Nigeria's Energy Future Challenged By Weak Rule Of Law - FORBES
BY Ariel Cohen
Flames from a gas flare burn at an oil flow station operated by Nigerian Agip Oil Co. Ltd. (NAOC), a division of Eni SpA, in Idu, Rivers State, Nigeria, on Monday, Sept. 28, 2015. Photographer: George Osodi/Bloomberg
With the reelection of Muhammadu Buhari to the Nigerian presidency, Africa’s leading oil exporter faces a challenge as old as Nigeria itself: political corruption. This scourge shortchanges ordinary Nigerians and undermines the country’s development.
Royal Dutch Shell (NYSE:RDS-A) and Italy’s Eni (NYSE:E) have been embroiled in a legal battle since 2011 over an alleged $1.1 billion paid in bribes to Nigerian government officials, related to the acquisition of new off-shore drilling rights. Nigeria is now counter-suing for $1.14 billion (868 million British pounds) in a London court, claiming that Shell and Eni assisted “corrupt Nigerian government officials to breach fiduciary duties” in the deal. This scandal comes after a leaked 2013 report, which details how Nigeria’s National Petroleum Corporation (NNPC) owed the government $20 billion in revenue due to its failure to report its earnings. It seems there is no shortage of legal quagmires for Africa’s most populous nation.
Indeed, one in five Africans reside here, yet only 23 power plants exist to keep the lights on. Recently re-elected President Buhari has expressed plans to modernize and industrialize his country through a state-directed strategy. But the matter does not simply demand massive construction projects to ease the country’s energy woes. Additionally, a rule of law overhaul, ensuring genuine accountability to Nigerian voters and consumers is needed as well. Without these mechanisms, Buhari can forget any chance of stewarding Nigeria toward becoming a modern and prosperous petrostate.
With a GDP of over $376 billion, Nigeria produces approximately 2.5 million barrels of crude per day. That accounts for 56% of state revenueand 95% of its foreign exchange earnings. However, its state-dominated oil industry is in decline due to corruption, waste, and mismanagement. Keeping in mind that Africa’s largest economy includes a fragile relationship between Christians and Muslims, along with the ongoing threats from Boko Haram, the Nigerian government cannot afford to ignore the reforms of its energy sector much longer.
This election finally appears to have made Buhari take privatization seriously. His announcement to sell 40% of Nigerian National Petroleum Corporation NNPC shares in domestic oil ventures leaves the government leaner. With oil prices recovering from $30 to $70 per barrel today since December 2018, Buhari is acting at an opportune moment. On April 12th, Lagos-based Seplat Petroleum Development Co. and Nigeria’s state oil company, NNPC, announced they will raise $700 million for a joint gas project scheduled to start production next year. The plant has an initial capacity of 300 million standard cubic feet (scf) per day, with hopes of further expansion.