Dedication

This book is dedicated to Professor ‘Wole Soyinka’.

He is a great source of inspiration

to all who are in search of freedom and justice.

He is a model for those who love dedication

to the ideals of good governance.

Throughout his life,

he has made full use of his endowments,

even in the face of all obstacles,

to fight injustice and corruption.

He has demonstrated that we are capable of pursuing

even uncommon goals and leave imprints.

Preamble

Writing a book anywhere is not an easy adventure. Those who write as a calling will confirm this. Writing a book in the Nigerian environment is a very difficult ambition indeed. But, choosing to write a book on the oil and gas industry of Nigeria is confronted by many frustrations. The first problem is facing research in the Nigerian environment is the dearth of literature. I tried to scout for literature on the subject in our university libraries, research libraries and even the NNPC library, with no dicer at all.

The petroleum industry in Nigeria was born in 1956, prior to independence, but the actual exploration of petroleum products dates back to the start of the 20th century (about 1906, during colonial rule). Literature on the early years was inclusively created by the colonial office, through the organs of the colonial administration in Lagos and London.

There is no library in Nigeria in which one could find the complete record of activities of the period, from 1906 to 1960, for the purpose of capturing the story of Nigeria’s oil and gas Industry. Relying only on what could be found in Nigeria would have amounted to doing a story without a foundation or doing no story at all. The National Archives and the British Library in London provided my total needs in the form of documents, correspondences and ordinances/acts of the colonial administration. The British Library provided ample literature on activities, reports and analyses on the petroleum industry throughout the globe.

I decided not to interview anybody because enough factual information was available from the two institutions. The other reason for not interviewing people was to avoid contentious personal opinions, since we all know that controversies surround the governance of the petroleum industry in Nigeria. I wanted to document the history of the industry from its inception to June 2012. Whatever conclusions I have reached in the project are not mine, but the observations of organizations, institutions and the governments who have stakes in the industry, or who are engaged in the study and monitoring of the sector around the world. I do not claim that this book is a complete account, nor is it a perfect documentation of all the events from 1906 till date. Attempting to achieve that would have resulted in a book too massive to read. My goal was to put together a readable book, which traces the journey from the beginning, using only what I consider to be of value, drawing heavily from what has been stated by law, policy, in operations and in terms of the pronouncements of the stakeholders in the industry at various stages.

Acknowledgments

I am greatly indebted to the National Archives and the British Library in London for the opportunity to consult their collections unimpeded. On my first exploratory visit to the National Archives in London, my inspiration increased sharply as a result of the richness of their collection on this subject. The first search of their catalogue was made very easy by one of the ladies on the users’ services desk, who took great pains to lecture me on how to explore the catalogue. I regret not knowing the name of the lady. I enjoyed every minute of my time, because the service on the first floor was exactly what I needed. I am grateful to the staff who retrieved the documents I requested for.

I am heavily indebted to the British Library where I had access to past and current literature. It is amazing how the staff and management in the library cope with the diversity of the needs of researchers with maximum dedication. Even items requested which were not on site were procured for readers from other locations outside London. I had carried out research for two previous books using the British Library, and I can vouch for the exemplary conduct and supportive role of the staff. I am deeply grateful to all the staff of the Business and IP Centre, Social Science Floor and the Humanities Reading room.

I acknowledge the copious work done by Business Monitor International, publishers of the Oil and Gas Report, a quarterly publication on which I relied heavily for information. The currency of their work and analysis were very useful. I am grateful for their contribution.

The Institute of Development Studies in Brighton provided me with the launching pad for this book. The IDS was my host for several weeks during my literature search. I am grateful for their support.

This acknowledgment would be incomplete if I do not mention my younger brother, Adebodun, who generously offered one of his bedrooms in London which he converted to a study for me to work whenever I returned from my research work. It was his offer that spared me the cost of hotel bills. His act is an unforgettable contribution to my work, he is a brother indeed.

I am very grateful to Wale Adejumo, who worked diligently to typeset my manuscript with patience. I am very grateful to my son, Olanipekun, who paid the cost of publishing this book. His generosity is historic. He is a darling son.

