Okoigun: Compromise in Oil Sector Weakened Nigeria’s Economic  Transformation

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Arco Group Plc Group Managing Director, Alfred Okoigun, was recently a guest of TV Station where he proffered the way out of the present economic doldrum and why compromise in the oil sector by policy makers has been the reason progress has remained stunted in the Nigerian economy. Kazeem Sumaina, who monitored the interview, reports

How can Nigerians take greater advantage of the local content policy in the petroleum industry?

Well, I think the starting point was the enactment of the law to support indigenous oil and gas companies. If the law is adhered to and monitored carefully, we will begin to see the development and transformation that will bring prosperity to Nigerians. By enacting the law, we are beginning to see what other nations did many years ago. We are not the only oil producing country in the world; there are many oil producing nations who are not even members of OPEC.

I always use Malaysia as a model and reference point. When Malaysia invited Shell as a partner in the development of its oil and gas sector, the government opened its doors with a caveat, transfer of technology within a specified period. Shell was free to prospect Malaysian oil and gas and make as much profit but within the specified period, Malaysians were expected to be at the commanding height of the sector. Shell was disposed to this arrangement.

I was in Vienna in the 1990s for a conference of chief executives of the oil industry with the then Minister of Petroleum Resources Rilwan Lukman. The chairman of Royal Dutch-Shell, Sir Phillip Watts made a presentation and revealed that his organisation went to Malaysia with the intention to train Malaysians and prepare them to take over the industry. Watts was glad to announce that Malaysia did not only take over control of its oil and gas industry but has become a major player that exports its knowledge of the industry to other countries including Nigeria.

In my response I said I was happy to learn about the Malaysian experience. I reminded the Dutch Royal boss that Nigeria was to Shell or Britain what Saudi Arabia was to the US. How were you able to do this much for Malaysia and yet the Nigerian situation was a different case? He was not at ease responding to that question. However during the tea break of the session, the then managing director of Shell Ron Maarten van den Bergh approached me after tapping my back and said: “Alfred, Alfred, do you think Shell is not doing enough? Who do you think should be doing more? I was wondering who really should be doing more and he added: “Your government, your government, your government.”

In retrospect, I have come to realise he was right. Indeed our government and policy makers should have done more because the Malaysian government insisted on what the country wanted; it strictly monitored the situation to ensure there was strict adherence. But what do we have in our country? ‘’Compromise,’’ which makes nonsense of any law that is enacted to ensure a certain policy produces the desired result.

The Norwegian model also offers an experience every nation that wants to succeed should buy into. Norway insisted there must be partnership with indigenous oil companies as well as the setting up of research institutes as a complement to oil prospecting and refining. For IOCs interested in getting the required licence for oil prospecting, these basics were all they needed to go into business. For those who could not that was the end of the quest for partnership. Today Norway is a key player in the oil and gas business.

The same could be said of Brazil which went into oil and gas prospecting since the 1930s. For these countries oil is a blessing not a curse. Brazil insisted the only way it could partner with its IOCs was to adapt to indigenous technology. The multinationals were mandated to license indigenous companies to manufacture components needed in the oil and gas sector. When you look at the leap of progress made by these countries, you begin to wonder what has happened to us in the development of our local content. It is not too late to make a start and even do it better.

What stops us from doing better?

I have been in this business for the last 36 years and there was a time local firms were not permitted to venture into the areas of business we are currently engaged in. However fired along by the message I got as a pioneer student at the Petroleum Training Institute (PTI) Warri I became a vanguard for positive change in the industry. When the institute was set up, the then minister of power then known as a federal commissioner, Shettima Alli Monguno, in his address to the young pioneers of the industry said if we knew the effort the federal government had made to set up this institute so that Nigeria would take advantage of the opportunities open in the oil and gas sector, we could not but give our best to the country after our training. I was about 20 and this sunk into my brain.

Less than two years as a staff of the Warri Refinery of NNPC my dream was how to give my best to the country as a player in the sector. The federal government had invested so much on us. We were sponsored overseas for further studies and I kept asking myself how can I contribute my best in driving the oil and gas sector to that level where Brazil and Malaysia have become models to other countries. This attitude has remained my vision and drive as a player in the oil and gas industry

How has the fall in oil prices affected local capacity in the oil and gas services in the past five years?

The impact has been negative. There is no doubt about that. For example the IOCs began a cut in services provided to them especially by indigenous oil and gas company service providers. They will call and ask for a cut in prices and overheads to the point you are struggling to break even and sometimes you don’t even break even. However, I want to believe this challenge is only a temporary one and will ease in the long run. The truth is that the price of crude oil has fallen by or less than 60 percent and it will take a while to regain the momentum even if it chooses to remain where it is now.

