NewsWest AfricaNigeria's oil chief looks to tackle rising production costs and overpriced gasoline imports

Wed,12Dec2018

Posted on Tuesday, 20 February 2018 17:04

Nigeria's oil chief looks to tackle rising production costs and overpriced gasoline imports

By Patrick Smith
 

Kiyoshi Ota/Bloomberg/via Getty ImagesNigeria's President Muhammadu Buhari's government is pushing several changes to fix systematic problems in the oil sector but faces vested interests and the demands of communities in producing areas

To go from writing an agony column for young fathers and publishing ‘true romance stories’ to running one of Africa’s biggest oil industries is quite a journey, but Emmanuel Ibe Kachikwu has survived it with a minimum of collateral damage. The next stage could be more problematic as Kachikwu, deputy oil minister since November 2015, tries to navigate febrile markets and quell regional dissent.

Not keen on understatement, Kachikwu told The Africa Report in London that 2017 was a “turnaround year” for his country’s oil industry: “After the lows of 2016, we are up to 2m barrels a day [of production] and have plans for further expansion.” He added that he was determined to end Nigeria’s importation of petroleum products: “All our refineries will be working by 2019 and Dangote’s 650,000 barrel-a-day plant will be running.”

His other priority is to push down the costs of oil production, as well as bring in more local companies: “We’re launching a $200m facility for Nigerian companies working in oil services.”

Tackling the major issues – high production costs and the criminal patronage networks that feed on overpriced gasoline imports –would be a dagger through the heart of dysfunction in the oil industry. Can Kachikwu do it?

It will take a canny operator with barrels of chutzpah. With a line in sharp Italian suits, grey-tinted designer glasses and a penchant for round-the-clock postings on social media, Kachikwu is no staid corporate lawyer. 

Power play

Kachikwu is relying on Nigeria’s own companies, especially Aliko Dangote’s mega-refinery project at the Lekki Free Zone just outside Lagos, to join his battle. What could possibly go wrong? The powerful fuel-import lobbies are ruthless – including sabotaging state-owned refineries – in defending their turf.

Kachikwu must resolve several detailed policy issues first. Most politically tricky is the oil subsidy. President Muhammadu Buhari – currently the substantive oil minister, a role he first took on four decades back in a military government – is a man of settled opinions. He believes in a strong national currency and thinks an oil-producing country should provide its people with cheap fuel.

Pushing down oil production costs could be trickier. Kachikwu is already in a spat with directors at the state-owned Nigerian National Petroleum Corporation (NNPC) over his target figures. He wants to cut costs to $15 a barrel at the most from what he says is their current level of more than $30; the NNPC says it has already pushed costs down to $23 a barrel from more than $70 some three years ago.

Behind the scenes, there is a power play between Kachikwu and the NNPC. Kachikwu’s new oil and gas policies, approved by the cabinet in July, speak of a paring down of NNPC’s domain, more accountability and a new independent regulatory body. Yet the most critical reforms to oil industry governance are still snaking through the national assembly, where they have been for a decade.

Leading the charge on oil and gas reforms there is Senate president Bukola Saraki, who has his own strong ideas. Institutional reform is the first stage, he tells The Africa Report, but the key issue will be oil prices and gas tariffs. Without a political deal on those figures, Kachikwu’s grand ambitions could still be grounded. 

Revolutionary change

Flanked by Nigeria’s military top brass, Kachikwu spelt out the government’s agenda for “revolutionary change” in the country’s oil and gas industry at a private meeting in London’s Dorchester hotel in late August. Explaining his strategy, Kachikwu said he wants to fire up economic growth with oil- and gas-based industrialisation, gradually phasing out exports of crude oil and liquefied natural gas as the main driver of state revenue. 

Cutting exports of crude in favour of using gas and oil to generate power and make fertiliser and plastics for economic modernisation is now a familiar mantra in oil-producing economies. Supporters of such radical change point to the bleak prospects for the oil market in the medium term as rich countries announce bans on petrol and diesel vehicles, and introduce ever more efficient electric cars.

“We are no longer asking when we will reach ‘peak oil’[…] it’s when we will reach ‘peak oil market’, and in fact we may already have gone past that,” a senior energy consultant at the Kachikwu meeting told The Africa Report. “And that means some really hard decisions for high-population oil producers such as Nigeria, Brazil and Indonesia.” 

Nigeria’s bold plans involve pushing ahead with long-delayed technical changes to the national oil and gas companies, but also a new approach to resource-rich regions such as the Niger Delta. This year, Kachikwu and vice-president Yemi Osinbajo have attended several meetings in the Delta with local politicians and community groups about how to repair some of the damage wrought by the hydrocarbons industry in the region. 

Focusing on strategies that widen­ the distribution of jobs and profits from the industry is critical to tackling insecurity. Although Kachikwu can point to the fall off in militant attacks and steadily rising oil production this year – up to 1.8m barrels per day compared to less than 1m per day for long periods last year – serious logistical and security problems persist. Creaking infrastructure, ageing pipelines and poor maintenance have held down production. 

Some progress has been made at talks between the government and veteran South-South leader Edwin Clark’s Pan-Niger Delta Forum (PANDEF), but there are some difficult months ahead as other groups bring fresh demands. The Movement for the Emancipation of the Niger Delta, whose leaders have received substantial amnesty payments from the government, pulled out of talks with PANDEF and the government in August.

Fearing a wider breakdown of talks, vice-president Osinbajo held a crisis meeting with Clark in Abuja to keep negotiating channels open. 

Conditions remain extremely difficult in the main oil-producing states of Rivers, Bayelsa and Delta. Wood MacKenzie, the Scottish-based oil consultants, estimate that up to a third of crude oil transiting the Delta by pipeline is being lost through sabotage and theft. 

Heavy as those losses are, the biggest hits on Nigeria’s oil revenue have come from grand corruption. The government has accused Diezani Alison-Madueke, oil minister for the government of Goodluck Jonathan between 2011 and 2015, of presiding over a regime of opaque oil contracts with companies that had little or no track record.  

This article first appeared in the October 2017 print edition of The Africa Report magazine

 


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