The Minister for Labour, Adetokumbo Kayode, reckons that the global recession will force Nigerians in Diaspora out of a job and send them running back to Nigeria.
The Minister, speaking with members of the Labour Correspondents Association of Nigeria (LACAN), in Abuja, believes that a lot of Nigerians will be rushing home from abroad after losing their jobs, and declared that the Federal Government had envisaged this, and is already preparing to receive them back home.
According to the Minister, a buffer was already being put in place to reduce the shock and difficulties their influx would have, and as a result the government has made the issue of job creation as a matter of priority.
"We want to take the issue of job creation as a matter of priority and development in Nigeria. There will be a national summit coming soon with a work plan. It is not just going to be a talk-show and just one of the programmes, especially now that the economic crunch is here." said the Minister.
"We know that a lot of Nigerians are going to be coming home from abroad because the foreign jobs they used to do are no longer there. With the new policy abroad, foreigners shall be forced to leave for the citizens to take over and when there is no job there, you are finished when you cannot pay your bills, your mortgages."
Well it is about time that the government took the issue of job creation seriously, but then again isn't it what it was supposed to be doing in the first place?
One wonders what the millions of already unemployed Nigerians feel about the government scrambling to create an economic buffer for the few thousands of Nigerians that are most likely to relocate back home.
Considering that the Nigerian economy is not exactly immune to the global slowdown, and companies in Nigeria, are also laying off people, it will be interesting to hear exactly what the government plans are.
Showing posts with label economy. Show all posts
Showing posts with label economy. Show all posts
Monday, 9 February 2009
Wednesday, 4 February 2009
Federal Government Rules Out Bailout for Financial Sector
The Federal Government yesterday ruled out bailing out the financial sector yesteday Remi Babalola, minister of state for finance, disclosed yestedray that the government has been made to believe that the banking industry is strong to withstand the meltdown ravaging foreign banks.
He also stated that the government was more focused on delivery on wider economic stimulus rather than focus on the financil sector but did not rule out the possibility of a bailout, if the need did arise for it.
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He also stated that the government was more focused on delivery on wider economic stimulus rather than focus on the financil sector but did not rule out the possibility of a bailout, if the need did arise for it.
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Nigeria to roll out it own Economic Stimulus
President Umaru Yar'Adua has directed all relevant government agencies to immediately work out incentive packages that would help cushion the impact of the global economic crisis on Nigerians.
This follows the recommedations of the Presidential Steering Committee on the Global Economic Crisis, which met last Tuesday, to work on a number of palliative measures for the short, medium and long terms.
According to a spokesman for the President, Olusegun Adeniyi, the stimulus will include "a package of incentives that will ginger production, increase the purchasing power of the ordinary man on the street and help generate employment opportunities. In the medium and long term strategies, aside infrastructural development, the government is looking in the direction of agriculture through commercial farming clusters and value chain, not only for food security but for employment generation. In the oil sector, the local content guidelines are being reviewed as a component of the reforms to give more leverage to our people."
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This follows the recommedations of the Presidential Steering Committee on the Global Economic Crisis, which met last Tuesday, to work on a number of palliative measures for the short, medium and long terms.
According to a spokesman for the President, Olusegun Adeniyi, the stimulus will include "a package of incentives that will ginger production, increase the purchasing power of the ordinary man on the street and help generate employment opportunities. In the medium and long term strategies, aside infrastructural development, the government is looking in the direction of agriculture through commercial farming clusters and value chain, not only for food security but for employment generation. In the oil sector, the local content guidelines are being reviewed as a component of the reforms to give more leverage to our people."
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Nigeria’s Naira May Fall 15% If Crude Weakens, Citigroup Says
Citigroup believes that Nigeria’s naira may weaken as much as 15 percent this year should the price of oil, which accounts for 90 percent of the country’s export earnings, decline to an average $35 a barrel in 2009.
According to David Cowan, an economist at Citigroup Nigeria's currency may slump to about 173 per dollar by year-end. It is currebtly being traded at 150.25 per dollar.
Nigeria’s currency lost almost a quarter of its value following a Nov. 26 decision by the central bank to limit sales of dollars to commercial banks to protect its $52 billion of reserves as oil revenue shrank and foreign investors sold the nation’s assets. Oil has slumped almost 72 percent since its July record of $147.27 a barrel, cutting Nigeria’s export earnings.
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According to David Cowan, an economist at Citigroup Nigeria's currency may slump to about 173 per dollar by year-end. It is currebtly being traded at 150.25 per dollar.
Nigeria’s currency lost almost a quarter of its value following a Nov. 26 decision by the central bank to limit sales of dollars to commercial banks to protect its $52 billion of reserves as oil revenue shrank and foreign investors sold the nation’s assets. Oil has slumped almost 72 percent since its July record of $147.27 a barrel, cutting Nigeria’s export earnings.
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12 Steps: Energy - The Nigerian Natural Gas Industry
OGJ estimates that Nigeria had over 180 trillion cubic feet of proven natural gas reserves, more than three times the proven oil reserves, as of January 2007, making it the seventh largest natural gas reserve holder in the world and the largest in Africa. A U.S. Geological Survey (USGS) study however estimates that the gas reserves potential in Nigeria could be as high as 600 trillion cubic feet.
There has been a steady growth in the amount of proven natural gas reserves in country, with the amount almost doubling over a period from 1992 to 2006, with most of new discovery occurring in deep water basins. More significantly gas reserves discovered, were as a result of exploration of oil as there has not been any dedicated gas exploration of any kind carried out in the country.
The biggest natural gas initiative in the country is the Nigeria Liquefied Natural Gas Limited (NLNG), is jointly owned by Nigerian National Petroleum Corporation (49%), Shell (25.6%), Total LNG Nigeria Ltd (15%) and Eni (10.4%). It was incorporated in 1989 and began exploration and production in 1999.
In 2008, company added a sixth unit to its natural gas export plant, located on Bonny Island in the southern Niger Delta, lifting annual shipments by a fifth to 22 million tonnes. The $1.6 billion unit took three years to build and should raise annual sales of liquefied natural gas (LNG) from the whole complex to about $6 billion, while a seventh unit is expected to be completed by 2011 depending on a Final Investment Decision (FID) scheduled for 2009.
The facility is currently supplied from dedicated natural gas fields, but it is anticipated that within a few years half of the natural gas feedstock will consist of associated (currently flared) natural gas from existing oil fields.
Additional LNG facilities in Nigeria are also being developed. In January 2005, Chevron announced it was looking into constructing the $7 billion OK-LNG plant at Olokola, Ondo State. In March 2007, NNPC awarded a construction contract to France-based Technip and the project includes connecting the LNG plant to oil and natural gas reserves in the Niger Delta through a network of pipelines. Once expected to produce its first LNG in 2001, OK-LNG is now expected to come on stream in 2015 according to a report released in October, 2008.
In December 2005, ConocoPhillips, Chevron and Agip met with NNPC to sign a shareholders agreement for the establishment of the $3.5 billion Brass River LNG plant. The project, which includes two LNG trains, is also now expected to come on stream in 2015.
Both the Brass and OK-LNG have been hit by independent oil companies (IOCs) reaction to the government’s decision to meet local demands for gas products before exports are made. This has led to the IOCs holding back on making further investments, as they believe they would recoup their investments more quickly by exporting to the more competitive markets in Europe and North America.
Chevron is working on the Escravos Gas-to-Liquids (EGTL) project and completion of the project was scheduled for 2009. However, in January 2007, work on the EGTL project came to a halt after a breakdown in negotiations over its cost, which had shot up to from $2.5 billion to $5.4 billion. Plans for the project included linking the Escravos pipeline system with the West African Gas Pipeline (WAGP) for natural gas export to Benin, Togo and Ghana.
There has been a global increase in the demand for natural gas, more so as it is seen as a cleaner alternative to other fossil fuels such as oil and coal. The Nigerian government is seeking to harness the potential natural gas has to offer by;
• Improving domestic use; mainly through the use of gas for the production of electricity.
• Consolidating its position as a regional player; By supplying gas to other African countries through the West African Gas pipeline project and the Trans-Saharan Gas project.
• Rapidly growing LNG exportation: Nigeria has the second fastest growing LNG capacity in the world after Qatar.
To help it achieve its goals the Nigerian government has developed the Nigerian Gas Master Plan (NGMP), along with other initiatives. The plan aims to;
1. Increase Market Share and Penetration: Fully exploit the potential gas has to offer by increasing sales and market penetration in the domestic, regional and international markets.
The government intends to protect supply to the domestic market, through the introduction of the Domestic Gas Supply Obligation regulation, which mandates that a certain portion of gas production be set aside for the domestic market. This is to prevent a scarcity of the gas products in the local market through the actions of Joint Ventures operating in the sector, who might want to sell majority of their products in more competitive international markets.
2. Establish a Competitive Gas Industry: By improving Nigerian gas industry’s competitiveness by implementing an integrated infrastructure strategy to support domestic, regional and export markets; and attracting new players; and ensuring the commercial viability of investments.
As part of its strategy, the government has approved a sector based gas pricing framework which divides the domestic market into three categories, encompassing the power sector; strategic gas-based industries that use gas as feedstock (fertilizer, methanol); and wholesale distributors, with a different pricing model developed for each of the categories.
A gas infrastructure blueprint has also been approved by the government, which will provide the backbone for the Nigerian gas grid. The blueprint, which was developed to provide for flexibility and scale ability of supply, and cost effectiveness, will see the creation of a gas infrastructure that concurrently supports the supply of gas to the domestic, regional and export markets.
The government believes that the proposed network of infrastructure, will improve the country’s ability to increase gas supplies rapidly and flexibly, and putting the country in a better position to respond to growth in demand both domestically, regionally and for export.
Joining the GECF
The government hopes the plan will lead to fully develop a market driven gas industry by 2014. Nigeria also became one of the founding members, along with 17 other countries, of the newly formed Gas Exporting Countries Forum (GECF), which was formally established on December 23, 2008 in Moscow, Russia.
GECF is expected to function in the same way as OPEC, regulating and controlling natural gas production in the international market and will be strictly guided by the framework and agreement which bind member states together. Members are also expected to share a common purpose to maximise value to their various nations while working towards ensuring a stable gas market that delivers fair price to both consumers and suppliers.
Analysts are of the view that Nigeria's membership of GECF is a step in the right direction in developing and exploring the country's long abandoned natural gas reserves as well as creating an alternative source of revenue for Nigeria outside crude oil revenue. It is also hoped, the member ship would also bring about a quick end to wasteful practice of gas flaring in the country.
The government’s current plans for the gas industry should bring needed improvements to a much neglected sector, what remains to be seen is if the government will execute it plans properly, or it will just fizzle out be like other government backed projects.
Tuesday, 3 February 2009
Nigerian Finance Minister - Economy at Critical Juncture
Yesterday at the inauguration of the National Economic Management Team (NEMT) in Abuja, the Minister for Finance admitted that the Nigerian economy was at a critical juncture as the the global economic slowdown has brought about a sharp drop in the market capitalisation on the Nigerian Stock Exchange; reduced budgetary revenues; falling external reserves and marked Naira depreciation.
This should hardly surprising as many economic commentors, including myself raised the issue last week on how the Nigerians should brace themselves for tough times ahead.
The admission is a step in the right direction but it will be more interesting to see what solutions the new team comes up with to salvage the economy and how quickly they come with the goods. Even the most optimistic of economists do not believe that the global economy will rebound this year, and even if it does, most are expceting an almost flatline growth in the next few years. This will ultimately affect the demand for oil, Nigeria's chief earner.
Hopefully the team will focus on reducing the country's dependence on oil receipts and come up with viable ways to diversify the economy.
This should hardly surprising as many economic commentors, including myself raised the issue last week on how the Nigerians should brace themselves for tough times ahead.
