By Hector Igbikiowubo

04-10-04 The Nigerian oil industry has continued to witnessed giant strides in the upstream sector which accounts for and continues to attract foreign direct investment, while the downstream sector has at best witnessed failed attempts at playing catch-up with the upstream sector under the management of the Chief Olusegun Obasanjo administration in the last five years.
Perhaps the management and control of the two sectors may have a hand in their respective fortunes. Whereas the upstream oil sector is largely managed by expatriates, the downstream sector is managed by Nigerians.

Going by current investment pattern in the upstream oil sector, at the last count, investment in it had surpassed the N 30 tn margin all in an effort to grow capacity in the sector and monetise gas resources to meet the Federal Government's 2008 gas flare-out target. Within year 2000 and 2004, the Shell Petroleum Development Company alone has announced and expended over $ 16.5 bn to grow its oil and gas production capacity, while other upstream oil industry players have also deployed funds to grow their productive capacity in the sector.
Shell's efforts to develop its productive capacity within the period under review has been hinged on the development of the multi-million dollars EA field offshore Warri and the $ 2.7 bn Bonga field re-scheduled to produce first oil early next year.

The company which also operates the Nigeria Liquefied Natural Gas Limited (NLNG), had to make provisions for part funding of the trains 4th and 5th trains expansion, and only recently concluded arrangements for funding of the sixth train. Similarly, ChevronTexaco is also making concerted efforts to expand its productive capacity with the development of its $ 2.5 bn Agbami field, while also making arrangements to monetise the joint venture's gas resources through the expansion of Escravos Gas To Liquids project and the West African Gas Pipeline Project (WAGP) expected to gulp over $ 600 mm.
Only recently the second largest upstream operator in the country, Mobil Producing Nigeria, a subsidiary of ExxonMobil and the Nigerian National Petroleum Corporation (NNPC) concluded a $ 1.275 bn funding arrangement for expansion of a Natural Gas Liquids plant operated by it but jointly owned by the NNPC.

The company is also making concerted efforts to develop the Erha field reputed to be a huge gusher, as well as participate in the development of a Western Niger Delta LNG project. However, it was gathered that this is still at the feasibility study stage. Total has also made giant strides under the tenure of the Obasanjo administration with the development of the multibillion dollars Amenam Kpono field which added over 120,000 bpd to the company's total output.
The development of the NLNG has also been enmeshed in controversy following a $ 180 mm bribery allegation regarding construction of trains 1,2,3,4&5. It would be recalled that there is ongoing investigations in Paris, Washington and the Nigerian National Assembly regarding an alleged $ 180 mm bribe offered by TSKJ to Government officials.

TSKJ is the consortium which built the first three trains and secured contract for construction of trains 4 and 5 without any competitive tender exercise. Worst still, the NLNG and the executive arm of government has so far maintained a disconcerting silence over the whole incident. Perhaps believing that with their silence the whole incident can be wished away.
Although the integrity of crude oil and gas production facilities within the industry have been sorely tested by the activities of crude oil thieves, efforts by operators to maintain the integrity of these facilities continues to win ISO certifications. Worthy of mention are Shell operated facilities which continues to rake in ISO certifications year after year.

However, the inability of the Obasanjo administration to nip the incidence of crude oil theft in the bud has left both operators and observers with the impression that government has only been paying lip service to doing something about it.
Currently, a conservative estimate puts loss through crude oil theft at over 150,000 bpd and nobody has so far been convicted for the offence. Even ships seized by the authorities due to involvement in crude oil theft suddenly disappear into thin air, leaving government security agencies blaming each other for the disappearance.

On efforts to develop the host communities, government established the Niger Delta Development Commission (NDDC) to act as an intervention agency owing to cries of marginalisation from peoples in the host communities. Similarly, government pays 13 % derivation to oil producing states of the federation and spending on host communities by oil and gas exploration and production companies have grown by leaps and bounds in the last five years.
But despite the claims of various development accomplishments by the NDDC, and increased spending on community development by the E&P companies, at no time in Nigeria's history has cries of marginalisation reached such crescendo.

Perhaps no singular incident underscores the apathy of the Niger Delta people towards government's efforts at developing the area as much as the activities of the Niger Delta Peoples Volunteer Force led by Alhaji Mujahid Asari Dokubo, a former President of the Ijaw Youth Congress (IYC).
The activities of the Asari/Ateke led groups in the Niger Delta and Port Harcourt in particular also speaks volumes for the success albeit failure of government at the state and local government level across the Niger Delta with grim implications for the way and manner the 13 % derivation oil fund at the disposal of politicians in government within the area have been deployed within the last five years of the Obasanjo administration.

