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Nigeria: Delta blues

After months of sending government troops to battle militants blowing up oil pipelines in the Niger Delta, Muhammadu Buhari tried a different tack. The Nigerian president invited the region’s community leaders and traditional rulers to his villa this month for talks — a step energy sector executives hoped could halt a wave of sabotage since January that has cost the country billions of dollars in damages and lost exports.

Mr Buhari has condemned the destruction to Delta energy infrastructure as criminal. But while his visitors did not condone the violence, they argued it reflected well-founded anger in the impoverished region and legitimate calls for a greater share of revenues generated from their lands.

Meeting their demands, among them better roads, stable electricity and a long-promised university, would have shown the government’s goodwill. But after several hours of deliberations the Deltans became frustrated.

“The government isn’t taking the issue seriously,” said Ledum Mitee, a lawyer and advocate for the Ogoni, one of the region’s communities.

The next day a group called the Niger Delta Avengers attacked another pipeline. More soon followed.

The failure to stop the attacks underscores the struggle the president is facing in bringing change to Nigeria. Nearly 18 months after taking office, Mr Buhari has shown slow progress on his promise to overhaul the country’s oil industry, the backbone of its economy, after years of mismanagement — a task critical to achieving the goal of spreading Nigeria’s resource wealth more widely.

The militant attacks have worsened the impact of a two-year slide in the oil price — down by more than half from a mid-2014 peak of $115 a barrel — which has curtailed revenues from foreign sales, slashed more than $13bn from foreign reserves and sunk the country into recession for the first time since 1991.

“Nigeria was already seeing diminishing returns from its petroleum sector during the boom years,” says Aaron Sayne at the Natural Resource Governance Institute (NRGI), a research and advocacy organisation. “The high prices made it possible for government to punt on the underlying problems, but the costs of inaction look more dire now.”

President Muhammadu Buhari wiith delegations of Niger Delta stakeholders and leaders © Reuters

Mr Buhari’s election raised hopes for Nigeria’s future. He pledged wide-reaching reforms of the oil sector, which he and many other Nigerians see as emblematic of its failure to convert massive resource wealth into a blessing instead of a curse.

The Nigeria National Petroleum Corp (NNPC) was the epitome of financial mismanagement and political patronage under the government of his predecessor, Goodluck Jonathan, though the problems hardly started with his administration. Mr Buhari’s view that the NNPC needed sweeping reforms was not news to Nigerians, who have been writing song lyrics and tweeting their criticism for years. But his assessment of the sector’s problems and assignment of blame was welcomed by both the public and the industry.

Military mindset

Mr Buhari, a 73-year-old former general, appointed himself oil minister after his election, reinforcing the authoritarian image he honed when he was military head of state in the mid-1980s. As president he moved quickly to reduce the influence of Jonathan-era loyalists and to plug funding gaps.

He cancelled energy contracts negotiated under the previous administration that were deemed to be less lucrative for the government than for other parties. Debts with international oil companies were renegotiated. The top ranks of the NNPC were overhauled.

He commissioned financial and performance audits of the state-run company and awarded fewer crude lifting contracts — complex contractual arrangements for selling crude and buying refined fuels that had long been seen as a mechanism to siphon off money.

That early momentum appears to have waned, however, as Mr Buhari has been consumed by fighting Boko Haram Islamists in the north-east and, more recently, militants in the southern Niger Delta.

He is also waging war on corruption, using tactics that critics say border on a witch-hunt. Others counter that the administration has failed to snare those responsible for siphoning off billions of dollars’ worth of oil revenues.

While energy executives and private sector players acknowledge the need to tackle corruption, they complain about what they see as the president’s mistrust of domestic businesses and poor management of the economy. This, they argue, has contributed to a choking-off of local funding and a reticence among foreign groups to invest.

“Buhari thinks if he can fix corruption, he can fix everything,” says a former energy executive. “Yes we should tackle corruption, but there are 180m people in Nigeria. What about all those people that haven’t done anything wrong who are suffering? There are many problems in the country not just this one.”

Industry executives and people close to the government say the president’s decision-making style and preference for a state-driven economy has complicated matters. “Buhari himself is part of the problem. He is well meaning but not fit for purpose,” says a business executive in Lagos.

