and confusion.
Answering questions that emanated on the Petroleum Industry Bill (PIB), Vines said the bill could drag on for a long time due to vested interest from both local and international communities. However, he noticed that the bill might suffer a set back if President Goodluck Jonathan fails to get his second term bid.
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