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Rumblings within the oil industry: Signs of good things around

By Adisa Adeleye
IF the granting of amnesty to Niger Delta militants after the laying down of their lethal weapons could be described as a super political step by the President Yar‘Adua, the move, [if it is true] to give oil producing areas a 10 per cent share in the oil and gas Joint Venture is another bold action towards the final solution of the unnecessary Niger Delta imbroglio.

The Niger Delta youths, against all odds of suicidal destruction, took arms against the Federal Might inorder to establish the principle of equity and justice.  And in their wisdom, they have embraced dialogue which in political contest is a reasonable or preferred option.  The Federal Government itself, though late after wasting men, materials and money, has been wise and responsible enough to open the doorof peace and prosperity in the troubled area and the country.  The problems of the Niger Delta had nearly turned some nice people of the oil producing areas into agitators, and subsequently militants and ultimately kidnappers.

Unfortunately, many nice people from other parts of the country living and working in the troubled areas were often mistaken for economic oppressors ‘milking‘ the people.  Some lost their lives, others relocated while many lamented government intransigence based on bad advice by entrenched interests.

Under my LAYMAN‘S VIEW [Vanguard, November 6, 2008] I wrote, ‘What is the Ideal solution On the Niger Delta question, ‘ a reasonable solution lies in the constitutional amendment which would allow the NNPC [ the organ of the Federal Government] to be jointly owned by the Federal Government [40 percent]; Oil States [30 percent]; other states and local governments [30 percent]; or any negotiated equitable ratio.

The new owners would jointly fund the operations and sales of crude oil and gas and share the proceeds according to the percentage of their shareholding.  The right to shareholding in equitable ratio in oil production seems to be the real thing to fight for.

‘The Oil Producing States would be as co-owners of that agency through which the Federal Government deals in oil and gas resources [with foreign interests]; the non-oil states would not feel deprived of resources in their country.  As co-owners and co-funders, they would be happy co-sharers of the proceeds.

To the Deltans, I advised that; ‘ to claim ownership of a commodity on the strength of its location is not a serious argument‘.  The case of Cocoa, Groundnut and Palm oil of the former Western, Northern and Eastern Regions was different.

The local farmers owned [or rented] the lands; sourced their capital, planted, harvested and sold their crops and pocketed their proceeds.  The derivation formula was applicable to the governments of the producing areas from the taxes on the products.  On oil and gas, federal government pockets the proceeds[being the sole investor] and distributes to the states and local governments according to agreed sharing formula.

It may be interesting to note that the Federal Government gesture of offering to the oil producing areas of 10 percent of its 100 percent share in NNPC, though noble, may not properly address the problems of development of Niger Delta or solve the case of fiscal allocation of oil resources.

A percentage stake in the Joint Venture would result in funding of production cost and sharing of proceeds.  The Federal Government at the moment funds the operation with foreign partners in the Joint Venture, while the proceeds are shared by all.  A less than 100 percent proceeds would mean less proceeds to share unless other methods are found to increase revenue.

My view is that the Federal Government should reduce its share of its stake in NNPC to allow stake holders in the Niger Delta and other parts of the country to contribute to the development of oil and gas in the country.

If it restricts itself to a 40 percent share and allows oil producing states to own 30 percent, the remaining 30 percent shares could go to other remaining states and interested parties.  Through joint ownership, the burden of financing production [cash call] on the Federal Government would be minimized.  Afterall, it does not make economic sense in ‘doling‘ out oil proceeds without corresponding contributions by the recipients.  The fiscal irresponsibility has bred financial scandals in many states.

There is little doubt that the attempt to involve Nigerians in the development of oil and gas industry would rally them around the government in its tough stand with its Joint Ventures partners.  The Petroleum Industry Bill [PIB] with its emphasis on mere revenue for the country makes sense only when Nigerians believe that the government is fighting for their interests and not for an administration that is  wasteful and irresponsible.

It is therefore necessary for the government to conduct its negotiation cleverly to avoid loss of interest and reduced investment by foreign partners.

If the pleasant news is that President Yar‘Adua is now getting to terms with the complex problems of the oil industry, unfortunately, the bear of deregulation is rearing its ugly head again to distablise the economy of the nation.  The sad situation is that the government has acquired such notoriety of doing or forced to do the right thing after havoc has been done- examples are the ASUU‘s prolonged strike and the amnesty offered to Niger Delta militants.

Deregulation of the downstream sector of the oil industry is not a new concept in the economic life ofn this nation.  Often, it was used by the last regime of the ruling party to increase the price of petroleum refined products.  In fact, price of gasoline has risen from N20 per litre in 1999 to the present price of N65, price of diesel [automotive gas oil] rose from N19 to N105-N110 during the same period; kerosene rose from N17 to N50, if available.  Deregulation to many Nigerians, is price hike in its true sense.

While nobody would support subsidy on gasoline under normal circumstances, however, the apostles of deregulation should not forget so easily the reasons behind subsidy in the first instance to support the regime of uniform price of petroleum products throughout the country.

To the Northern powerful elite of the 70s, ‘ petroleum price differentials constitute one of the running sores in the social and economic life of this country‘.

Since the 1970s, subsidy has run its full circle and the lofty concept has been used to exploit the nation by the massive importation of products produced abundantly in this country.
This is economic sabotage at its worst point.

To make the necessary policy of deregulation work, Federal Government should ensure free flow of products by refurbishing the ailing refineries and ageing oil depots,  resuscitate road, rail and ocean transportation.  If the burden is unbearable, refineries could be leased or sold to marketers [with international connections].  If the Federal authority would still want to maintain, under deregulation, a policy of uniform price throughout the country [for whatever reason] then a form of subsidy would have to be worked out on transportation bridging costs.

Under a fully planned deregulation exercise, consumers would gladly accept the real price, which may be higher under full capacity utilization of all the refineries or more.  This might not be possible before the end of then year.  The word CAUTION is the best advice to prevent DISASTER.


Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.