The admission is a step in the right direction but it will be more interesting to see what solutions the new team comes up with to salvage the economy and how quickly they come with the goods. Even the most optimistic of economists do not believe that the global economy will rebound this year, and even if it does, most are expceting an almost flatline growth in the next few years. This will ultimately affect the demand for oil, Nigeria's chief earner.
Hopefully the team will focus on reducing the country's dependence on oil receipts and come up with viable ways to diversify the economy.
Thursday, 29 January 2009
12 Steps - Energy: Reforming the Petroleum Industry
Petroleum is essential to many industries, and accounts for a large percentage of the world’s energy consumption, ranging from regional average of 32% for Europe and Asia, up to 53% for the Middle East. In Nigeria that figure is about 60%.
The petroleum industry includes the global processes of exploration, extraction, refining, transporting (often by oil tankers and pipelines), and marketing petroleum products. Taken as a whole, the processes represent the world's largest industry in terms of dollar value and accounted for close to 20% of Nigeria’s GDP in 2007.
The largest volume products of the industry are fuel oil and gasoline (petrol). Petroleum is also the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics. The industry is usually divided into three major components: upstream, midstream and downstream. Midstream operations are usually included in the downstream category.
Oil was discovered in Nigeria by Shell-BP, at the time the sole concessionaire, in 1956 in the Niger Delta after half a century of exploration. Two years later, Nigeria joined the ranks of oil producers when its first oil field came on stream. After 1960, exploration rights in onshore and offshore areas adjoining the Niger Delta were extended to other foreign companies.
Following the Biafra war in 1970, the government under the leadership of General Gown, decided to secure and gain more control over the oil industry, and nationalised it by creating the Nigerian National Oil Corporation (NNOC) via a decree.
Nationalisation of the oil sector was also precipitated by Nigeria's desire to join OPEC, which required that member states acquire 51% stake and become increasingly involved in the oil sector. The creation of the NNOC, which later went on to be known as NNPC, made government participation in the industry legally binding. The federal government would continue to consolidate its oil involvement throughout the next several decades.
Petroleum production and export have since grown to play a dominant role in Nigeria's economy and account for about 90% of her gross earnings. This dominant role has pushed agriculture, the traditional mainstay of the economy, from the early fifties and sixties, to the background.
Nigeria's proven oil reserves are estimated by the United States Energy Information Administration (EIA) at between 16 and 22 billion barrels, but others believe it could be as much as 35.3 billion barrels. Its reserves makes Nigeria the tenth most petroleum-rich nation in the world, and by the far the most affluent in Africa.
The majority of the reserves are found along the country's Niger River Delta, in southern Nigeria and offshore in the Bight of Benin, Gulf of Guinea and Bight of Bonny. Nigeria has total production capacity (total potential production capacity if all oil currently shut-in came back online) of three million barrels per day (bbl/d) including two million bbl/d onshore and one million bbl/d offshore.
However, the Niger Delta has been engulfed by a conflict which arose in the early 1990s due to tensions between the foreign oil corporations, the Nigerian federal government, and a number of the Niger Delta's ethnic groups who felt they were being exploited, particularly minority groups.
All petroleum production and exploration in Nigeria are undertaken as joint ventures between foreign multi-national corporations and the Nigerian Federal Government, through the NNPC. The joint ventures account for approximately 95 percent of all crude oil output, with the remaining 5 percent produced by local independent companies operating in marginal fields.
The utilisation of oil in Nigeria is carried out with the backing of legislation, the most important ones being the Petroleum Act 1969, Oil pipelines Act 1956, Oil in Navigable Waters Act 1968, Federal Environmental Protection Agency Act 1988, and the Land Use Act 1978. The Petroleum Act (which really a continuation of an old colonial policy) vested the entire property in petroleum (mineral oils) to the state.
This gave the federal government the absolute right and control over oil resources in the country, which it exercising by farming out oil mining rights to oil companies and receives rents and royalties from them.
Until the promulgation of the Land Use Act (LUA) in 1978, while the ownership of oil belonged to the federal government, the land where the oil was found was vested in the communities and families that owned the land, with whom oil companies had to negotiate compensation for granting access to the oil and any damage to the land.
The passing of the LUA, which vested all the lands comprised in the territory of a state of the federation in the governor of the state in ‘trust' for all Nigerians, meant oil companies no longer had to deal with the local land owners and communities, instead paying the right to access the oil to the federal government.
It is the LUA that has been the source of much of the agitation in the Niger Delta Region, whose community leaders and activists are demanding that oil companies should pay rents and royalties for the use of the land directly to land owners and to local communities instead of to the central government.
In 2000, President Obasanjo established the Niger Delta Development Commission (NDDC) for the sole purpose of developing the oil-rich Niger-Delta region of southern Nigeria. Since its inauguration, the NDDC has focused on the development of social and physical infrastructures, ecological/environmental remediation and human development.
However the tensions continued to persist in the Niger Delta region, and a spike in the availability of small arms and other weapons, led increasingly to the militarization of the region. This has led to frequent clashes between government troops and paramilitary groups who have declared “all-out war” with the Nigerian state as well as the oil corporations and threatened to disrupt oil production activities through attacks on wells and pipelines.
During the 16 months preceding the 2007 presidential elections, militant activity in the Niger Delta (especially near Warri and Port Harcourt) has severely impacted Nigeria’s oil production potential by shutting-in an estimated 20 percent of total production.
Upon taking office in 2007, President Yar’Adua made reforming the oil sector and tackling the crisis in the Niger Delta his top priorities and has taken a number of steps towards fulfilling his pledge.
Petroleum Industry Reforms
The Federal Government has begun to implement some of the oil industry reforms that it promised to carry out. The reforms which have been drafted into the Petroleum Industry Bill, which is currently being reviewed by the House of Assembly before being passed into law, have begun with the appointment of the Executive Secretary of the new Nigeria Petroleum Directorate.
The Nigerian Petroleum Directorate (NPD), which will be headed by the Minister of Petroleum and have the executive secretary as the administrative head, is expected to replace the current Ministry of Petroleum and serve as the policy cum administrative secretariat of the oil and gas industry when the bill is passed.
Key proposals of the Petroleum Industry Bill include:
• Measures to ensure the government increases its take from a growing number of deep-water developments.
• Review of the royalties on gas production.
• Increasing the tax take from gas by creating a new fiscal regime separate from rules governing oil.
• Changes to the way tax breaks are applied for new developments.
• Oil companies will be encouraged to refine at least 50 per cent of their production in Nigeria by the end of the decade.
• New rules to boost employment of Nigerians in the oil industry.
• Incentives to encourage development of marginal fields.
• Improved community programmes in the Niger Delta.
The bill also aims to aims to see the restructuring of the NNPC from its opaque, octopus-like structure to discrete units to handle tasks such as exploration and production, regulation and research.
The restructured company, which will be known as the Nigeria National Petroleum Company Limited, will be free to raise private capital for its joint ventures with the major multinational oil companies, rather than rely on a notoriously unreliable annual injection of cash from Nigeria’s government. The restructuring will also allow the private sector to acquire equity in its subsidiaries like the refineries and data services among others.
The government anticipates the newly formed company to operate like Brazil's Petrobras, Malaysia's Petronas, Saudi Arabia's Aramco and other government-owned but commercially viable national oil companies that operate globally, without relying on their home government for funding.
The new bill will also set up the Nigerian Petroleum Inspectorate (NPI) to replace the current Department of Petroleum Resources (DPR) and will be responsible for the technical regulation of all upstream and downstream activities of the entire oil and gas industry.
Another provision of the new bill is the National Petroleum Assets Management Agency (NAPAM) to regulate the cost and commercial operations of the upstream sector.
While in the downstream sector, the bill seeks to create a Petroleum Products Regulatory Agency (PPRA) as the downstream commercial regulator. Some of the duties of the PPRA will include the issue, renewal, suspension or cancellation of permits or licences, as well as ensuring that quality service provided by the operators to the consumers is in keeping with the guidelines laid out by the Consumer Protection Council.
It is expected that the House of Assembly will pass new laws to overhaul the country’s oil and gas sector before the end of the year, ramping up the pace of reform in spite of fears among Western majors that the changes could cost billions in profits.
The new bill says the reform of the joint ventures will take effect a year after it is passed, although analysts said the complex task of re-engineering the businesses – which account for the bulk of Nigeria’s oil production – could take much longer.
The Nigerian president, Umaru Yar’Adua, hopes the new law will form the foundation for a revival of an industry where attacks on pipelines and constraints on investment have fuelled a growing sense of crisis among energy companies. Though many of the multinational have expressed concerns about the new proposed terms being so stringent that they risked deterring investment rather than encouraging it.
The ongoing global financial crisis has also raised a question mark over the kinds of terms for financing multi-billion dollar oil ventures that Nigeria may ultimately attract and falling oil prices may also weaken the government’s leverage in its push to enact the reforms.
However there are few who doubt that the reforms are much needed in an industry that has been beleaguered by corruption and government red tape, and has yet to reach its full potential despite the huge untapped reserves the country possesses.
It is hoped that the new bill will also address Nigeria’s rather underdeveloped downstream sector, which deals with the refining of crude oil, and the selling and distribution of natural gas and products derived from crude oil. For all its oil wealth, Nigeria still has to import petroleum products as its local refineries are unable to meet local demands.
Oil Refineries
According to Oil and Gas Journal (OGJ), Nigeria's state-held refineries (Port Harcourt I and II, Warri, and Kaduna) have a combined capacity of 438,750 bbl/d, but problems including sabotage, fire, poor management and a lack of regular maintenance have reduced the operating capacity to around 214,000 bbl/d.
To increase refining capacity, the Nigerian government is granting permits to build several independently-owned refineries. Oando, a leading petroleum-marketing company in Nigeria, is considering building a refinery in Lagos. The refinery would be built in two phases, with each phase providing 180,000 bbl/d of refining capacity.
Under President Obasanjo the government began plans to privatise state entities by selling NNPC's four oil refineries, petrochemicals plants, and its Pipelines and Products Marketing Company (PPMC). 51 percent equities in both Kaduna and Port Harcourt refineries were sold in 2007 by the administration to Bluestar Consortium. But the sale was reversed by the present administration of Yar’Adua after calls by the Nigerian Labour Congress that the refineries were undersold, amongst other things.
The ownership was passed back to the NNPC, who have so far failed to fix the problems with the refineries. This has led to speculation that the present government is reconsidering selling the Kaduna and Port Harcourt refineries.
However, while the privatisation process would be a welcome step, more work will still be needed to do to meet the local demand for petroleum products. Analysts have put current local demand at close to 2 million bbl/d, with 90 percent of that being imported at a premium with the government subsidising the costs.
Even if the all the refineries were operating at 100% efficiency, they would only be able to meet 25% of the needs of the local market. Privatising of the refineries was one of the methods that the Obasanjo government looked to improve local production.
However, even though they did manage to privatise the Kaduna and Port Harcourt refineries, very little interest was actually shown in the process by independent oil companies (IOCs) with many viewing investments in refineries as providing poor financial returns. It is also one of the reason why there has not be a new refinery built in the US or Europe in over 25 years.
The BBC also discovered some evidence that shows that IOCs are purposely not building new refineries so reduce the global supply of petrol, which in turn pushes up its price, so as to make oil refinery a more profitable business. The investment outlay in oil refineries is huge, and many IOCs struggle with making returns on their investments due to the thin profit margins involved. They instead prefer to focus on the more profitable upstream oil sector.
In many countries around the world, onus now falls on the state owned oil companies balance the commercial objectives with the building of refineries along with strategic drivers which include maintaining the security of the country’s supply of petroleum products.
There have been regular announcements in the past that both China and India would build new refineries in Nigeria. One of the commitments of ONGC Mittal Energy Ltd (OMEL), a joint venture of Indian state owned Oil and Natural Gas Corporation (ONGC) and Mittal Investment, in return for oil blocs was to build a Greenfield 180,000 bpd capacity refinery.
