Oil: New Deal or Raw Deal?

By Jason, Pini | African Business, November 1996 | Go to article overview

Oil: New Deal or Raw Deal?


Jason, Pini, African Business


Nigeria's oil industry has been shrouded in controversy on a global scale ever since last year's execution of Ken Saro-Wiwa. Less publicised domestic debates however, have come under the spot-light, causing uproar among the industry's chief operators.

When Chief Dan L Etete, the Nigerian Oil Minister, called his August 1996 Meeting with the chief executives of various oil companies and the Nigerian National Petroleum Corporation (NNPC), few might have guessed the extent of antagonism that would ensue. What he titled 'Towards a New Deal' was interpreted by many of the participants as 'a raw deal' that was "unprecedented" and "belligerent".

The main thrust of the meeting was revealed when Chief Etete responded to his critics - led by two former oil ministers Professors Tam David-West and Jubril Aminu - insisting, "Analysis has revealed that the Government and people of Nigeria are not getting their fair share out of the joint venture arrangement for petroleum exploration and production."

He went on to accuse the oil operators of all manner of bad practices that have proved detrimental to Nigeria. For example, necessary accountability and transparency which should complement the trust implicit in joint ventures, are too often absent. In some cases, operators have blatantly ignored calls to justify or provide details of expenditure items. Given that they are invariably the sole signatories to joint venture accounts from which payments are made, this is particularly pertinent.

Another sore point is the employment of expatriates. According to Chief Etete, they are often taken on without the knowledge or approval of the National Pipelines and Marketing Services (NAPIMS), the Government joint venture management agency. As a result, the number working within this realm has doubled in the last five years. Moreover, some elements of the industry insist that service companies obtain expatriate quotas simply to address unemployment problems in countries other than Nigeria.

Chief Etete, extending his line of attack, stated that the average unit production cost for Nigerian fields has progressively risen and that charges for head office costs to Nigerian operations are the highest in the world.

Lamenting further, the Minister said that after 35 years of oil production, total Nigerian participation is "dismally low". Overseas companies, to contrast, dominate the industry. Therefore, not only is the transfer of technological knowledge ineffective but the country's GDP is at its lowest and "Nigerians are denied key job opportunities".

"Massive tax evasions" formed the next line of attack as Chief Etete criticised those who award hefty contracts to overseas companies.

Following on from that, the Minister brusquely broached the touchy issue of environmental degradation, which propelled the Ogoni minority on to the global centre stage. He accused operators of "paying lip-service to the problems of the environment in their host communities". He condemned the fact that some fields have remained under-developed or abandoned for a variety of technical and economic reasons.

The chief executives, by now utterly stunned, then listened to the Minister as he recited his riot act.

Two types of Escrow Accounts, into which cash call contributions will be lodged, will be brought into effect. One, for foreign currency, will be opened with an overseas hank and operated through the Central Bank of Nigeria; the other, for local currency accounts, will be opened with local commercial banks.

A monitoring unit will vet all invoices and claims that are debited to the cash call Escrow Account. It will be established in the office of the Minister of Petroleum Resources. All contracts within the oil industry will be awarded to Nigerian-registered companies only. The Government will recover all undeveloped fields and re-allocate them to those willing to exploit them.

No expatriate shall be engaged without the approval of NAPIMS. …

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