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CNBC: Nigeria seeks control of energy industry

20 Nov 2007 | 06:27 AM ET
LAGOS, Nigeria (AP)

For decades, Nigerian governments were content to let international oil companies do the pumping, merely taking taxes, royalties and a cut of profits.

Now with global oil prices surging near US$100 a barrel, Africa’s leading oil exporter wants to review agreements allowing oil companies to recoup their costs before sharing profits from deep water exploration, and consolidate all its joint venture oil assets into one potentially powerful company with a global reach.

“We’re looking at models like Petronas in Asia,” said Tony Chukwueke, head of Nigeria’s Department of Petroleum Resources, citing Malaysia’s state-run oil company. It has oil and gas operations in more than 30 countries.

The reforms Nigeria envisions, if they succeed, may provide a model for others in Africa, where now international oil firms are either operating joint ventures for state oil firms or under contracts that allow them to recoup costs before sharing profits.

“Nigeria should be in the driving seat, doing what it is asking foreign companies to do for it,” said Chukwueke, whose powerful department in the Energy Ministry is in charge of implementing the country’s oil and gas policies.

Proponents may argue that with more control over the industry, Nigeria can end the paradox of the energy-rich country wracked by fuel and power shortages.

But President Umaru Yar’Adua faces skepticism in Africa’s most populous country, where corruption has been identified as the single biggest impediment to development.

More than US$400 billion was stolen from the treasury by Nigeria’s leaders between 1970 and 1999, according to the country’s financial crimes agency.

Corruption helped create wide disparities in wealth and a loss of government credibility that in turn bred social unrest and high crime rates. The World Bank estimates that some 70 percent of Nigeria’s 140 million people live on less than US$1 a day; in South Africa, which lacks Nigeria’s oil wealth and has a more diversified economy, it’s 10.7 percent.

Yar’Adua has pledged to fight corruption and has repeatedly stressed the need for reforms in the oil industry, which pumped US$23 billion into government coffers in 2006, according to the latest figures available from Nigeria’s central bank.

Driving the new oil policy is a group of Nigerians with international oil industry experience. Members of the National Energy Council, which reports directly to Yar’Adua, include: Rilwanu Lukman, a mining engineer and long-serving secretary general of OPEC; Emmanuel Egbogah, who was technical adviser to Petronas for eight years; and Chukwueke, who worked for Royal Dutch Shell PLC for 27 years.

With reserves of 35 billion barrels, Nigeria accounts for 60 percent of proven oil reserves in the Gulf of Guinea, a region that has become of strategic importance as global oil demand surges and consumers like the U.S. try to lessen their dependence on the Persian Gulf.

Nigeria is one of the top five suppliers of U.S. oil imports and is emerging as an important liquefied natural gas supplier for Europe and North America.

Rising Asian economies such as China and India are also looking to the region.

Six joint ventures with the Nigerian government run by Shell, ExxonMobil Corp., Chevron Corp., France’s Total SA and Italy’s Eni SpA account for more than 90 percent of the country’s normal export capacity of 2.5 million barrels daily. With the majority stake in each of the ventures, Nigeria provided the larger share of capital contributions — averaging US$3 billion a year in the past decade — to fund exploration and production operations.

But strapped for cash to meet its joint venture obligations for deep water exploration in the Gulf of Guinea in the 1990s, Nigeria entered into special contracts that allowed the oil majors to invest their capital and recoup their own costs before sharing profits with the government. The efforts yielded massive finds such as Shell’s Bonga field, Chevron’s Agbami and Total’s Amenan — each with the potential to yield more than 1 billion barrels.

The Nigerian government has yet to see revenue from these offshore oil fields, and wants to review the agreements.

More fundamentally, perhaps, Nigeria wants to consolidate all its joint venture oil assets under one company, which could raise funds for oil investments from international financial markets. Officials say the national oil company will become a joint operator with the international majors.

“We’ll have a national oil company targeted to our needs such as bringing oil to the refineries, gas to our power stations,” Chukwueke said.

The multinationals running Nigeria’s joint ventures declined to comment on the government’s plans. But insiders say the oil majors are likely to welcome the consolidation move. Once the Nigerian oil company becomes a joint operator, it was expected to remove delays in approving projects associated with the current process.

Analysts have seen many producer countries, such as Russia and Venezuela, wrestle more money and control in a time of high prices. For some, it raises the specter of governments simply expropriating, or nationalizing, foreign businesses, socialist-style, a move that could discourage foreign investment and invite international criticism.

“Once contracts come up for re-negotiation, they’ll be rewritten to favor the national oil companies, rather than the international oil companies,” said Sebastian Spio-Garbrah, an Africa analyst in New York for Eurasia Group. Only a few will go the way of expropriation, and Nigeria is not one of them, he added.

Even government critics, such as Adetokunbo Mumuni of Nigeria’s independent Socio-Economic Rights and Accountability Project, are willing to give Yar’Adua’s administration the chance to prove itself.

“Compared to previous leaders, he has come across as sincere,” said Mumuni.

Yar’Adua is the first Nigerian leader to publicly declare his assets. He has a conciliatory style, and has engaged both insurgents and influential leaders in the main Niger Delta oil region to end violence that threatens the country’s oil industry.

More than a decade ago, long before it joined OPEC, Angola sent officials to Nigeria to study Nigeria’s state oil company model, adopted by most OPEC members with the oil price surge of the 1970s. Now Angola is interested in adopting Nigeria’s latest oil industry reform plan, said Chukwueke.

Other oil producers in the Gulf of Guinea such as Equatorial Guinea, Congo, Chad, Cameroon and Sao Tome and Principe, may also take notice.

“But we just have to do it first, then our brothers in West Africa and the Gulf of Guinea may benefit from us,” Chukwueke said.

Copyright 2007 Associated Press. All rights reserved.

http://www.cnbc.com/id/21895765/for/cnbc

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