The project was to be funded by direct investment and done on a build, operate, manage and ownership basis. The downside however is that the project will not start until the oil blocs they had been awarded were in production. It can take 3-5 years of prospecting before an oil bloc starts producing. This has meant that work has yet to start on the refinery and the company recently had to come out to reiterate its commitment to the project.
While China had originally pledged to invest US$ 2bn in the ailing Kaduna refinery, which has yet to happen and it remains to be seen whether the Indian and Chinese promises to build new refineries are translated into reality.
While the building of new refineries requires a huge amount of financing, one of the ways the government can go about financing the building of new refineries in the country is through Build-Lease-Transfer contracts.
The type of financing arrangement typically involves a developer who designs and builds a complete facility, sells it to the government or a joint venture partner, while simultaneously leasing it back (usually for 10 to 30 years) to operate it as a business and, after the expiry of the lease, transfer it back to the government or partner.
This allows the government to pay facility over a long period of time, while allowing the developer to not only recoup its building costs but earn additional income by running the facility over a period of time.
Fuel Subsidy
The Federal Government recently announced that it had removed the controversial fuel subsidy and that the price for selling petroleum products in Nigeria will now be determined by the market. Though labour unions are planning to make their calls for the return of the subsidy should the price of crude oil begin to rise in the international market.
The government should however resist these calls are there is little evidence to show that fuel subsidies actually help the poor, instead it diverts much needed funds from vital projects and perpetuates inefficiencies in an economy.
The government should take the opportunity to explain its stance in removing the fuel subsidy and demonstrate how it plans to use the savings it makes from not paying fuel subsidies to fund infrastructure projects which are going to have a long term impact on improving the Nigerian economy.
Niger Delta
The Niger Delta situation has presented the government with a three fold problem; firstly is the breakdown of law and order in the region as a spate of kidnappings, and gun battles between the government security forces and militants are now commonplace.
Secondly the conflict in the region has led to 25% reduction in the production of oil through the destruction of property and the abduction of foreign oil workers in the region. As a result of the continued hostilities in the region, thousands of foreign workers and their families have left the Niger Delta. At least three companies, including a private drilling company and pipeline laying company have also left.
Thirdly, it has discouraged oil companies from making further investments in the region, with the companies unwilling to commit to new projects until the unrest has been finally resolved. On its part the administration of President Yar Adua has created the new Ministry of Niger Delta, which would serve as the primary vehicle for the delivery of his administration's agenda for the rapid socio-economic development of the restive region.
This announcement was also followed with that of converting the Niger Delta Development Commission (NDDC) to a government parastatal. Some observers believe that this was prompted by the revelations of corruption at the commission with the disclosure that one of the directors used about N800 million on juju.
While some have welcomed the creation of the new ministry, others have been more sceptical citing the marginal impact that the NDDC and increase monetary allocations from to federal government to the state governments of the Niger Delta have had.
Critics also argue that introducing another government organisation will not only lead to duplication of effort but also increase what they see an already bureaucratic process. Additionally the NDDC was routinely deprived of funding amounting to millions of dollars by the Obansanjo administration.
They are also unhappy about the amount allocated to both the Niger Delta Ministry and NDDC in the 2009 budget, which totalling at 74 billion naira is 5 billion less than the maximal allocation the NDDC had received in the past.
We however believe that the community development of the Niger Delta could be better served by restructuring the NDDC into a company called the Niger Delta Infrastructure Development Company Limited, which will be limited by guarantee, devoid of undue political influence and given the social agenda of developing the Niger Delta region, more or less a social enterprise, which will receive its funding from a trust fund created from proceeds from the sale of drilling and mining rights in the region.
Niger Delta Development Fund (NDDF)
The Niger Delta Development Fund is a trust fund set up primarily to provide financial assistance in the development of the Niger Delta region. NDDF will be registered as a company limited by guarantee and operate independently of the federal and state governments. NDDF will managed by a board of trustees who all have considerable experience in the financial sector.
The Fund will be required to release quarterly reports on the how much of its funds are being spent and how is being spent on any of the operations is it financing.
NDDF will be used to provide financing for:
• The Niger Delta Infrastructure Development Company Limited and its activities.
• Infrastructural development in the Niger Delta region such as the building of roads, bridges and clinics by other meaningful foundations and non-government organisations..
• Social and business development programmes in the Niger Delta region.
NDDF will be financed by:
• A 50% derivation from the sale of drilling and mining rights in the Niger Delta region.
• A 3% percent tax in the profits of oil and mining companies operating primarily the Niger Delta region.
• Returns on investments made by the management board in the global capital and money market.
• Grants from governments, organised private sector and international donors.
Oil and mining companies will be required to make their payments directly into the funds account rather than to the treasury, as to reduce the red tape involved in getting acquiring the money from the government. However all parties will be required to notify the federal government all of such payments.
Niger Delta Infrastructure Development Company Limited (NDIDCL)
The Niger Delta Development Commission will be restructured into a legal company called the Niger Delta Infrastructure Development Company Limited (NDIDCL). The main purpose of restructuring the NNDC is to turn it into an independent company tasked with developing infrastructure central to economic development in the Niger Delta region, similar to the National Infrastructure Development Company in Trinidad and Tobago.
The new company, which will be wholly owned by the federal government and state governments in the Niger Delta region, will be run by a Managing Director who has a background in financial and infrastructure development and who will report to a board of directors. The board of directors made of professionals with expertise in community development, rural and urban planning, project management, and business and financial management.
International companies with expertise in community and infrastructure development will be invited to sign up as technical partners. The company will be primarily charged with executing the Master Plan already drawn up by the current NDDC. The NDIDCL and its activities will be funded by the Niger Delta Development Fund (NDDF).
The company should be given the independence it requires to develop infrastructure and provide services that are targeted at improving the economic fortunes of people of the Niger Delta by following a people-centric approach rather than having the projects determined by politicians, which more often than at aimed improving their profile.
For instance people are more likely to benefit from several primary health centres that caters for young children and pregnant women scattered across a local government area than a 200 bed hospital which is hardly accessible because it is located at a distance to far for many them to get to. In this case both projects will probably cost about the same price to deliver, but the building of a hospital is more newsworthy and has more a higher profile because it is large structure that stands out.
Quality performance of the NDIDCL will only be achieved if appointments to the company are done from a commercial aspect, bringing on board people that will add to the growth of the people, rather than political appointees who are more likely to less motivated to achieved results and are more likely to be less qualified for the post they were appointed to.
Reforming the Land Use Act
The Land Use Act (LUA), which was promulgated in 1978, and controversially incorporated into the 1979 Constitution and retained in the 1999 Constitution, is on the list of laws soon to be reformed by the administration of President Yar’Adua.
The opinion at the time was that all forms of customary land tenure systems were not intuitive enough to deal with the fast changing landscape in the Nigerian society, especially in areas that had to deal with agriculture and government infrastructure development. The act was introduced to vest all land in the state through the office of the governor of each state. The land, which is held in trust, is administered through the government’s authority to the use and benefit of all Nigerians.
LUA was introduced to primarily address the following;
• To remove bitter controversies resulting at times in loss of lives which land is known to be generating.
• To streamline and simplify the management and ownership of land in the country.
• To assist the citizenry, irrespective of his social status, to realize his ambition and aspiration of owning a house.
• To enable government to bring in control the use to which land can be put in all parts of the country and facilitate planning and zoning programmes for a particular use.
The act was intended to shore up security in the acquisition and possession of land, but 30 years after its passing, it has done the exact opposite. Many have called LUA to be repealed but others like the present governor of Lagos State, Babatunde Fashola have called for a measured approached, stating that though the law does need tinkering, the major fundamental problem with LUA has been its application.
This was also the view of Justice Augustine Nnamani who as Attorney – General was responsible for drafting of the act and its incorporation into constitution. He said “in the course of these years, it has become clear that due to its implementation not its structure or intendment, the objectives for which the land use act was promulgated have largely remained unfulfilled; indeed, they have been distorted, abused and seriously undermined.”
One of the areas in which the LUA has been indeed had a major impact has been the Niger Delta region. After the passing of the act, the Niger Delta residents literally woke up to find oil companies drilling in the backyards. The oil companies were absolved from dealing the local communities after acquiring drilling rights from the Federal Government. This also meant that the owners of the land or communities in which the land was located were no longer entitled to any direct compensation from the oil companies who were drilling their lands for oil.
This has unfortunately led to several years of exploitation of oil which has not only devastated the local environment, depriving the people of Niger Delta, of the optimum use of their land and water; it has also led to loss of life by many in the region who have protested over the application of Land Use Act and damage to their environment in clashes between the protesters and government security agencies.
It is clear that any kind reform of the Land Use Act will have take into account compensation to the communities and land owners who have to deal with the damage to their environment and their livelihood by the activities of the oil and mining companies.
Environmental Protection
The Niger Delta's environment is an incredibly well-endowed ecosystem, which contains one of the highest concentrations of biodiversity on the planet, as well as supporting abundant flora and fauna, arable terrain that can sustain a wide variety of crops, lumber or agricultural trees, and more species of freshwater fish than any ecosystem in West Africa.
However this ecosystem is being threatened by the careless activities of oil companies in the region. Nigeria has one of the one of the highest rates of oil spills in the world and flares more natural gas associated with oil extraction than any other country on the planet. Apparently the amount of gas wasted this way is equivalent to the 25% of the annual gas consumption of the United Kingdom.
The inhabitants are amongst some of the poorest in the country and rely on small scale farming, hunting and fishing off the land to survive. However, oil spills in the region, which amounted to a total of 1,260 incidents over a two and half year period from 2006, has impacted negatively on the ecosystem and is causing untold hardship to the inhabitants as their only source of livelihood has been destroyed.
Old, improperly maintained equipment causes many of the leaks (corrosion of pipelines and tankers account for 50% of all spills), but oil operators blame sabotage and theft, speculating that disaffected community members deliberately cause oil spills to collect compensation money.
Gas flaring is a very common sight in the Niger Delta region, practice that began simultaneously with oil extraction in the 1960s by Shell-BP. Although, the flaring of gas has been banned in many European countries, the international oil companies from that part of the world still continue the practice in the Niger Delta region without any real efforts to change infrastructure and prevent the waste of the gas.
Gas flaring contributes greatly to climate change, which ironically can display its most devastating effects in developing countries like Nigeria and the Niger Delta's low-lying plains are also quite vulnerable as they lie only a few meters above sea-level.
Despite the formation of the National Oil Spill Detection and Response Agency (NOSDRA), the legacy of oil spills, lax environmental regulations, and government complicity has allowed the oil companies to continue to pose a serious threat to the people of the Niger Delta region through their activities and basically resisting all calls to
The irresponsible behaviour of the oil companies in Nigeria has begun to draw a huge outcry from the international community, but it is unlikely that it would have any effect as oil companies have a long history of getting their way in Nigeria. This was aptly demonstrated who again failed to stop gas flaring despite a 1st of January 2009 deadline, which also happened to be one of the several deadlines that government has issued on that particular issue.
Oil companies know they have a position of strength in the Nigerian economy as oil accounts for huge slice of the revenue the government makes, and until the government either takes a strong stance with them, and damn the consequences, or diversifies its economy as to reduce Nigeria’s dependence of oil revenues, the environmental degradation and loss of billions of dollars through the activities of oil companies is likely to continue.
The petroleum industry includes the global processes of exploration, extraction, refining, transporting (often by oil tankers and pipelines), and marketing petroleum products. Taken as a whole, the processes represent the world's largest industry in terms of dollar value and accounted for close to 20% of Nigeria’s GDP in 2007.
The largest volume products of the industry are fuel oil and gasoline (petrol). Petroleum is also the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics. The industry is usually divided into three major components: upstream, midstream and downstream. Midstream operations are usually included in the downstream category.