If it goes further down it will create more problems for the economy and if it goes up, it will still take a while to adjust to a reliable and given average. The current situation is a challenge to every player in the sector as well as government and consumers. This should not deter us from moving forward. It only offers a great opportunity for us to look at other areas of revenue generation genuinely, not the more you talk the less you act kind of scenario that has become the recurring decimal in policy implementation. There are so many things we can do to keep growth and revenue generation on course; we have left the exploitation of other sources of revenue generation just because of a cheap oil revenue generation and this is an opportunity to look inwards

Do you share the view that local content increases the cost of projects?

I have heard this view expressed in certain quarters. Let me begin with an example. Arco Marine, a subsidiary of Arco Plc once made a bid for the use of one of our vessels and it was told the price was very high. The same was true of other indigenous service providers who incidentally were bearing the brunt of high cost of funds which at the time was very high. High cost of borrowing happened to be the culprit. There was a time in this country when cost of funds in my line of business was 46 percent per annum and this was happening with the very big banks.

Now compare a situation where a Nigerian service provider servicing a loan facility with an interest rate of 46 percent is competing with a foreign company in the same business with a facility that attracts less than five percent in the home country. That scenario is abating because there are banks here willing to lend to us at between 10 to 15 percent. Beyond that however government should not be comparing in the short run cost of services by local service providers with foreign companies whose costs might be lower. No. Government should be looking at a long term project aimed at developing a minimum number of between 30 and 100 indigenous firms and even much more than that. The emphasis should be on a development policy that will help Nigerian companies compete effectively with their foreign counterparts.

The emphasis should be on skill development say marine engineering, fabrication, welding, et al; government should work towards supporting these organisations to be strong enough to contest for jobs in every part of the world. It can be expensive and time consuming. What these IOCs and their subsidiaries are reaping today was the result of a deliberate policy decision aimed at empowering their local or indigenous companies for the benefit of their economies.

We can do the same thing here. The enormous development or civilisation witnessed overseas is the result of what the ancestors or founding fathers did and the benefits are being reaped now. We are not doing that here. Our policy makers should be ready to make that sacrifice and resolve that as long as integrity, transparency and competence remain the yardsticks, then let the best emerge and let the best be given the tools to succeed. Don’t use foreign firms in this context as a reference point when you are looking at local content development.

How will this succession process be quickened or put on the acceleration gear?

The secret is to believe that every Nigerian is entitled to what you call a high standard of living. This proposition opens up growth potentials that will lead to new businesses and the rise of existing business models to the next level. In Corporate Nigeria, there are great opportunities for growth. When you think you alone should have access to the good life and that what happens to others will not matter, growth becomes stunted. Take the revolution that took place in the telecommunications industry as an example. Before it was liberalised, it was a privileged class that had access to phones and business was at a go slow because of the rigors associated with telephony. The liberalisation in this sector has led to a multiplier growth effect that is both vertical and horizontal with millions of jobs created, with hundreds of new businesses as a spin off and to the extent that one of the key players MTN was penalised for $34 million (N1,09 trillion) for non-compliance with number portability rules.

How did this great leap into a prosperous future that we are its beneficiaries today happen? Nigeria has the population and potential for economic growth and development. Sadly, we don’t believe this population has the right to quality life, otherwise how do you explain that as great as this country is we do not have hospitality managers whose business is to manage hotels and other hospitality organisations with the type of success expected of such going concerns? Meanwhile we have among us chains of hotels from such countries as South Africa with managers who dictate to us what they want and how things should get done. The local content is largely non-existent on a comparative note. Were this to be in the hands of Nigerians, growth could have moved in diverse directions. The bottom line is that the opportunities for growth in the corporate polity are there. Unfortunately, it is the narrow path that appeals to us.

Why are we not paying attention to technical, vocational education and training as well as skill development all of which lead to industrialisation as we can see from the experiences of other countries?

This happens to be one of our weakest points and it is disheartening. Again if I may explain in detail, I happen to be a beneficiary of what is known as a crash programme. When the incumbent president was a petroleum minister way back in 1977, it became apparent there were insufficient hands to take charge of the refineries that were under construction. Government suddenly embarked on a crash programme involving young Nigerians sponsored to study in different countries-Italy, Norway, Germany etc. It was a short term skill development programme that ranged from one to two years designed to develop skill that would enable them take charge of the refineries.

We didn’t do the needful as a country whereas if we had been planning ahead, we should have established technical institutions such as universities and polytechnics with emphasis on petroleum engineering and allied courses. We should have taken a study of other countries and what they did to take a leap to where they are. We should have for example studied the Chinese model which aspired to be as great as or even greater than the US by embracing science and technology to the extent that at a time those with this background dominated policy making and governance in China.

India also offers another interesting model for study. When it aspired to frog-leap into science and technology, the country was not just content with sending its citizens to other countries to study. India’s dream was to be a centre for the study and advancement of science and technology with emphasis on intellectual property acquisition relating to computer engineering and manufacture. Today India has become the modern home of ICT and medical practice attracting consumers and patients from different parts of the world including America and Europe. This was the result of policy decision somewhere along the line by those in-charge. This is what our policy makers should be doing about now and I hope this government would consider this as mandatory and move the country to the next level.