Abbreviations and Acronyms

bbl: barrel

bcm: billion cubic metres

b/d: barrels per day

bn: billion

boe: barrels of oil equivalent

EOR: enhanced oil recovery

EPSA: exploration and production sharing agreement

FID: final investment decision

FTZ: free trade zone

GDP: gross domestic product

GTL: gas-to-liquids

IEA: International Energy Agency

IOC: international oil company

Km: kilometres

LNG: liquefied natural gas

LPG: liquefied petroleum gas

m: metres

mcm: million cubic metres

mn: million

MoU: memorandum of understanding

mt: metric tone

NGL: natural gas liquids

NOC: national oil company

OPEC: Organization of the Petroleum Exporting Countries

PP: polypropylene

PSA: production sharing agreement

PSC: production sharing contract

SPA: Sale and Purchase Agreement

t/d: trillion cubic metres

toe: tonnes of oil equivalent

tpa: tonnes per annum

WAGP: West African Gas Pipeline

Chapter 1

Nigeria’s Development Dilemma

When Nigeria attained independence from Great Britain on 1 October 1960, there were high hopes that her political and economic development was sustainable, with a high potential for foreign investment. Obviously, the hope was grounded on the country’s great resource endowment, a well-equipped civil service, and Africa’s most educated class of graduates. About five decades later, such hopes and expectations have been totally dashed. Political scientists and economists have written endlessly in the search for the reasons and the solutions to the situation. Sadly, the way forward has not been identified, except that the situation has worsened.

Since the emergence of oil as a dominant factor in the country’s economy, Nigeria has experienced an agonizing backward movement from promising development prospects to a country with one of the lowest development indicators in the world. This is strange because the promise which oil holds seems to be the very weapon which has brought the country down. Relentlessly, the country’s development problem has been fuelled by forces which have remained stronger. There is agreement in all circles, except among the politicians who are the agents of the crisis, that the limitation of leadership is the most easily identifiable cause of the development problem.

Corrupt tendencies have been with mankind since creation, but the tone of corruptive inclinations has attained a pigment which is troubling. In times past, it was uncommon for people to steal from the soup pot of a neighbour, yet pots of soup and food items were never locked up. In those days, community life was built on trust. Treasured personal effects were kept above the ceiling under the roof, where everyone climbed up with a ladder whenever it was necessary to fetch clothes for special occasions. For someone to stealthily climb up to the ceiling store to take items which belonged to someone else would have been considered an abomination, because he would have succeeded in putting his family into utter shame forever. If a man was so perverted that he would, rather than ask for help from his neighbour, decide to steal tubers of yam from the farm of another farmer, he faced permanent ostracism or banishment. Silent barter was a common commercial practice which facilitated trading in farm products in the community. A farmer would put some harvested crops at the roadside post where human traffic was common. The crops were laid out in portions according to units of prices. If one portion of corn was to be sold for one unit of currency, that amount was put near the portion of the unit of currency for the prospective buyers to know. Upon passing by and deciding to buy any product from the post, a buyer collected whatever item he selected and placed the exact amount of money, being the cost of the commodity.

Many scholars and observers saw Nigeria as an emerging country, in terms of its potential for sustainable development. Such optimism was founded on Nigeria’s favourable geographical and natural resource endowments. Furthermore, in the early years of independence, Nigeria achieved self-sufficiency in agricultural production, enough for domestic consumption as well as for export. Nigeria also had a large population which could help to accelerate industrialization. These factors continued to make observers believe that Nigeria would be a success story. As if to vindicate the observers, Nigeria experienced an oil boom shortly after independence. That experience lasted for another decade. However, regardless of the potential for rapid development, Nigeria started a downward slide in its development prospects and that slide, rather than abate, has accelerated. After five decades of independence, with an ever-increasing fortune from petroleum earnings, Nigeria remains underdeveloped, with economic and social conditions deteriorating. It is this paradox that I view as failure which has triumphed over the forces of success. What can explain this dismal picture?

A parliamentary system of government was practiced with between 1960 and 1966, when a military coup overthrew the elected government of Tafawa Balewa. The overthrow was masterminded by a group of educated young officers, who thought that failure was gaining a noticeable rise in government. That military intervention led to a succession of military coups which, in the meantime, caused the civil war that lasted from 1967 to 1970. In the interim, the military returned to the barracks after an election in 1979, which brought the government of Shehu Shagari, an experiment with the presidential system of government. Again, that administration was overthrown by the military in 1983, after which Major General Muhammadu Buhari became head of government.

