The Story of Nigeria's Petroleum Industry

The Story of Nigeria's Petroleum Industry

Oyeniyi Osundina



Format: 13.5 x 21.5 cm
Number of Pages: 162
ISBN: 978-3-99048-204-9
Release Date: 03.05.2016
The book is a comprehensive account of the petroleum industry from the earliest days to the present. The story proceeds to offer a full account of various legislative instruments that were adopted in the development process. The book is well positioned to address the technical and commercial issues of the Nigerian’s oil and gas sector. The author endeavors to provide an insight into the complex interplay of the politics and interests in the industry.
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 Joseph 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 Awolowo 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 Olojede, 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 inf licted 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 f launting 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 Ekpu 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 Ekpu 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 f laring, 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 Ojomaikre, 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.

CHAPTER 2
Before Oloibiri

Colonial office files contain ample records of events which predate the finding of oil in Nigeria. Some of these notes, reports, and exchanges date as far back as 1906. For instance, an article written by T. Hugh Boorman referred to reports made in December 1908 to various companies about the appearance of petroleum oil with an asphalt base in immense quantities on the West Coast of Africa. The Nigeria Bitumen Corporation had attempted to extract the bitumen, but faced great difficulties with transportation. At a meeting of the Nigeria Investment Company held in London at the same time, C.H. Barley Mosley, former colonial secretary of Lagos, told his audience that “I am taking it for granted not only that oil has been found, but that the conditions surrounding this find are of a nature to make it possible to place it on the market in competition with the oils of Russia and America”.
Exploration and development work had already been carried out by the Nigeria Investment Company for two years prior to deep drilling. The work confirmed that oil could be found by deep boring and that bitumen could be mined in large quantities and high grade. Also, the directors of the Nigeria Bitumen Corporation reported to its shareholders that “after passing a small show of oil in sand rock, oil was struck at a depth of 633 feet, which rose to within 98 feet of the surface and did not decrease after four days taking. After casing down further and drilling an additional 26 feet, oil increased and production was 145 barrels per day”.
At that point, the Rt. Hon. W.S. Churchill, one-time Under Secretary for the colonies, stated that: “The Colonial Office and its advisers were not mistaken in their prognostications by the development that oil was found in the Western Region, in addition to the bitumen found in 1908, to confirm the view that Southern Nigeria was to become a petroleum producer in the very near future.”

Fifty years after that view was presented, oil was found in large quantities in southern Nigeria. A note in the Oil and Petroleum Manual of 1911 reported that the Nigeria Bitumen Corporation had abandoned 1000 square miles in the northern portion of the company’s licence, having surrendered 300 square miles in 1910, leaving 700 square miles. By 1912, drilling was in progress in boreholes 5, 9, 10, and 13, and heavy oil had been struck at a depth of about 650 feet.
In 1913, an oil and petroleum manual reported that the Nigeria Bitumen Corporation had secured leases over 3 square miles. In 1914, it was also reported in the manual that the Nigeria Bitumen Corporation had resolved to wind up voluntarily (liquidate) and reconstruct.
The Nigeria Investment Company, which was also registered in February 1906, resolved to liquidate in December 1913. There are file notes showing that a company called Petroleum Lands Ltd. was registered on 25 January 1910, to acquire exclusive oil licences from the southern Nigeria Government, over an area of 420 square miles in the Benin District. The last recorded report on the company was in 1912, after which no mention was ever made of it.
A British Colonial Petroleum Corporation was registered in December 1906 and, in December 1908, acquired a licence from the Nigeria Investment Company to drill for bitumen, petroleum, and mineral oils, over an area of 225 square miles in southern Nigeria. The licence expired, but a new one over an area of 500 square miles between Benin and Escravos rivers was obtained.

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