Oil was discovered in Nigeria by Shell-BP, at the time the sole concessionaire, in 1956 in the Niger Delta after half a century of exploration. Two years later, Nigeria joined the ranks of oil producers when its first oil field came on stream. After 1960, exploration rights in onshore and offshore areas adjoining the Niger Delta were extended to other foreign companies.
Following the Biafra war in 1970, the government under the leadership of General Gown, decided to secure and gain more control over the oil industry, and nationalised it by creating the Nigerian National Oil Corporation (NNOC) via a decree.
Nationalisation of the oil sector was also precipitated by Nigeria's desire to join OPEC, which required that member states acquire 51% stake and become increasingly involved in the oil sector. The creation of the NNOC, which later went on to be known as NNPC, made government participation in the industry legally binding. The federal government would continue to consolidate its oil involvement throughout the next several decades.
Petroleum production and export have since grown to play a dominant role in Nigeria's economy and account for about 90% of her gross earnings. This dominant role has pushed agriculture, the traditional mainstay of the economy, from the early fifties and sixties, to the background.
Nigeria's proven oil reserves are estimated by the United States Energy Information Administration (EIA) at between 16 and 22 billion barrels, but others believe it could be as much as 35.3 billion barrels. Its reserves makes Nigeria the tenth most petroleum-rich nation in the world, and by the far the most affluent in Africa.
The majority of the reserves are found along the country's Niger River Delta, in southern Nigeria and offshore in the Bight of Benin, Gulf of Guinea and Bight of Bonny. Nigeria has total production capacity (total potential production capacity if all oil currently shut-in came back online) of three million barrels per day (bbl/d) including two million bbl/d onshore and one million bbl/d offshore.
However, the Niger Delta has been engulfed by a conflict which arose in the early 1990s due to tensions between the foreign oil corporations, the Nigerian federal government, and a number of the Niger Delta's ethnic groups who felt they were being exploited, particularly minority groups.
All petroleum production and exploration in Nigeria are undertaken as joint ventures between foreign multi-national corporations and the Nigerian Federal Government, through the NNPC. The joint ventures account for approximately 95 percent of all crude oil output, with the remaining 5 percent produced by local independent companies operating in marginal fields.
The utilisation of oil in Nigeria is carried out with the backing of legislation, the most important ones being the Petroleum Act 1969, Oil pipelines Act 1956, Oil in Navigable Waters Act 1968, Federal Environmental Protection Agency Act 1988, and the Land Use Act 1978. The Petroleum Act (which really a continuation of an old colonial policy) vested the entire property in petroleum (mineral oils) to the state.
This gave the federal government the absolute right and control over oil resources in the country, which it exercising by farming out oil mining rights to oil companies and receives rents and royalties from them.
Until the promulgation of the Land Use Act (LUA) in 1978, while the ownership of oil belonged to the federal government, the land where the oil was found was vested in the communities and families that owned the land, with whom oil companies had to negotiate compensation for granting access to the oil and any damage to the land.
The passing of the LUA, which vested all the lands comprised in the territory of a state of the federation in the governor of the state in ‘trust' for all Nigerians, meant oil companies no longer had to deal with the local land owners and communities, instead paying the right to access the oil to the federal government.
It is the LUA that has been the source of much of the agitation in the Niger Delta Region, whose community leaders and activists are demanding that oil companies should pay rents and royalties for the use of the land directly to land owners and to local communities instead of to the central government.
In 2000, President Obasanjo established the Niger Delta Development Commission (NDDC) for the sole purpose of developing the oil-rich Niger-Delta region of southern Nigeria. Since its inauguration, the NDDC has focused on the development of social and physical infrastructures, ecological/environmental remediation and human development.
However the tensions continued to persist in the Niger Delta region, and a spike in the availability of small arms and other weapons, led increasingly to the militarization of the region. This has led to frequent clashes between government troops and paramilitary groups who have declared “all-out war” with the Nigerian state as well as the oil corporations and threatened to disrupt oil production activities through attacks on wells and pipelines.
During the 16 months preceding the 2007 presidential elections, militant activity in the Niger Delta (especially near Warri and Port Harcourt) has severely impacted Nigeria’s oil production potential by shutting-in an estimated 20 percent of total production.
Upon taking office in 2007, President Yar’Adua made reforming the oil sector and tackling the crisis in the Niger Delta his top priorities and has taken a number of steps towards fulfilling his pledge.
Petroleum Industry Reforms
The Federal Government has begun to implement some of the oil industry reforms that it promised to carry out. The reforms which have been drafted into the Petroleum Industry Bill, which is currently being reviewed by the House of Assembly before being passed into law, have begun with the appointment of the Executive Secretary of the new Nigeria Petroleum Directorate.
The Nigerian Petroleum Directorate (NPD), which will be headed by the Minister of Petroleum and have the executive secretary as the administrative head, is expected to replace the current Ministry of Petroleum and serve as the policy cum administrative secretariat of the oil and gas industry when the bill is passed.
Key proposals of the Petroleum Industry Bill include:
• Measures to ensure the government increases its take from a growing number of deep-water developments.
• Review of the royalties on gas production.
• Increasing the tax take from gas by creating a new fiscal regime separate from rules governing oil.
• Changes to the way tax breaks are applied for new developments.
• Oil companies will be encouraged to refine at least 50 per cent of their production in Nigeria by the end of the decade.
• New rules to boost employment of Nigerians in the oil industry.
• Incentives to encourage development of marginal fields.
• Improved community programmes in the Niger Delta.
The bill also aims to aims to see the restructuring of the NNPC from its opaque, octopus-like structure to discrete units to handle tasks such as exploration and production, regulation and research.
The restructured company, which will be known as the Nigeria National Petroleum Company Limited, will be free to raise private capital for its joint ventures with the major multinational oil companies, rather than rely on a notoriously unreliable annual injection of cash from Nigeria’s government. The restructuring will also allow the private sector to acquire equity in its subsidiaries like the refineries and data services among others.
The government anticipates the newly formed company to operate like Brazil's Petrobras, Malaysia's Petronas, Saudi Arabia's Aramco and other government-owned but commercially viable national oil companies that operate globally, without relying on their home government for funding.
The new bill will also set up the Nigerian Petroleum Inspectorate (NPI) to replace the current Department of Petroleum Resources (DPR) and will be responsible for the technical regulation of all upstream and downstream activities of the entire oil and gas industry.
Another provision of the new bill is the National Petroleum Assets Management Agency (NAPAM) to regulate the cost and commercial operations of the upstream sector.
While in the downstream sector, the bill seeks to create a Petroleum Products Regulatory Agency (PPRA) as the downstream commercial regulator. Some of the duties of the PPRA will include the issue, renewal, suspension or cancellation of permits or licences, as well as ensuring that quality service provided by the operators to the consumers is in keeping with the guidelines laid out by the Consumer Protection Council.
It is expected that the House of Assembly will pass new laws to overhaul the country’s oil and gas sector before the end of the year, ramping up the pace of reform in spite of fears among Western majors that the changes could cost billions in profits.
The new bill says the reform of the joint ventures will take effect a year after it is passed, although analysts said the complex task of re-engineering the businesses – which account for the bulk of Nigeria’s oil production – could take much longer.
The Nigerian president, Umaru Yar’Adua, hopes the new law will form the foundation for a revival of an industry where attacks on pipelines and constraints on investment have fuelled a growing sense of crisis among energy companies. Though many of the multinational have expressed concerns about the new proposed terms being so stringent that they risked deterring investment rather than encouraging it.
The ongoing global financial crisis has also raised a question mark over the kinds of terms for financing multi-billion dollar oil ventures that Nigeria may ultimately attract and falling oil prices may also weaken the government’s leverage in its push to enact the reforms.
However there are few who doubt that the reforms are much needed in an industry that has been beleaguered by corruption and government red tape, and has yet to reach its full potential despite the huge untapped reserves the country possesses.
It is hoped that the new bill will also address Nigeria’s rather underdeveloped downstream sector, which deals with the refining of crude oil, and the selling and distribution of natural gas and products derived from crude oil. For all its oil wealth, Nigeria still has to import petroleum products as its local refineries are unable to meet local demands.
Oil Refineries
According to Oil and Gas Journal (OGJ), Nigeria's state-held refineries (Port Harcourt I and II, Warri, and Kaduna) have a combined capacity of 438,750 bbl/d, but problems including sabotage, fire, poor management and a lack of regular maintenance have reduced the operating capacity to around 214,000 bbl/d.
To increase refining capacity, the Nigerian government is granting permits to build several independently-owned refineries. Oando, a leading petroleum-marketing company in Nigeria, is considering building a refinery in Lagos. The refinery would be built in two phases, with each phase providing 180,000 bbl/d of refining capacity.
Under President Obasanjo the government began plans to privatise state entities by selling NNPC's four oil refineries, petrochemicals plants, and its Pipelines and Products Marketing Company (PPMC). 51 percent equities in both Kaduna and Port Harcourt refineries were sold in 2007 by the administration to Bluestar Consortium. But the sale was reversed by the present administration of Yar’Adua after calls by the Nigerian Labour Congress that the refineries were undersold, amongst other things.
The ownership was passed back to the NNPC, who have so far failed to fix the problems with the refineries. This has led to speculation that the present government is reconsidering selling the Kaduna and Port Harcourt refineries.
However, while the privatisation process would be a welcome step, more work will still be needed to do to meet the local demand for petroleum products. Analysts have put current local demand at close to 2 million bbl/d, with 90 percent of that being imported at a premium with the government subsidising the costs.
Even if the all the refineries were operating at 100% efficiency, they would only be able to meet 25% of the needs of the local market. Privatising of the refineries was one of the methods that the Obasanjo government looked to improve local production.
However, even though they did manage to privatise the Kaduna and Port Harcourt refineries, very little interest was actually shown in the process by independent oil companies (IOCs) with many viewing investments in refineries as providing poor financial returns. It is also one of the reason why there has not be a new refinery built in the US or Europe in over 25 years.
The BBC also discovered some evidence that shows that IOCs are purposely not building new refineries so reduce the global supply of petrol, which in turn pushes up its price, so as to make oil refinery a more profitable business. The investment outlay in oil refineries is huge, and many IOCs struggle with making returns on their investments due to the thin profit margins involved. They instead prefer to focus on the more profitable upstream oil sector.
In many countries around the world, onus now falls on the state owned oil companies balance the commercial objectives with the building of refineries along with strategic drivers which include maintaining the security of the country’s supply of petroleum products.
There have been regular announcements in the past that both China and India would build new refineries in Nigeria. One of the commitments of ONGC Mittal Energy Ltd (OMEL), a joint venture of Indian state owned Oil and Natural Gas Corporation (ONGC) and Mittal Investment, in return for oil blocs was to build a Greenfield 180,000 bpd capacity refinery.
The project was to be funded by direct investment and done on a build, operate, manage and ownership basis. The downside however is that the project will not start until the oil blocs they had been awarded were in production. It can take 3-5 years of prospecting before an oil bloc starts producing. This has meant that work has yet to start on the refinery and the company recently had to come out to reiterate its commitment to the project.
While China had originally pledged to invest US$ 2bn in the ailing Kaduna refinery, which has yet to happen and it remains to be seen whether the Indian and Chinese promises to build new refineries are translated into reality.
While the building of new refineries requires a huge amount of financing, one of the ways the government can go about financing the building of new refineries in the country is through Build-Lease-Transfer contracts.
The type of financing arrangement typically involves a developer who designs and builds a complete facility, sells it to the government or a joint venture partner, while simultaneously leasing it back (usually for 10 to 30 years) to operate it as a business and, after the expiry of the lease, transfer it back to the government or partner.
This allows the government to pay facility over a long period of time, while allowing the developer to not only recoup its building costs but earn additional income by running the facility over a period of time.
