- FG’s plan to sell some stakes in oil Joint Venture is akin to killing the hen that lays the golden egg
Consider the old saying about killing the chicken that lays the golden egg: this seems to be the motive behind the Federal Government seeking to sell off stakes in oil joint ventures, for quick cash. It is at best, treading the line of least resistance; a rather lazy approach to achieving economic improvements. But sadly, it seems a fait accompli already as the Federal Government says it has structured the 2019 budget to accommodate the windfall of funds.
The Minister of National Planning, Senator Udo Udoma, recently announced that the government plans to cut its stakes oil Joint Ventures with International Oil Companies, (IOCs). And it has to be done this year, as the government seeks revenue to boost an economy recovering from recession.
It would be recalled that the Muhammadu Buhari administration had mooted this in its 2017 Economic Recovery and Growth Plan (ERGP). The government, through the Nigerian National Petroleum Corporation (NNPC), owns between 60 and 55 per cent equity in major international oil corporations, like Shell, Chevron, ExxonMobil, among others. Apart from JV oil assets, government also wishes to reduce stakes in refineries and other downstream subsidiaries, such as pipelines and depots.
In the ERGP documents, the debt office had envisaged to realize about N710 billion ($2.32bn). It is common knowledge that for many years, Nigeria has struggled to meet its share of the JV funding, which amounts to about $7 billion annually. NNPC recently explained that it has 14 JVs, nine production sharing contracts and one service contract. Out of the 14 JVs, 12 are actively producing while two are said to be greenfield investments to mature in a year. And of the 12 active JVs, five are international oil companies while seven are indigenous.
Though some oil industry experts think divesting government’s equity participation is long over-due, others worry about who to sell to and how. Some others, however, oppose the sale outright. It is not certain if the partners have the right of first refusal in the case of the JVs as it is the case in the government’s participation in the Nigerian Liquefied Natural Gas (NLNG). Questions have always arisen as to how to dispose of the equities.
Would it be by public offering; by open bid or by invitation of neutral oil majors to acquire them? In other words, the proposition to raise cash quickly does not seem feasible, and certainly not as easy as it looks. National assets of this magnitude must be divested with utmost care and sensitivity. And misgivings are numerous. Many have expressed concern that not once have Nigeria earned oil windfalls in the past and each time, the funds were frittered away or embezzled with no visible impact on the economy or infrastructure. In the case of the NLNG equity for instance which was on the verge of being diluted by the government recently, there had been public outcry as to the rationale of cashing in on a high-yielding equity — again, the hen and its golden egg!
We think selling off long-held and profitable assets cannot be the best way to develop a country; it seems rather lazy and uncreative. This newspaper has long canvassed a holistic diversification of the economy beyond the current fixation on crude oil and oil assets. We are of the opinion that our agricultural production and processing value chains have been grossly under-explored. Cocoa, for instance, is still exported largely unprocessed; palm oil, rubber, cotton are vastly under-produced, if not near comatose. Non-oil mining is a non-starter, though there appears a buzz in the sub-sector of late. Still, lucrative joint ventures are required here.
Finally, this government should do more to further diversify and expand the scope of the economy. That should expand the national asset base, which is a far better strategy than selling what you have.
So, please don’t sell. Create more!