As the recession bites Nigeria harder with record inflation, unemployment and revenue shortfalls, there have been renewed calls on the government to raise cash through asset sales. Specifically, stakeholders want the Federal Government to quickly offer stakes in the Nigerian National Petroleum Corporation’s assets to plug revenue shortage, instil efficiency in the industry, attract foreign direct investment and create jobs. The President, Major General Muhammadu Buhari (retd.), who also retains the petroleum resources ministry portfolio, should follow the lead of other oil producers and initiate a programme of divestment to save the economy.
Early analysis from scientists and governments around the world suggests the new COVID-19 variant may be as much as 70 per cent more transmissible. This suggests that the global economy is not out of the woods yet. During adversity, countries resort to divestment from state-owned companies. For oil-rich states, the trend has been to leverage their resources by selling stakes in SOCs and their subsidiaries and divesting from non-core enterprises. Analysts reviewing the recent progress of the long-delayed Petroleum Industry Bill and ongoing deals to repair pipelines suggested that the NNPC also exit from the downstream altogether and launch an initial public offering.
Weighing in, the Society of Petroleum Engineers called for decentralisation and liberalisation of the commanding heights of the economy. Its Chairman, Joe Nwakwue, said, “The government must focus on setting up the right regulations and allow the private sector to drive the oil and gas sector.” An investment banker, Kurt Davis Jr., was more specific; “Nigerian officials should simply take inspiration from Saudi Aramco (the Saudi Arabian national oil company) and push forward while remaining aware of the expectations and requirements of the market.” That is the right way to go. Saudi Arabia plans to raise around $10 billion from a stake sale in Aramco’s pipelines alone. In December 2019, the Kingdom raised almost $30 billion from Aramco’s initial public offering. Abu National Oil Co. had raised more than $15 billion this year to spend its way out of recession, a report says.
Buhari should face the reality: you beat recession by spending your way out; to avoid and cushion against future shocks, the UNDP advises restructuring the economy to make it more efficient by creating an enabling environment to attract FDI and local investors. Maximising their comparative advantage, countries have been loosening their stakes in NOCs to raise cash and facilitate private sector-led growth. NOCs, said the IMF’s Finance and Development newsletter, have $3 trillion in assets and control most of the world’s oil and gas. They have been hit since mid-2014 with low prices and revenue inadequacy, worsened by the ongoing COVID-19-induced global recession. Apart from the Saudi Aramco IPO that fetched an initial $29.4 billion in 2019 – the world’s biggest – Saudi Arabia is still aggressively offering stakes in its subsidiaries in less-publicised deals to reduce its budget deficit that reached $10.87 billion in third quarter 2020. The United Arab Emirates raised $10.4 billion in FDI by selling stakes in the pipeline and refining subsidiaries of ADNOC, the state-owned oil company.
Nigeria’s economy has taken a battering. The country, says BudgIT, spends over 60 per cent of its revenue servicing debt, reaching over 90 per cent in Q1, compared to the World Bank’s recommended ceiling of 22.5 per cent. Famine is imminent in some places; 21.7 million are jobless; inflation has risen to 13.22 per cent and FDI declined further by 33.41 per cent in the past year, says the National Bureau of Statistics. It needs an infusion of cash to avoid bankruptcy.
With about 40 billion barrels of oil in reserves, the NNPC remains the only major NOC apart from Venezuela’s PDVSA posting losses. It proudly announced reducing losses by 99.7 per cent from N803 billion in 2018 to N1.7 billion in 2019 billion. But this does not tell the full story: notorious for opacity and corruption, several of its subsidiaries are chronic loss-makers. Its four refineries were idle in the 12 months to June during which combined, they posted N142.1 billion losses. The pipelines and depots are rundown and its retail operations underperform. Wisdom dictates the outright sale of unprofitably run downstream assets to facilitate private investment; instead, the government continues to deepen its disruptive involvement such as the ongoing $2.6 billion Ajaokuta-Kaduna-Kano Gas Pipeline, 85 per cent of which funding is coming from yet another Chinese loan.
This template has to change. Apart from managerial incompetence, state involvement crowds out private investment, distorts the market and stifles job creation, the IMF said. Controlling over 70 per cent of global reserves, “state-owned companies, commonly executing the double task of carrying out energy-related activities and cross-subsidising the government budget, find themselves increasingly vulnerable. Privatisation represents an expedient variant of raising cash for state coffers and rendering oil companies more efficient by means of bringing in new ideas and adhering to free-market discipline,” stated the influential OilPrice.com. Britain blazed the trail with the privatisation of BP in the 1980s; Kuwait, Mexico, Russia, Brazil and Colombia among others have since followed suit. Visionary Norway did not wait for adversity before its first partial privatisation of its NOC, Equinor (formerly Statoil), in 2001. Today, the government’s stake is down to 67 per cent. In 2012, it raised $2.8 billion by selling its downstream unit to a Canadian firm; it raised “$2.25 billion by selling a 15.5 per cent stake in its Azerbaijan operation to Malaysia’s Petronas. In 2016, it licensed 66 per cent of a Brazilian unit for $2.5 billion. Following a series of divestment from its subsidiaries, Brazil’s President, Jair Bolsonaro, is determined to privatise the state-owned Petrobas by 2022.
Buhari needs to fast-track the planned asset sales that attracted much investor interest last year and which the NNPC in a recent statement said it was not in hurry to implement. It must divest and fast too. Generating more than half of public revenues and 90 per cent of Nigeria’s export revenues, the opaque, lumbering giant must be drastically reformed. Nigerians are suffering: the economy is collapsing, unemployment is spiralling and poverty is deepening. The refineries, pipelines, depots and retail units should be sold in a transparent manner to investors to raise money for the treasury, facilitate investment and efficiency and stimulate job creation. The new PIB has made provision for reforming the NNPC, detaching it from government’s control and privatising some assets. The refineries should be mothballed and sold.
Delay is no longer excusable. The government should raise the desperately-needed cash by selling NNPC assets, leasing its ports and airports, steel assets and liberalising the environment to make way for a private sector-led economic growth.