Fuel Subsidy
The Federal Government recently announced that it had removed the controversial fuel subsidy and that the price for selling petroleum products in Nigeria will now be determined by the market. Though labour unions are planning to make their calls for the return of the subsidy should the price of crude oil begin to rise in the international market.
The government should however resist these calls are there is little evidence to show that fuel subsidies actually help the poor, instead it diverts much needed funds from vital projects and perpetuates inefficiencies in an economy.
The government should take the opportunity to explain its stance in removing the fuel subsidy and demonstrate how it plans to use the savings it makes from not paying fuel subsidies to fund infrastructure projects which are going to have a long term impact on improving the Nigerian economy.
Niger Delta
The Niger Delta situation has presented the government with a three fold problem; firstly is the breakdown of law and order in the region as a spate of kidnappings, and gun battles between the government security forces and militants are now commonplace.
Secondly the conflict in the region has led to 25% reduction in the production of oil through the destruction of property and the abduction of foreign oil workers in the region. As a result of the continued hostilities in the region, thousands of foreign workers and their families have left the Niger Delta. At least three companies, including a private drilling company and pipeline laying company have also left.
Thirdly, it has discouraged oil companies from making further investments in the region, with the companies unwilling to commit to new projects until the unrest has been finally resolved. On its part the administration of President Yar Adua has created the new Ministry of Niger Delta, which would serve as the primary vehicle for the delivery of his administration's agenda for the rapid socio-economic development of the restive region.
This announcement was also followed with that of converting the Niger Delta Development Commission (NDDC) to a government parastatal. Some observers believe that this was prompted by the revelations of corruption at the commission with the disclosure that one of the directors used about N800 million on juju.
While some have welcomed the creation of the new ministry, others have been more sceptical citing the marginal impact that the NDDC and increase monetary allocations from to federal government to the state governments of the Niger Delta have had.
Critics also argue that introducing another government organisation will not only lead to duplication of effort but also increase what they see an already bureaucratic process. Additionally the NDDC was routinely deprived of funding amounting to millions of dollars by the Obansanjo administration.
They are also unhappy about the amount allocated to both the Niger Delta Ministry and NDDC in the 2009 budget, which totalling at 74 billion naira is 5 billion less than the maximal allocation the NDDC had received in the past.
We however believe that the community development of the Niger Delta could be better served by restructuring the NDDC into a company called the Niger Delta Infrastructure Development Company Limited, which will be limited by guarantee, devoid of undue political influence and given the social agenda of developing the Niger Delta region, more or less a social enterprise, which will receive its funding from a trust fund created from proceeds from the sale of drilling and mining rights in the region.
Niger Delta Development Fund (NDDF)
The Niger Delta Development Fund is a trust fund set up primarily to provide financial assistance in the development of the Niger Delta region. NDDF will be registered as a company limited by guarantee and operate independently of the federal and state governments. NDDF will managed by a board of trustees who all have considerable experience in the financial sector.
The Fund will be required to release quarterly reports on the how much of its funds are being spent and how is being spent on any of the operations is it financing.
NDDF will be used to provide financing for:
• The Niger Delta Infrastructure Development Company Limited and its activities.
• Infrastructural development in the Niger Delta region such as the building of roads, bridges and clinics by other meaningful foundations and non-government organisations..
• Social and business development programmes in the Niger Delta region.
NDDF will be financed by:
• A 50% derivation from the sale of drilling and mining rights in the Niger Delta region.
• A 3% percent tax in the profits of oil and mining companies operating primarily the Niger Delta region.
• Returns on investments made by the management board in the global capital and money market.
• Grants from governments, organised private sector and international donors.
Oil and mining companies will be required to make their payments directly into the funds account rather than to the treasury, as to reduce the red tape involved in getting acquiring the money from the government. However all parties will be required to notify the federal government all of such payments.
Niger Delta Infrastructure Development Company Limited (NDIDCL)
The Niger Delta Development Commission will be restructured into a legal company called the Niger Delta Infrastructure Development Company Limited (NDIDCL). The main purpose of restructuring the NNDC is to turn it into an independent company tasked with developing infrastructure central to economic development in the Niger Delta region, similar to the National Infrastructure Development Company in Trinidad and Tobago.
The new company, which will be wholly owned by the federal government and state governments in the Niger Delta region, will be run by a Managing Director who has a background in financial and infrastructure development and who will report to a board of directors. The board of directors made of professionals with expertise in community development, rural and urban planning, project management, and business and financial management.
International companies with expertise in community and infrastructure development will be invited to sign up as technical partners. The company will be primarily charged with executing the Master Plan already drawn up by the current NDDC. The NDIDCL and its activities will be funded by the Niger Delta Development Fund (NDDF).
The company should be given the independence it requires to develop infrastructure and provide services that are targeted at improving the economic fortunes of people of the Niger Delta by following a people-centric approach rather than having the projects determined by politicians, which more often than at aimed improving their profile.
For instance people are more likely to benefit from several primary health centres that caters for young children and pregnant women scattered across a local government area than a 200 bed hospital which is hardly accessible because it is located at a distance to far for many them to get to. In this case both projects will probably cost about the same price to deliver, but the building of a hospital is more newsworthy and has more a higher profile because it is large structure that stands out.
Quality performance of the NDIDCL will only be achieved if appointments to the company are done from a commercial aspect, bringing on board people that will add to the growth of the people, rather than political appointees who are more likely to less motivated to achieved results and are more likely to be less qualified for the post they were appointed to.
Reforming the Land Use Act
The Land Use Act (LUA), which was promulgated in 1978, and controversially incorporated into the 1979 Constitution and retained in the 1999 Constitution, is on the list of laws soon to be reformed by the administration of President Yar’Adua.
The opinion at the time was that all forms of customary land tenure systems were not intuitive enough to deal with the fast changing landscape in the Nigerian society, especially in areas that had to deal with agriculture and government infrastructure development. The act was introduced to vest all land in the state through the office of the governor of each state. The land, which is held in trust, is administered through the government’s authority to the use and benefit of all Nigerians.
LUA was introduced to primarily address the following;
• To remove bitter controversies resulting at times in loss of lives which land is known to be generating.
• To streamline and simplify the management and ownership of land in the country.
• To assist the citizenry, irrespective of his social status, to realize his ambition and aspiration of owning a house.
• To enable government to bring in control the use to which land can be put in all parts of the country and facilitate planning and zoning programmes for a particular use.
The act was intended to shore up security in the acquisition and possession of land, but 30 years after its passing, it has done the exact opposite. Many have called LUA to be repealed but others like the present governor of Lagos State, Babatunde Fashola have called for a measured approached, stating that though the law does need tinkering, the major fundamental problem with LUA has been its application.
This was also the view of Justice Augustine Nnamani who as Attorney – General was responsible for drafting of the act and its incorporation into constitution. He said “in the course of these years, it has become clear that due to its implementation not its structure or intendment, the objectives for which the land use act was promulgated have largely remained unfulfilled; indeed, they have been distorted, abused and seriously undermined.”
One of the areas in which the LUA has been indeed had a major impact has been the Niger Delta region. After the passing of the act, the Niger Delta residents literally woke up to find oil companies drilling in the backyards. The oil companies were absolved from dealing the local communities after acquiring drilling rights from the Federal Government. This also meant that the owners of the land or communities in which the land was located were no longer entitled to any direct compensation from the oil companies who were drilling their lands for oil.
This has unfortunately led to several years of exploitation of oil which has not only devastated the local environment, depriving the people of Niger Delta, of the optimum use of their land and water; it has also led to loss of life by many in the region who have protested over the application of Land Use Act and damage to their environment in clashes between the protesters and government security agencies.
It is clear that any kind reform of the Land Use Act will have take into account compensation to the communities and land owners who have to deal with the damage to their environment and their livelihood by the activities of the oil and mining companies.
Environmental Protection
The Niger Delta's environment is an incredibly well-endowed ecosystem, which contains one of the highest concentrations of biodiversity on the planet, as well as supporting abundant flora and fauna, arable terrain that can sustain a wide variety of crops, lumber or agricultural trees, and more species of freshwater fish than any ecosystem in West Africa.
However this ecosystem is being threatened by the careless activities of oil companies in the region. Nigeria has one of the one of the highest rates of oil spills in the world and flares more natural gas associated with oil extraction than any other country on the planet. Apparently the amount of gas wasted this way is equivalent to the 25% of the annual gas consumption of the United Kingdom.
The inhabitants are amongst some of the poorest in the country and rely on small scale farming, hunting and fishing off the land to survive. However, oil spills in the region, which amounted to a total of 1,260 incidents over a two and half year period from 2006, has impacted negatively on the ecosystem and is causing untold hardship to the inhabitants as their only source of livelihood has been destroyed.
Old, improperly maintained equipment causes many of the leaks (corrosion of pipelines and tankers account for 50% of all spills), but oil operators blame sabotage and theft, speculating that disaffected community members deliberately cause oil spills to collect compensation money.
Gas flaring is a very common sight in the Niger Delta region, practice that began simultaneously with oil extraction in the 1960s by Shell-BP. Although, the flaring of gas has been banned in many European countries, the international oil companies from that part of the world still continue the practice in the Niger Delta region without any real efforts to change infrastructure and prevent the waste of the gas.
Gas flaring contributes greatly to climate change, which ironically can display its most devastating effects in developing countries like Nigeria and the Niger Delta's low-lying plains are also quite vulnerable as they lie only a few meters above sea-level.
Despite the formation of the National Oil Spill Detection and Response Agency (NOSDRA), the legacy of oil spills, lax environmental regulations, and government complicity has allowed the oil companies to continue to pose a serious threat to the people of the Niger Delta region through their activities and basically resisting all calls to
The irresponsible behaviour of the oil companies in Nigeria has begun to draw a huge outcry from the international community, but it is unlikely that it would have any effect as oil companies have a long history of getting their way in Nigeria. This was aptly demonstrated who again failed to stop gas flaring despite a 1st of January 2009 deadline, which also happened to be one of the several deadlines that government has issued on that particular issue.
Oil companies know they have a position of strength in the Nigerian economy as oil accounts for huge slice of the revenue the government makes, and until the government either takes a strong stance with them, and damn the consequences, or diversifies its economy as to reduce Nigeria’s dependence of oil revenues, the environmental degradation and loss of billions of dollars through the activities of oil companies is likely to continue.
Saturday, 24 January 2009
Tough Times Ahead for Nigerians
Oil, the chief contributor to the the federal government's revenue, has taken a big hit over the last six months, when it was trading at a peak of $147 a barrel, to the $45 it mustered at the close of trading on Friday. The sharp fall in price has been due to the global economic slowdown.
The reduced revenues from the sale of oil has led to the Nigerian government announcing budget cuts and the Central Bank of Nigeria, stating that it is deliberately crashing the value of the country's currency, the naira, as a means to stabilise the country's economy and of its foreign reserve. If that is the case, the CBN and Nigerians are in, like the Chinese will say, "interesting times" ahead and here is why.
The global economy is slowing down faster than most analysts expected and, despite the best efforts of OPEC to reduce production to stabilise prices, this will likely force oil prices down further.
The demand of for oil products in the US, has meant that it has been able to build up its oil reserves, which has a negative effect on the price of oil as the world's largest consumer (the more oil it has in its reserves, the less it needs to buy which leads to lower oil prices), and if the the economic slowdown is protracted as usually the case in global economic recessions, then the lower demand for oil will allow for the country to keep building its stockpile.
The truth is nobody knows how deep and how long the global recession will be. Obama in his inauguration speech was calling on Americans to brace themselves for tough times ahead. It is unlikely he would have said so if he truly believed that the bailout package being put in front of congress will have any more effect than slowing down the rate of economic collapse.
Then there are the added fact that the United States is now going to push a more aggressive strategy to develop and use alternative forms of renewable energy. This will further decrease in demand for oil.
What this mean for Nigeria? The US is the largest importer of Nigeria Oil, which accounts for 95% of the government foreign exchange receipts and 60% of its total revenue. A reduction in earnings for the government spells bad news for the Nigerian economy as government spending is the chief economic driver.