The longest span of military rule came after the sudden overthrow of Buhari’s regime by Ibrahim Babangida in August of 1985. That administration was the most spectacular disaster in Nigeria’s search for nationhood. It endured for eight years, destroyed the professionalism of the civil service, and monetized every aspect of government, which has become the political and social culture of the country ever since.

The Babangida regime was ignominiously terminated after it annulled the 1993 presidential election results, which Nigerians overwhelmingly accepted as the only truly free and fair election held since independence. An extremely wealthy businessman, MKO Abiola, was elected, but a gang of military officers, with deep arrogance and self-conceited power-mongering instinct, refused to honour the popular choice made by the Nigerian people. A short-lived interim government, led by Ernest Shonekan, was devised, but it was not designed to last long because of the power drunkenness of the military. Sani Abacha took over power as if it was for the good of Nigeria, he implied he was going to restore democracy, but his bizarre and inhuman conduct in government coupled with his totalitarian disposition was probably the worst military regime Nigeria ever had to endure. He died under strange circumstances on 7 June 1998, with General Abdusalami Abubakar becoming the head of state.

In the meantime, MKO Abiola, who had been in detention since 1993, was to be released, but he died mysteriously on 7 July 1998, the purported date of his release. Olusegun Obasanjo was elected as president in 1999, in an election which was perceived to be fraudulent. He was re-elected in 2003, in another largely objectionable election. After eight years of large government with little governance, the most widely condemned election in Nigeria’s history was held in 2007, which was characterized by fraud, murder, violence and outright disenfranchisement of the people.

In 1987, Richard Joseph1 stated in his book, Democracy and Prebendal Politics in Nigeria, that politics is fundamentally about the struggle over scarce resources. In Nigeria, however, the state has increasingly become a magnet for all facets of political and economic life, consuming the attention of traders, contractors, builders, farmers, traditional rulers, teachers, as much as that of politicians or politically motivated individuals. Nothing can be truer even today as we now know that in Nigeria, politics is about sharing the ‘national cake’, not about national interests. Joseph correctly asserted that there is little disputing the fact that individuals at the top of the social hierarchy gain largely from the distribution of state wealth, but we should not overlook the fact that support for such arrangements is generated at all levels. The strength of a nation is the character of its people, whether follower or leader. A people deserve the leaders they get.

Nearly four decades ago, Obafemi Awolowo2 argued, in one of his famous lectures, that the countries of the world should be divided into two categories economically advanced and economically backward. He was of the view that the use of developing for describing backward countries was a delusion of progress in the midst of socio-economic retrogression. Unfortunately, political scientists and economists still insist on the use of the label.

Dele Olojede3, at a public lecture in Lagos, in 2006, said that Nigeria was travelling down on an escalator on which other nations were going up. It is an apt image of Nigeria going the wrong way, while other nations are presumably making progress.

Some writers argue that military rule brought the decline to Nigeria. I doubt if that answers the situation adequately, because I believe that a good military rule may succeed to transform a society, and some countries have been transformed by military rule. Some bad military leaders will draw any nation back and leave a legacy of bad governance. By a tragic stroke of misfortune, Nigeria was ruled, between January 1966 and 1998, except from 1979 to 1983, by a succession of military rulers with no vision.

Oil came, but was used as a weapon against the people. The leaders took the country on a long trek to greed, wealth accumulation, and lack of direction. By the time the military handed over power finally in 1998, the Nigerian economy was prostrate.

Ibrahim Babangida tried to reverse the ride down the speedy escalator by the introduction of the infamous Structural Adjustment Programme (SAP), which nailed Nigeria into a coma. At a point, Babangida told Nigerians that the problems seemed to defy all solutions.

The wounds inflicted by the civil war of 1967 to 1970 have not fully healed today. The misfortune was heightened by the perfection of a form of government thriving on corruption. The new political leadership which was hitherto traditionally unnoticed in politics became noticeable, with the flaunting of ill-gotten wealth and power. That was the beginning of the most obvious syndrome, which Richard Joseph called prebendalism. Prebendalism is the progressive conversion of public offices to serve the interests of public officers, relations, clans, and friends. To capture the long-term consequences of the past scenario, recall that between 1966 and 2007, Yakubu Gowon ruled for nine years, while Babangida and Obasanjo ruled for eight years, respectively. The succession of bad regimes which led to the entrenchment of the prebendal culture in governance unavoidably led to the emergence of a system of fronting by streetwise men and women, who became agents for the ruling class.