Government has also set targets for improvement in local content development from the current abysmal level of a little over 10 % to 45 % by 2006 and 70 % by 2010. Enviable as this may appear. It is important to note that government has always beenknown to come up with grandiose laudable schemes purportedly for the benefit of the people, but has never been known to deliver on any of these schemes.
The current president of Petroleum Technology Association of Nigeria (PETAN), Mr Pedro Egbe had captured the situation rather aptly when he spoke to us. He said the targets set by government can be achieved by the Nigerian operators in the industry, adding however, that people in government have to change their attitude.

He called on government to give Nigerian companies more responsibilities, adding that the only way to do this was to challenge Nigerian companies by awarding jobs to them.
"If the government wants 50 %, 70 % or even 80 %, Government should understand that there are business communities that can achieve this kind of target. I think the most important thing is accepting that we have come of age and that there is a capacity locally to do what the government wants us to do. And if we are entrusted with that responsibility, I'll tell you how we can achieve the target," he explained.

Industry watchers also contend that given the prevailing incidence of crude oil theft and community related incidents which have perennially characterised the Nigerian oil and gas industry, it is a wonder that foreign direct investment keeps being attracted to grow production capacity.
There are indications that this sector of the oil and gas industry may have achieved the growth recorded so far because the operators are mostly foreign companies which have internationally established ways of doing business. Essentially, the operators are not as manifestly corrupt as a few misguided Nigerians chose to conduct themselves.

In the downstream sector, attempts at deregulation has witnessed a pretension at increased activities and investment in the sector within the last one year.
But this development has been overshadowed by government's inability to get the refineries to function optimally, while prices of petroleum products have continued to go up, leaving the citizenry with the impression that liberalisation of the downstream oil sector is all about increase in prices of petroleum products.

While answering questions on the state of the refineries, Dr Levi Ajuonuma, the general manager in charge of group public affairs at the NNPC disclosed that the Port Harcourt Refinery had been down due to power supply problems and that manufacturers of the defective part which caused the power problem has stopped producing the part in question.
"However, it is expected that the defective part should have been produced (on special request) within the next three months. Warri and Kaduna refineries had been bogged down by problems with the Chanomi Creek. However, B+B the construction company handling the rehabilitation work there has promised that by October 16th the lines supplying both refineries with crude oil will be up and running," he disclosed.

Plausible as this argument may sound, it would be recalled that too many promises have been made regarding the refineries which at the last count had gulped over $ 400 mm, with little result to show for it. Industry analysts contend that the refineries are indeed better off given out to capable investors for a token, instead of government pretending it is capable of selling them in their current state of misuse and disrepair.
It is also worrisome to note that so much money was paid out to contractors for rehabilitation work, with so little result. Yet, no contractor has been made to refund any money, neither is any contractor facing civil prosecution. Obviously, government has shown itself incapable of managing the refineries and should be in a hurry to get out of the sector instead of foot-dragging.

Only recently, government, acting through the NNPC and upon the strength of a high court ruling on imposition of fuel tax, raised the ex-depot price of petroleum products, and precipitated an increase in the pump price of petroleum products. This has resulted in Nigerians having to contend with the spectre of another strike action with its attendant hazards.
Whereas Nigerians should be taking stock of life in the polity under a civilian dispensation devoid of military governance and its attendant displacements, the looming strike action planned by the Nigeria Labour Congress (NLC) can only serve to portends grievous consequences to a populace already traumatised by one increment too many.

Obviously, given the current cost of crude oil in the international market, it is no wonder that the prices of imported petroleum products will also be very high and since Nigeria has suddenly become a net importer of petroleum products, it is not surprising that the citizenry is made to bear the cost.
However, while leadership conducts its affairs with impunity, believing that the citizenry has an elephantine capacity to forget promises and pledges made during the campaign for deregulation, it would be recalled that government through the then Petroleum Products Pricing and Regulatory Commission (PPPRC) had given the assurance that the railway sector will be rehabilitated, the road networks expanded and the water ways made motor-able for water transportation across the country. The Commission had also during the campaign served notice that the refineries would be privatised before the deregulation of the sector, amongst many other failed promises.

The well known benefits of liberalising the downstream sector of the oil industry can not be over-emphasised, but certain things need to be put in place to mitigate the initial hardship and dislocation price increases will wrought upon the people whom it is expected to benefit.
For what sense does it make to procure fuel at such an exorbitant cost and spend hours on end in traffic due to poor road network? Nothing captures government's ineptitude, insensitivity and tendency for corruption more than its inability to get the refineries to work. It is also sad to note that of the 21 licensees for operation of private refineries given a nod to proceed over four years ago, only one of them has advanced to the ground breaking ceremony stage.

This also speaks volumes for the environment created by government for investment in the sector. Obviously, if the environment was conducive enough, a few of the licensees would have commenced construction by now.
As we mark one more year of the present administration's management of the oil and gas industry, it has become obvious that a lot still needs to be done to put things right within the industry. Hopefully, a wind of change appears to be blowing within the NNPC and its subsidiaries, only time will tell how far the changes will go and how enduring the changes will be.