A reduction in government spending will lead to a slow down in the Nigeria, unless somehow the following happen:
1. An increase in consumer spending: This is unlikely in a country where 90% of population lives on less than $2 a day.
2. Increased investments: A decrease in the value of the naira might have led to an increase in foreign investments, but with the poor infrastructure and tough business climate, Nigeria has struggled with attracting major investments outside its oil and telecoms industries. With the stock market crashing it will be hard to see if any serious investor will want to put their money in the Nigerian market.
3. Increased trade: With oil being the major export of the country and its price falling, unless Nigeria begins to focus building a proper manufacturing base or focuses on increasing the export of non-petroleum based goods, it is likely the country is going to continue see a fall in revenue from its trading with other nations.
Unless the government begins to implement reforms to stimulate growth in non-oil sectors, Nigerians should brace themselves for some interesting times ahead.
The reduced revenues from the sale of oil has led to the Nigerian government announcing budget cuts and the Central Bank of Nigeria, stating that it is deliberately crashing the value of the country's currency, the naira, as a means to stabilise the country's economy and of its foreign reserve. If that is the case, the CBN and Nigerians are in, like the Chinese will say, "interesting times" ahead and here is why.
The global economy is slowing down faster than most analysts expected and, despite the best efforts of OPEC to reduce production to stabilise prices, this will likely force oil prices down further.
The demand of for oil products in the US, has meant that it has been able to build up its oil reserves, which has a negative effect on the price of oil as the world's largest consumer (the more oil it has in its reserves, the less it needs to buy which leads to lower oil prices), and if the the economic slowdown is protracted as usually the case in global economic recessions, then the lower demand for oil will allow for the country to keep building its stockpile.
The truth is nobody knows how deep and how long the global recession will be. Obama in his inauguration speech was calling on Americans to brace themselves for tough times ahead. It is unlikely he would have said so if he truly believed that the bailout package being put in front of congress will have any more effect than slowing down the rate of economic collapse.
Then there are the added fact that the United States is now going to push a more aggressive strategy to develop and use alternative forms of renewable energy. This will further decrease in demand for oil.
What this mean for Nigeria? The US is the largest importer of Nigeria Oil, which accounts for 95% of the government foreign exchange receipts and 60% of its total revenue. A reduction in earnings for the government spells bad news for the Nigerian economy as government spending is the chief economic driver.
A reduction in government spending will lead to a slow down in the Nigeria, unless somehow the following happen:
1. An increase in consumer spending: This is unlikely in a country where 90% of population lives on less than $2 a day.
2. Increased investments: A decrease in the value of the naira might have led to an increase in foreign investments, but with the poor infrastructure and tough business climate, Nigeria has struggled with attracting major investments outside its oil and telecoms industries. With the stock market crashing it will be hard to see if any serious investor will want to put their money in the Nigerian market.
3. Increased trade: With oil being the major export of the country and its price falling, unless Nigeria begins to focus building a proper manufacturing base or focuses on increasing the export of non-petroleum based goods, it is likely the country is going to continue see a fall in revenue from its trading with other nations.
Unless the government begins to implement reforms to stimulate growth in non-oil sectors, Nigerians should brace themselves for some interesting times ahead.
Friday, 23 January 2009
Obama’s Energy Policy, Threat to Nigeria
Twenty-four hours after Barack Obama became the 44th President of the United States of America, the Governor of the Central Bank of Nigeria (CBN), Professor Chukwuma Soludo, has warned that the energy policy of the new administration may spell doom for the Nigerian economy.
He said Obama’s proposed vigorous search for alternative energy to drive the world's largest economy poses “great dangers” for Nigeria whose economy is highly dependent on revenue from oil.
Nigeria is the fifth largest exporter of crude oil to the US.
He said Obama’s proposed vigorous search for alternative energy to drive the world's largest economy poses “great dangers” for Nigeria whose economy is highly dependent on revenue from oil.
Nigeria is the fifth largest exporter of crude oil to the US.
Thursday, 22 January 2009
12 Steps - Communications: Nigerian Media Reforms
The Nigerian media is probably the most vibrant in Africa, with government –owned media services reaching all corners of the country. All 36 states run their own radio stations, and most of them operate TV services.
More importantly the Federal Government as of 1992 allowed private participation in the electronic broadcasting, while there is a long history of private participation in the print media. More recently there has been a move towards establishing an online presence by Nigerian newspapers and bloggers, but with the current low Internet penetration preventing them from fully exploiting the new media.
Besides the social and educational services they provide, the media has a role to play in Nigeria’s economy as they provide the medium for businesses to advertise their goods and services to a large audience. Well placed and structured adverts have been shown to lead to increased sales, and invariably increased profits. This has not been lost on Nigerian businesses, which have been spending an increasing amount on advertising in the media.
However, high cost of operation, tight advertising revenues, frequent government interventions and a lack of a Freedom of Information Bill, along with poor pay for journalists in the country continue to hinder progress in the media sector.
Pushing through energy and transport reforms would help in reducing the operation costs for media operators in the country, while education reforms would increase the literacy rates, and invariably push up readerships for the print media and their websites. It would be equally important for the House of Assembly to pass the Freedom of Information Bill into law, which could, if anything, give journalists the confidence they seek to carry out investigative reports on government activities.
Broadcasting in Nigeria is dominated by State and Federal Government owned outfits, which had monopolised the industry until 1992, when the Nigerian Broadcasting Commission (NBC) was formed to license private broadcasters.
The largest broadcasting companies are the government-owned Federal Radio Corporation of Nigeria (FRCN) and the Nigerian Television Authority (NTA). The NTA has two television services; NTA 1, which is distributed among Nigeria’s six geopolitical zones and NTA 2, which is distributed nationwide and is funded mostly by advertising.
In all NTA operates about 97 stations across the country, creating the largest television network on the continent. Both organisations, NTA and FRCN, along with two other government owned media outlets, News Agency of Nigeria (NAN) and Nigeria Film Corporation, have been slated for commercialisation in 2009.
Each state also has a broadcasting company that broadcasts one or two locally operated terrestrial stations. This means that there are 39 radio stations and 37 television stations owned by the different state government across the country. Most operate partially independent of the state governments.
There are currently about 17 private radio stations and 10 private televisions stations operating in the country. The likely explanation for the low ratio of private to publicly owned stations can be traced to the fact that both compete for the same pool of advertising revenue, while the state owned organisation have the luxury of offsetting high operating costs through public funding.
It also does not help that press restrictions are place on media outlets and with many viewed more as social and political tools rather than engines of economic growth.
However, such limitations are being worked around in order to reach larger audiences both within Nigeria with the growth of satellite television (which has long been preferred throughout the African continent due to the expensive nature of laying ground cables). The substantial uptake in Pay TV in Nigeria has been attributed to the broadcast of European football.
The reverse of private-public ownership can be found with the print media, with most of more than 100 national and local newspapers and publications being privately owned. There has also been a move in recent years by the state governments to divest from the state owned publications.
The newspaper sector has witnessed something of a mixed fortune in terms of size. While there has been an increase in the number of daily newspapers, the number of weeklies has declined at both national and regional level. The only increase in weeklies has been at local level.
While newspapers suffer from poor investments and political interference, the increase in the number of dailies has brought about health competition in the sector, and has led to increased diversity on the range of topics being covered in their content. However many believe that the quality of reporting in country still leaves a lot of room for improvement as a lack of professionalism and poor pay remain a bane in the industry.
Nigeria has a huge domestic media market of 150 million, and there is not doubt that with the right policies in place, the country can harness that to make itself a leading media giant on the continent and the rest of the world.
Restructure the Nigerian Press Council
The Nigerian Press Council (NPC) was established in 1992 to promote professional standards for the Nigerian Press and to treat all complaints received from the public about the conduct of journalists in their professional capacity as well as arbitrate on complaints made by the Press about the conduct of persons or organisations towards the media.
NPC basically regulates the activities of newspapers and magazines in the country, along with the conduct of journalists in general. However the NPC is far from being an independent body as it is run as a department of the Federal Ministry of Information and Communications, with many of its staff deployed from the civil service, especially from the Ministry itself.
This brings into question the decisions of the NPC and whether it would truly be able to carry out functions that do not favour the Federal Government. There are many cases in the past, where it is the clear that the NPC has acted in favour of the Federal Government rather in the interests of the Nigerian people and journalistic integrity.
Until the NPC gains true independence, it will neither have the authority or clout to direct the development of the Nigerian Press nor attract the right calibre or people and funding it needs to carry out it functions.
Merging the National Broadcasting Commission and the Nigerian Communications Commission
Due to the convergence of technologies in the telecommunications and broadcasting industries, Nigeria will be better served having one regulatory body overseeing all telecommunication activities, which will include broadcasting. Merging the National Broadcasting Commission (NBC) and the Nigerian Communications Commission (NCC) would go a long way to preventing overlapping regulatory activities.
The merger will see to giving the resulting regulatory body independence in areas such as applications of broadcasting licenses, where the NBC currently has to forward all applications to the President, who then uses his discretion in approving the license.
There is already precedence for this around the world for a single regulatory body overseeing all the communications industries in a country. In the UK, the Office of Communications, the independent regulator and competition authority for the communication industries in the United Kingdom, was established in 2003 and inherited the duties that had previously been the responsibility of five regulatory bodies:
• the Broadcasting Standards Commission,
• the Independent Television Commission,
• the Office of Telecommunications (Oftel),
• the Radio Authority, and
• the Radiocommunications Agency.
While in the United States, the Federal Communications Commission regulates interstate and international communications by radio, television, wire, satellite and cable, including wireless telecommunications.
We would also recommend that new regulatory body seek to achieve the following;
• Establishing and securing the independence of publicly owned media.
• Encourage and support the establishment of community-based media outfits.
• Cater and push for the establishment of independent media.
• Establish a media development fund.
• Oversee the establishment of the Nigerian Media and Film School
• Oversee the digitalisation of radio broadcasts in Nigeria.
Independence of Publicly Owned Media
The newly restructured regulatory bodies will work to ensure the independence of all publicly owned media outlets. While they might get their funding from the various levels of government, they should still be allowed to operate without any interference from those in political office.
Any evidence of political interference, such as being overly critical of the political opposition or failing to give them any coverage, should be met with serious sanctions. In the case of persistent and heavy handed interference, the license to broadcast or publish should be suspended. Publicly owned media should be run to serve the public who pay for their funding and not be used as political tools by those in office.
Community-Based Media Organisations
The establishment of community based media, which will complement, rather than duplicate the activities of commercial media outlets, should be encouraged. The community media outlets will have to 60% of local content targeted at the community they serve, with 50% of the content produced by the members of their local community.
The community based media outlets will be allowed to carry sponsorship messages, with some restrictions, as a means of funding their activities but will be prevented from carrying full blown adverts as that would mean encroaching on the ground of commercially operated outlets.
Community based outlets have a two fold advantage as they provide relevant and tailored content for the communities they server and have also acted as an excellent training ground for many award winning journalists and media personalities in countries that have well established community based media.
The only operational community media outfit is the non-profit, campus-based, UNILAG FM, which has been granted an experimental licence only.
Independent Media
Independent or alternative media are media (newspapers, radio, television, movies, Internet, etc.) which are alternatives to the business or government-owned mass media. Independent media tend to provide a different viewpoint than that provided by major mainstream and corporate newspapers, magazines, and other print media.
Independent media is also sometime referred to as citizen media, where ordinary members of the public can also become participants in the media using the different resources offered. This form of media reporting has bloomed with the advent of technological tools and systems that facilitate production and distribution of media. Of these technologies, none has advanced citizen media more than the Internet.