Putting himself as the head of oil affairs and operating with a close circle of trusted aides, observers say, illustrates a desire for tight executive control of the sector.

“He thinks this is the military. He gives an order and everyone else does as he says. He only wants to do as he sees fit,” says an oil executive. Root and branch reforms of the energy sector and the economy cannot be conducted through force, he adds. “There are lots of sticks, and rods, but no carrots.”

The Nigeria military destroys illegal refineries in the Niger Delta

Those who advised the president during the transition period before he took office feel they have been sidelined. He ultimately followed their recommendations to slash fuel subsidies, but other proposals such as terminating government appointments not based on merit were ignored.

“A lot of people came together to get him elected. There is a sense of betrayal among these people. Buhari was meant to unite us all,” says a government adviser. “Many are already distancing themselves.”

Frustration stems from the view of some in government and the private sector that Mr Buhari has prolonged decisions that should have been taken sooner. They point to delays in devaluing the naira, which drained foreign currency reserves, and halting amnesty payments to delta militants (the payments resumed in August).

“He complains about what happened under the Jonathan era but this is financial mismanagement of another kind,” says one oil executive. He adds that delays in decision making have added to the damage already done to Nigeria’s finances.

Despite the corruption clampdown, some industry observers argue bad practices have resumed. Companies that won energy contracts under the Jonathan government and were known for their misdemeanours have returned under Mr Buhari.

‘Slow to surface’

Reformers cite a long to-do list for Nigeria’s oil sector. Restructuring the NNPC, streamlining contract cycles, modifying payment agreements with international oil companies and making the upstream arm of the state oil company profitable are all cited as moves that would break Nigeria from its past.

Emmanuel Ibe Kachikwu, minister of state for petroleum resources and Mr Buhari’s deputy on the oil portfolio, last month released a reform plan dubbed the 7BigWins, which emphasises issues such as security in the Delta, gas sector reform and increased transparency.

© AFP

The plan’s critics question whether Mr Kachikwu, who was head of the NNPC until July, has the clout to implement the agenda. They add the most important reform, restructuring the NNPC, is conspicuously absent from the road map. Mr Buhari, they say, believes the sector’s structures are sound and has instead emphasised improving its leadership and corporate governance.

“There are deep, structural problems in the oil sector that will require the overhaul of processes and institutions. The last government largely ignored these, but then this administration’s plans have also been slow to surface,” says Mr Sayne at NRGI.

Mr Kachikwu, a former ExxonMobil executive, defends the government’s approach and remains determined to tackle reforms. “You can have roadblocks, but the reality of our situation is, what else? That’s probably the greatest incentive … there isn’t much of an option,” he says.

Mr Kachikwu has sought to leverage the oil industry to bring in much-needed dollar revenues. This is crucial, as global lenders such as the World Bank have been unwilling to give loans to the Buhari government, citing concerns it has not begun implementing credible reform plans.

Mr Kachikwu told the F T he is also in talks with India and other countries over forward sales agreements, adding that the government is considering alternative sources of funding from nations including Qatar.

Privatising portions of the country’s energy sector, including a segment of the NNPC itself, is on the table. But Mr Kachikwu is well aware of the obstacles to change the state oil group. During his tenure, a workforce audit found the company had thousands of excess staff. Unfortunately, Mr Kachikwu told the FT, he had no means to dismiss them — underscoring the difficulty of reforming a sector that has been the lifeblood of the patronage system for decades.

“In our analysis I think we felt we had over 1,500-2,000 staff that normal operations could work without,” he says. “[But] the politics of success is more destructive than the success itself.”

Any sale of state assets to the private sector is being viewed with mistrust by the president’s office, advisers say. Mr Buhari, having witnessed how many private oil and gas companies became wealthy under the Jonathan government, is wary of them. He calls them “small briefcase carriers”.

Just as the prior administration’s stewardship of the oil sector contributed to Mr Jonathan’s demise, Mr Buhari’s performance could make or break his presidency, and determine whether Nigeria is able to reap the rewards of its most valuable resource.

“Under Buhari people are losing their patience,” says a power sector executive. “But let’s not forget that under Jonathan they lost their shirt.”

Emmanuel Ibe Kachikwu, minister of state for petroleum resources © Reuters

Via FT