Corruption and mismanagement have long hampered the Nigerian oil industry. In fact, with global prices at their peak and many of the resource-rich countries swimming in revenues, Nigeria continues to struggle in its efforts to generate sound economic growth and build on the money its oil industry can bring. It is a stark comparison to Russia, for example, which has been able to use the high prices on natural resources to lift itself from economic misery of the 1990s. Violent protests and kidnappings have been frequently linked to the persistent poverty in Nigeria.
But now things are set to change in Nigeria, or at least the new President hopes things will change, as he is heading the move to dismantle the country’s National Petroleum Corporation. The Economist, in one of its recent issues, takes a closer look at efforts to imrove the country’s oil industry.
There is no question that the state-dominated industry is underperforming, to say the least. The conventional economic theory predicts that this is likely the case when a state, especially a weak and corrupt one, tries to be in business of doing business. But the Economist also brings up some facts:
The industry has been very badly run for years. On September 21st a federal budget report said that the corporation had somehow failed to remit 647 billion naira (almost $5.2 billion) expected by the treasury last month. Production in June fell to 750,000 barrels a day, far below its capacity of 3m b/d.
Further:
this year…Olusegun Obasanjo, sold off several refineries in the dying days of his presidency without disclosing how the deals were done.
So what is the solution being offered in Nigeria? Well, it is not necessarily setting up the private sector to run the industry. The government is still committed to retaining control – but it is looking at ways of making itself a more effective and efficient manager of state’s resources. Increased oversight over the company, improved legal framework, and stronger governance mechanisms are being offered. But, as one official notes, the plan for the national company is not to be
scrapped or unbundled, but rather will be restructured and strengthen to operate like other national oil companies around the world.
Well, I suggest Nigeria starts here – and figures out how to clean up the company so that decisions are economic, not political in nature. Because as long as corrupt political leaders continue to have opportunities to sqaunder the resources, efforts to restructure the industry will continue to be an uphill battle.
In the end of the day – I am always puzzled when I hear about state-run oil companies (not only in Nigeria) struggling to increase production to make the cash, take advantage of high oil prices, and refine enough oil to satisfy the domestic demand for gasoline. Its not as if they don’t want to do it – they certainly do – but they simply don’t have the capacity. What do you think prevents them? I have a few ideas…
Published Date: October 09, 2007