In some countries, the success of small, independent, private journalists have begun to rival corporate mass media in terms of audience and distribution. Citizen produced media has earned higher status and public credibility since the 2004 US Presidential elections and has since been widely replicated by corporate marketing and political campaigning. Independent media websites like the Huffington Post and Politico, which did not exist four years ago, gained enormous popularity and credibility covering the 2008 US elections.
With Internet penetration set to increase in Nigeria, there is no doubt that independent media will have a role to play in the Nigerian society.
Media Development Fund
The Media Development Fund (MDF) will be created a fund dedicated to the developing and training of Nigeria’s media talent. The fund will awards grants to organisations to create, deliver or facilitate media specific training. The aim is to address the skills shortage in the Nigerian media industry and promote its professions as viable career choices.
MDF will be funded by:
• Subsidies levied at all media companies in the country.
• Grants from governments, organised private sector and international donors.
• Capital market investments
The Fund will be registered as a company limited by guarantee and operate independently of the government and regulatory bodies.
The Fund will be administered and managed by a Board of Trustees representing various interests in the public and private sector and will be completely isolated from the management of the NCC and NPC.
The Fund will be required to release quarterly reports on the how much of its funds are being spent and how is being spent on any of the operations is it financing.
Nigerian Media and Film School
The Nigerian Media and Film School will be established mainly to train new talent in the areas of media and film production. The idea behind the school is to have a nurturing environment dedicated specifically to training students for the media industry.
The school will be equipped with its own studios and will form alliances with various media schools around the world such the National Film and Television School in the UK. The school will be partly funded by Media Development Fund and grants from governments and international donors. The school will also seek funding by striking sponsorship deals with key local and international media corporations.
The school will be registered as a company limited by guarantee and managed by a Board of Trustees representing various interests in the media industry.
Digital Radio
While 2012 has been slated for the conversion from analogue to digital terrestrial transmission for television services in Nigeria, not decision yet has been made for digital radio transmission.
This is probably due to the vast array of digital radio technologies out there in the market.
Digital radio broadcast offers many benefits, such as allowing for the broadcast of many radio stations offering more choice to listeners, better sound quality and the potential to introduce new data and information services that will be displayed on the radio’s small screen. For example, a station could send background information about a band when that band’s music is playing. Advertisers could send information about discounts and sales. Listeners could program their radios to receive customized weather reports, news, or stock quotes.
Efforts should be made in selecting a digital radio technology that would be suitable in Nigeria, and plans drawn up to roll out the services in country.
Privatisation of NTA and FRCN
As the two largest media organisations in the country, the Nigerian Television Authority and the Federal Radio Corporation of Nigeria are far from setting the pace in the media industry. Both organisations are in need of investments and restructure to achieve their potential.
It is unlikely that this will be achieved under the current commercialisation plans. Both organisations have been running commercial activities for most of their existence, so unless the government plans to invest heavily in new equipment, especially with the pending transition to digital transition for terrestrial broadcast, it is unlikely the quality of broadcast will change.
Privatising both outfits will bring in the much needed investments they crave as well as instil a level of professionalism that a lot of state owned organisations lack. It will also hopefully bring in new management, who will provide new direction in broadcasting standards for both organisations.
12 Steps - Communications: Telecommunications in Nigeria (Part 3)
Internet
Nigeria has the highest number of Internet users on the African continent (10 million as of June 2008) which is a far cry from December 2000, when only 200,000 people when connected online. This represents a change in user growth of 4,900%. However as impressive as that figure is, it only represents an Internet penetration of 7.2%, as compared to the world average of 21.9%.
Much of the recent growth has been attributed to the number of people accessing the Internet using their mobile phones. According to analysts at Nielsen Online, an Internet media research group, 7.3 million Nigerians accessed the Internet using mobile phones during the second and third quarters of 2008, representing a change in 25%, while those who accessed the Internet using a PC slumped by 3% during the same period.
It is thought that the increase in mobile Internet use is due to operators offering flat-rate tariffs for data, more user-friendly handsets and improved network technology. The pattern of use also indicated that mobile users were going online to catch up on the weather, sports and news as well as access their e-mail.
The trend however belies the use of broadband Internet (high data rate Internet access) in Nigeria, when according to ITU, there are only 500 subscribers in the country, a compared to 800,000 in South Africa. The reason for the low broadband Internet uptake has been attributed to absence of last mile equipment and high cost of bandwidth.
Broadband access, which is used now being used as an economic indicator, has been shown to enhance economic growth and performance, and that the assumed economic impacts of broadband are real and measurable.
Some of the economic variables that have been measured as a result of broadband access include higher employment annual growth rate; higher housing rental rates; higher rate of growth in the number of business establishments; and an increase in the share of establishments in IT-intensive sectors.
The Federal Government has recognised the importance of providing broadband access and through the NCC has developed two programmes which aim at breaking down the barriers of broadband access for the average Nigeria – the State-Accelerated Broadband Initiative (SABI) and Wire-Nigeria Initiative (WiN).
SABI is designed to take broadband infrastructure to all the 36 state capitals of the country as well as urban and semi-urban centres. The project which is partially funded by the Universal Service Provision Fund, a fund set up by the NCC and contributed to by local telecom operators, will see private companies build fibre-optic based broadband infrastructure and deploy high speed wireless networks in and around some of Nigeria’s most populated urban and semi-urban centres.
The project will be complemented by the Wire Nigeria Initiative, which is to provide a national backbone infrastructure which will allow multiple operators to hook on at any point to deliver quality broadband transmission services across the country It is expected that the first wireless broadband services as a result of the both projects will be rolled off by the middle of 2009.
There are some companies already offering broadband services in the country, with mobile operators offering mobile broadband access through their 3G networks and a couple of others offering WIMAX services.
However it must be noted that as observed in other countries, particularly Malaysia and Philippines, the initial pick up for broadband services can be slow but it then speeds up. We believe that this will be the same with Nigeria, and with the landing of the Glo-1 submarine cable (bringing with it bigger and cheaper bandwidth) and the roll out the first phase of SABI later in the year, we will witnessing the beginning of the Internet revolution in Nigeria in very much the same way the mobile phone changed people’s lives.
We however have some recommendations in preparation for the new online society of Nigeria.
Increasing Personal Computers Penetration
The availability of personal computers has been central to the growth of the Internet in recent years. The uptake of personal computers in Nigeria is low, and has been put at just under 2% as compared to other developing nations such as the Philippines with 8.9% and Vietnam with 7.8%
The relative high cost of purchase has been identified as one of the major barriers to owning a PC as a standard mid-range computer costs between US$650 and $750. To help boost the uptake of personal computers, the government introduced the Computer for All Nigerian initiative (CANi), a Government Assisted Purchase Program (GAPP), designed to help Nigerians acquire computers at affordable and discounted prices. However the programme limits the access of the ordinary Nigerian to these computers as they are primarily targeted at civil servants in the employment of the government alone.
More tellingly, the CANi initiative was generally not locally driven as none of the local PC vendors, who are already facing stiff competition from imported brands, were excluded from the scheme. The government is also involved in One Child Per Laptop (OLPC) project, which aims each child with a rugged, low-cost, low-power, connected laptop.
While these projects will help will increasing computer ownership, it is doubtful if there will more than scratch the surface of increasing PC penetration in a nation of 150 million. If the government will need to apply far more radical and broad reaching schemes to improve PC uptake. Some of these could include:
• Zero tax policies for local computers manufacturers/assemblers and an exemption on duties on the import of computers parts.
• Tax breaks and reduced duties for imports personal computers.
• Introduce a tax deduction scheme for employers in the private sector who provide PCs for their employees. The more employees they buy a PC for to conduct their work, they less tax they have to pay at the end of the financial year.
• Income tax deductions for families who make a PC purchase.
Developing an E-Commerce Legal Framework
An increase in Internet use should lead to an increase in e-commerce activities in the country but this could be hampered by the lack of a legal framework regarding e-commerce activities. The absence of legal protection for consumers and business for any business activities they carry out online could act as a deterrent.
The passing of e-commerce legislature concerning intellectual property, consumer protection, contract law and dispute resolution, compliance and enforcement, taxation and classification of e-commerce transactions will go along way in creating confidence in using the Internet to carry out day-to-day business transactions.
12 Steps - Communications: Telecommunications in Nigeria (Part 2)
Telephones
The increase in the number of phone subscribers over the past five years in Nigeria has been above 40% on a year-on-year average. However most of that increase has been in the mobile phone services and the level of penetration is just about 30%, as compared to a more mature market like South Africa where it is 70%.
It is however a different with fixed lines where there were under 1.5 million active subscribers in Nigeria up from 900,000 in 2003. It is unlikely that the fixed number lines numbers are going to be anywhere what is being seen with the mobile phone subscribers.
Nigeria does however have the most competitive fixed line market in Africa, featuring a second national operator and over 50 other companies licensed to provide fixed telephony services. The alternative carriers, besides the national carrier NITEL, combined now provide over 95% of all active fixed lines. Majority of the new lines were implemented using wireless technologies and that gave network operators the opportunity to enter the lucrative mobile market under a new unified licensing regime. This has also helped them to secure hundreds of millions of dollars in investments from local and foreign investors.
Several microwave and fibre-based national backbone infrastructures are being rolled out by various companies, and three new international submarine fibre optic cables are scheduled to reach Nigeria’s shores in 2009, 2010 and 2011, which will deliver a major boost to the country’s underdeveloped Internet and broadband sector.
Fixed wired phone systems are expensive are construct even more so when fibre optics rather than copper wires are used. It is a lot cheaper to set up a mobile phone system than a modern day fixed line system. There is also a growing trend from around the world where consumers are beginning to ditch their fixed lines in favour of the more versatile mobile phones lines.
While fixed phone lines have their advantages including that of security and price, for now it seems the drive with phone operators in African countries is to focus more on providing mobile phone services.
Shortly after taking over the reins of the Ministry of Information and Communications, the new minister, Professor Dora Akunyili laid out her 10 point agenda for improving services in the communications sector of the economy. The agenda is primarily aimed at improving phone services in Nigeria and is listed below:
1. Dropped Calls: Telecom operators will be held accountable for providing uninterrupted connections to their phone calls made on their network as a basic prerequisite.
2. Poor Voice Signal Quality and Poor Reception: Operators will be held accountable for poor voice signals and reception of service anywhere in the country.
3. Lack of Adequate Interconnectivity or Its Partial Blocking: Operators will be tasked to work more on providing adequate connectivity to their rivals’ networks.
4. Tariffs: Policies will be implemented to reduce the current tariff and billing within the market to more competitive prices, passing savings to the Nigerian consumers.
5. Infrastructure Sharing: Efforts will be made to get operators to jointly own and share various telecommunications facilities, wherever it is practical and prudent to do so. This is aimed at reducing capacity building costs for the operators and invariably passing those savings to the consumers.
6. National Roaming: Operators will be encouraged to sign local roaming agreements to enable subscribers roam from one network to another whenever there is no service fro their primary network.
7. Number Portability: A number portability framework will be implemented to enable subscribers keep their numbers when moving from one network to another. This will ensure that a subscriber is not penalised for leaving an uncompetitive network.
8. Convergence of Technology and Services: The possibilities and potential benefits of convergence between information technology, telecommunications and broadcasting will be explored.
9. Deployment of Fixed Lines: More fixed lines would be deployed for their full benefit of fixed, more stable, cleaner, safer and cheaper calls.
10. Adequate Rules Enforcement: NCC will fully enforce adopted international regulations and guidelines for all operators in deployment of facilities. It will also collate existing and proposed optic fibre network plans of various operators into a national transmission plan to achieve a harmonised transmission network. Finally the NCC will facilitate the establishment of the unified national emergency communication system and work with all authorities to facilitate the eradication of multiple taxes.
If properly implemented, the Minister’s agenda should bring about an improvement in the quality of telephone services as well as a reduction in the mobile phone tariffs. The Minister has a reputation for getting the job done and only time will tell if her efforts will make a difference. We would however like to make a recommendation of our own, which would be urgent reversal in the fortunes of the current National Operator, NITEL.