The decline encompassed all spheres of national life, breeding instability, corruption, deception, lawlessness and graft. Ray Ekpu4 writing in an edition of the Newswatch in 1985 said that in twenty-five years, Nigeria had eight rulers, six of them were from the military, ruling for fifteen years. He also observed that Nigeria had two different constitutions, one parliamentary, the other presidential, but both failed to help Nigeria. It was twenty-five years ago when Ray Ekpu said so. From Tafawa Balewa to the present administration, Nigeria has had five or six constitutions, but the decline has attained a sustained thrust, which seems to be impossible to halt with a political treatment.

When the decline started to show noticeable consequences for the country, Obafemi Awolowo sounded a strident warning, in which he predicted a potential doom for the state of the economy. He was quickly treated, by a federal cabinet member, to a derisive, if not abusive reaction. Awolowo’s prediction not only came to pass, his profound analysis is still with Nigeria almost four decades later. The decline which he confidently predicted became a total plague, which has eaten up all the virtues of a nation state.

Twenty-five years ago, Ray Ekpu5 said that all the ingredients for building a great country were present: land, water, minerals, and human resources. The only ingredient standing between Nigeria and greatness is leadership. It is tragic that his assertion remains a serious factor in Nigeria’s efforts to develop. Several scholars have asserted in their works on Nigeria and politics of survival as a nation state that the trouble with Nigeria is simply and squarely a failure of leadership. All concluded that there was nothing basically wrong with the Nigerian character.

Richard Joseph used India and China to illustrate the irony of Nigeria’s inability to move forward. In his lecture titled, Misgovernance and the African Predicament, presented in 2006, at the University of Ibadan, he observed that while China is an authoritarian single-party regime, India is a democratic multiparty state. While their political systems differ remarkably, both have capable states. Nigeria and India match each other in their degree of cultural multiplicity, but in Nigeria, the state has become weaker, softer, more divided, and more contested generally, being unable to perform the functions of a normal state.

During the first government after independence, the political leadership was not a mindless class. They had legitimate claims to the pre-independence struggle and had noble dreams about Nigeria. Leadership values changed from bad to worse when the fortunes of the country increased in terms of revenue earnings. The question of power-sharing among the regions became pronounced. Mistrust, disaffection, and divisive values expanded beyond the political actors into the ranks of the citizenry. The leadership did not possess the will or the ability to reverse what they were part of. Thus, each successive government, whether military or civilian, was worse than their predecessors. The leaders were sucked in by inordinate ambition, pursuit of self-centred interests, and the thirst for wealth accumulation. The ordinary citizens were easily sucked into the new value system as well, bringing the concept of leadership and followership into utter disrepute.

How are these connected with the intractable problems of the oil and gas industry? First, it was the problem of initial capacity-building, then crass inefficiency, and the scourge that seems to be destroying any hope of development-corruption. Therefore, what was thought to bring fortune to Nigeria has brought misfortune. More than fifty years after oil was found in Nigeria, there is little to show for the enormous earnings from the commodity. Instead, poverty and environmental degradation continue to visit the oil-producing communities, while the country has not risen to the challenges of national development in any sector.

The aim of this book is to open a window into the history of the oil and gas industry. Oil brought destruction to the environment, division to the country, and a level of corruption unknown in other oil-producing countries. My desire is not to accentuate the nuisance, but to record what has been happening in the sector. The Nigerian situation is very precarious, especially after five decades of blunder, crises, environmental degradation through gas flaring, sabotage of oil facilities, troubling policy choices, and, of course, lethal corruption. That the oil and gas industry has not matured after more than fifty years is testimony to the problems of national leadership and the failure of capacity-building in the NNPC and the government.

Beyond the sphere of the oil and gas industry, a general atmosphere of frustration is hanging over the country. It seems that the government sees through one prism, while the people of Nigeria see through another. Adaighofua Ojomaikre6, in an article, said that “notwithstanding the neglect and self-deluding official non-recognition of the massive national adverse economic consequences, Nigeria cannot ignore the troubles”. He reflects that “Singapore, Nigeria’s former compeer, transited from Third World to first world economy in under thirty years”. Nigeria has a higher population, limitless natural resources, far more than Japan, the world’s third largest economy. The dilemma of Nigeria’s oil and gas industry has become a classic case study because, while other oil-producing nations have learnt lessons from their own experiences and solved their problems, Nigeria appears to be jumping from the frying pan into the fire.