Reprivatisation of NITEL
NITEL which enjoyed a monopoly for decades in the telecommunications industry was sole provider of fixed phone lines from its inception in 1985 till 1999 when where the market was deregulated and other operators were licensed.
Unfortunately, being run as an extension of the government department, NITEL failed to capitalise on its position and only managed to provide 450,000 subscriber lines for a population of 120 million. In a bid to increase its reach and efficiency, the Federal Government decided to privatise the outfit and has followed a long arduous route to have it done.
The process of privatisation started in 2000 but was stopped two years later, when Investor International London Limited (IILL), the then investor failed to pay the $1.317 billion it offered. In 2003, Pentascope was appointed by government to run a three year contract to prepare the sleeping giant for sale but this failed following alleged embezzlement and incompetence.
In 2006, Orascom of Egypt offered $260 million but this was rejected by the federal government on the ground that it was ridiculously low. Transnational Corporation of Nigeria
(Transcorp) came in with a better offer of $500 million in November, 2006.
However, following the failure of Transcorp to revive NITEL’s fortunes, the government revoked the sale agreement and now in the process of revaluating the worth of the company and seeking new partners to provide much needed investment in the nation’s National Operator.
However the sale reversal has also been plagued with legal problems and it is unclear whether the government will be able to meet the February, 2009 deadline it has set for completing the sale reversal process.
NITEL’s fall from a dominant position in the market has been nothing short of surprising. According to NITEL, as of June 2004 it had 720,000 lines installed, although only around 500,000 were activated. This figure represented around 85% of the total fixed lines in the country. As of September, 2008, NITEL only had 60, 000 active subscribers, representing 5% of the total number of subscribers.
NITEL and its mobile phone subsidiary Nigeria Mobile Telecommunication (Mtel), have an advantage of their rivals in terms of already existing, though decaying infrastructure and a considerably larger phone line capacity. However it organisation suffers from a poor reputation resulting from the poor delivery of services and the reputation of its staff. It still however represents an exciting opportunity for potential investors, more especially in the fixed line market, which still has considerable room for growth.
With the right amount of investment and management in place, NITEL can become competitive in an already vibrant sector. However the longer this is left, the more ground NITEL loses to its competitors, and the more likely it is to become a failed corporation.
12 Steps - Communications: Telecommunications in Nigeria (Part 1)
Telecommunication is an important part of modern society. In 2006, estimates placed the telecommunication industry's revenue at $1.2 trillion (USD) or just under 3% of the gross world product. Its importance on economic and social development cannot be underestimated and it direct effects include;
• Modern telecommunications provide a cost effective and time efficient medium for accessing and diffusion of new ideas and knowledge which have been identified by economists as key elements for stimulating economic growth rate.
• Availability of telecommunication services help to improve information flow between rural and urban regions and help reduce the gap of economic development between them, the same can be applied to developed and developing countries.
• While telecommunication services are to some extent a low cost substitute for information handling labour and have very low substitutability with other traditional inputs such as capital, production, labour and materials, they can however help businesses by increasing the productivity of each of these traditional inputs and thus increasing the efficiency of the entire production process.
• By facilitating information flow and by enhancing the communication between buyers and sellers, telecommunications increases the efficiency of market operations.
• Besides its direct contribution to end-users, telecommunication networks and their use generate significant spill over effects in other sectors of the economy. Once the telecommunication infrastructure is built in any nation, it is available to all sectors of the economy and some of its benefits include the lowering of transaction costs, the ability to search widely or the ability to control a greater pan of production and organizational activities.
As a result, the social rate of return on telecommunications is expected to be much higher than its return just on the telecommunications investment itself. Studies done by the United Nations Economic Commission for Europe, ITU and the World Bank, recognize the role of telecommunications in stimulating efficiency and growth of other sectors in the economy.
• The easy acquisition and transfer of information among economic units, and the facilitation of rapid two-way communications over distance helps in the coordination of economic activity. This provides a platform to improve the capability of business managers to communicate with each other and make better decisions and business plans. Telecommunications help to remove, to a great extent, the physical constraint on organisational communications in all sectors of the economy.
However it is a mistake to view the impact of telecommunication as purely economic. Telecommunication facilitates emergency medical assistance, long distance consultation, and quality assurance to remote locations, easing the cost of providing medical care throughout the nation subject to a tight national budget constraint.
Telecommunications also helps to spread education to remote locations, with voice, data and video services through high bandwidth allowing effective distance learning. Recent development of Inter networks as a layer on telecommunication networks is making this effort more cost effective.
For decades the telecommunications market in Nigeria was dominated by, Nigerian Telecommunications (NITEL), a government monopoly. NITEL began operations in 1985 when the Nigerian External Telecommunications and the Telecommunications Division of the Post and Telegraphs (P&T) Department were merged.
Prior to this development, it was the P & T that was responsible for the provision of domestic telecommunications services, while the Nigeria External Telecommunication (NET) provided international services.
Although deregulation of the telecommunications sector in Nigeria began in the late 1990s with 11 companies given license to provide fixed-line services to end consumers (so-called “last mile services”), it was not until the arrival of mobile phone operators in 2000 that the Nigerian telecommunications market took off.
In a short time the number of mobile phone subscribers surpassed the number of fixed lines and year-on-year growth of over 40% saw the Nigerian telecommunications market emerge as the most vibrant on the African market and the largest ahead of South Africa in 2008, with close to 60 million digital mobile subscribers and just under active 1.5 million fixed lines.
The Nigerian telecommunications sector is one of the better performing sectors of the Nigerian economy and one of the fastest growing employers of labour in the country. As of 2004, the sector had an impact of creating 5000 jobs directly and more than 400,000 indirectly. Its rapid growth has seen some project that the industry will be worth US$ 10 billion by 2010.
Despite the recent boom, the industry is still blighted with relatively high tariffs, poor quality of service including dropped calls, poor voice signal quality and lack of adequate interconnectivity; and poor penetration, serving only a third of the Nigerian population (The more developed South African market has a higher penetration rate of 76%).
Even with operators facing a hostile business environment which includes high operating costs, the constant threat of vandalism to their equipment and a reduction in the Average Revenue Per User (ARPU), the Nigerian market still remains one of enormous potential and growth.
The Nigerian market is probably the most liberal and competitive market on the African continent and is likely to remain that way in the next few years due to the following;
• Globacom, Nigeria’s Second National Operator and the one of the largest mobile operators in the country has announced that it expects to commission its international submarine cable, Glo-1, for commercial services in March 2009. The multi-billion dollar infrastructure will connect the West African region to the United Kingdom, providing a major boost to Nigeria’s bandwidth requirements.
• Main One Cable Company is also expected to start services on it submarine cable in 2010, and the ACE (Africa Coast to Europe) submarine cable by Orange and France Telecom expected in 2011.
• The Federal Government has revived the stalled Rural Telephony Project, which was designed to provide telephone service in 96 rural communities in Nigeria. The project, which is partly funded by a $500 million loan from the Chinese government, was recently awarded to five telecommunications companies in announcement recently made by the Minister for Information and Communications.
• 2008 saw another player, Etisalat, throw its hat in the Nigerian market as a mobile phone operator. Etisalat is a telecommunications service provider in the United Arab Emirates since 1976 and has operations in 16 countries traversing the Middle East, Asia and Africa. In Africa, Etisalat’s operations span 10 African nations including Sudan and Zanzibar. Since its entrance into the Nigerian market, the company has gone a nationwide marketing blitz to advertise it services and win over customers of its more established competitors.
• In October, 2008, Daar Communications launched its direct-to-home digital satellite multi-channel television platform, DAARSat. The digital TV platform, which has the capacity for 120 channels, started off offering about 45 channels from around the world to consumers. Its entrance into the market is expected to introduce competition and reduce the prices for consumers, as well as speed the transition from analogue to digitalised terrestrial broadcasting in line with the global deadline of 2015 set by the International Telecommunications Union (ITU).
One major drawback for the telecommunications industry however was the loss of the Nigerian space satellite to a solar flare. The satellite is expected to replaced by insurers, but an exact date of when that will happen is not known,
Before looking at the individual services offered by the telecommunications sector in the country, we look like to put forward some proposals to maximise the potential of the Nigerian market and take advantage of the recent growth spurt in the industry.
Energy Reforms
Telecommunications operators in Nigeria are faced with the high cost of doing business in the country and one of the major challenges they face is the erratic power supply. The operators have cited this as the singular most contributory cause for the poor quality of service (QoS) offered by all operators. Operators have to generate their own power and that adds a significant cost to their overhead costs, which they then pass on to consumers. For instance MTN, the leading mobile phone operator in the country, has a power generation in comparison to the public power supply, of 3 to 1.
There are also the added costs of providing security for their power generating equipment as there is a high demand for them in the country. The equipments are a target for armed bandits who already have an establishment market to sell on to.
By prioritising energy reforms, the Federal Government can ensure constant power supply to many of the operators’ infrastructure leading lower costs in operations and an increase in the quality of service offered.
Education Reforms
Industry leaders have cited that an emphasis on the provision of science and mathematics education provides an edge in closing the technology gap between develop and developing countries. The global call has been spearheaded by Bill Gates, founder of technology giant, Microsoft, who through his foundation, the Bill and Melinda Gates Foundation has made philanthropic contributions to educational causes around the world.
Technological advancements, and indeed the telecommunications industry, are dependent on the basic understanding of mathematics and science and then applying them to solve complex everyday problems. By placing an emphasis on the teaching of sciences at all levels of education, it is possible for a nation to make it competitive on the global stage and indeed challenge many of the more established nations.
Indeed this was one of the approaches of the Asian Tigers (Malaysia, The Republic of Korea, Taiwan, Hong Kong, and Singapore), who increased the student enrolments in science, engineering and technical-related courses so as to intensify the production of manpower with scientific and technical knowledge.
A similar approach in Nigeria is likely to have the same effect and provide a steady flow of talent from which technology related industries, including the telecommunications industry could benefit immensely from. More importantly, Nigeria can replicate the success of these countries in providing value added services, not only for the local Nigerian telecommunications market but the global market as well.
Prioritisation of ICT
The Federal Government will need to place more emphasis on the use ICT to promote its use in the Nigerian society. Though the government some moves towards providing e-Government services to its citizens, a majority of its dealings are still non- electronic, and it has been slow in implementing some of the earlier promises made under the National e-Government Strategies.
Embarrassingly, even the Government’s official website (www.nigeria.gov.ng) was shut down for several months in 2008. Perhaps even more disheartening for many IT practitioners in the country are the plans of the Federal to merge the IT sections of federal ministries with the departments of Planning and Statistics.
By aggressively embracing e-government, the Federal Government can easily place itself as one of the largest consumers of telecommunication services in the country. Given the role that technology has to play in today’s modern economies, it is imperative that the pushes a technology initiative as much as it would any health, education or agriculture initiative.
At this stage we would recommend splitting the Ministry of Information and Communications into two distinct organisations;
• Ministry of ICT – This would oversee regulation of all information and communication technology activities in the country, including telecommunications and postal services. It will also implement all of the Federal Government’s ICT strategies.
• The Press Office - This would be under the supervision of the Office of the Presidency and will be merged with the Office of Public Communications. The new body will handle all the public relations for the Federal Government.
Stimulate Local Telecommunications Manufacturing Base
Developing a local telecommunications and computer manufacturing base in Nigeria will go a long way in developing and maintaining growth in Nigeria’s telecommunications market.
Creating a conducive environment for foreign investments (tax breaks, enabling environment, constant energy, adequate security and quality graduates from the educational system) for the local manufacturing of telecommunications equipments will not only help in reducing the cost of operations for many of the service providers in the country and provide cheap communication devices such as mobile phones to the Nigerian consumer, but possibly create a new line of export for the country, bringing in valuable foreign currency.
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