NLNG amendment act: The needed truth

By Naphtali Iringe-Koko   |   11 July 2017   |   4:03 am

Upstream is technology based and does not create massive jobs for the Niger Delta communities. The 3% contribution by the oil companies to the NDDC budget is meant to address the issues raised under social investments on behalf of these companies. PHOTO: NLNG

I will start this discussion with a brief introduction bordering on the development challenges that confront the Niger Delta which are as follows: The special nature of the Niger Delta demands a special development template with new solid development initiatives. There is not a doubt in my mind that development with enduring quality is what is uppermost in the minds of committed Niger Deltans for the sake of future generations. I do not believe that the issue of who heads the NDDC or Ministry of Niger Delta is material to them. The government would need to think outside the box in order to bring meaningful development to the oil region. The Niger Delta is a unique region located in an area comprising wetlands, formed by sediments. The area comprises sandy coastal ridge barriers, mangrove swamps, lowland rainforests, isolated islands and villages inhabited by indigenous communities. The special nature of the Niger Delta vis-a-vis its people, isolation, ecological and hydrological features required special attention by the Federal Government of Nigeria. Driven by these challenges, the Federal Government established the Willink Commission in 1957.

The Commission was tasked with the duty of looking into the concerns (lack of development, poor infrastructure, isolation, neglect and poverty) of the minorities of the Niger Delta region. The Commission’s report was published in 1958, following which NDDB (Niger Delta Development Board) was created and included in the 1963 Constitution. The NDDB was to be reviewed after 10 years but the civil war which commenced on May 30, 1967 and ended in January, 1970 interrupted its activities. The NDDC is now the interventionist agency in its place. The NDDC was created in 2000 and since its creation, it has delivered no meaningful development in that region. Niger Delta is yarning for meaningful development benchmarked by the following performance standards: Fitness for purpose because of the difficult terrain; Value for money and stakeholders satisfaction (Meets the approval of Federal Government (FG), our Development partners and Niger Deltans).

Based on the above comments, I believe FG requires a new development model to fast track the development of Niger Delta. It is my honest opinion that the NDDC and the state governments should go back to the drawing board and face the issues that led to the creation of Willink Commission and establish solid development programmes that are inclusive i.e. development that will also impact on the rural committees. It is no longer news that oil and gas activities dominate the landscape of the Niger Delta. The adverse effects of these activities have added to the development challenges indicated in the Willink Commission report, and have created overwhelming socio-economic challenges in the region. The oil and gas companies therefore have their legitimate roles in the development of the region in the areas of social investments. Pollution of the environment is part of the challenges of the oil and gas companies but that is completely a separate issue as it is currently being addressed under the polluter pays principle by the FG and the oil and gas companies. Thank God that the Buhari government has come to the rescue of a problem that developed into a jinx. We are all looking forward that the Ogoni land clean-up will be extended to include the other parts of Niger Delta.

Without the oil and gas companies practically getting involved in the development of Niger Delta, I do not believe we will make any reasonable progress and this could adversely affect the future generations of the oil region. Oil related projects should include social investments in areas such as health centres; hospitals; educational facilities; labour intensive projects such as refineries; petrochemicals; fertilizer and LNG projects which are expected to generate both direct and indirect employment and would also stimulate the local economies. The loss of traditional occupations have resulted in unemployment and exacerbated poverty. These industries are the most reliable in remedying the adverse effects of the oil and gas industry in the areas of job creation and stimulation of local economies. Projects targeted at replacing unfit housing stocks are also recommended for addressing the adverse effects of gas flaring and air pollution. The host communities fund as provided in the PIGB is not a substitute. It is an accepted industry practice all over the world.

Apart from their individual Corporate Social Responsibilities (CSR) to their individual host communities, there is need to jointly create an SPE (Project Company) for Niger Delta development as illustrated in the diagram and channel the 3% budget contribution to the SPE to fund its operating costs, interest payments and repayment of loans obtained from shareholders, multilateral/bilateral agencies, international commercial banks, local banks etc. I have not a doubt in my mind that the oil and gas majors with their extra-ordinary people, extra-ordinary reserves, extra-ordinary assets etc can team up with the FG to make a real difference in the lives of the Niger Deltans. Honestly, I am looking forward to an oil industry where oil and gas business takes its proper place as society friend rather than its enemy. The oil and gas companies must rise to the Niger Delta challenges and do their own bit in order to usher in a New Niger Delta where oil and gas companies would be regarded as friends instead of enemies.

To be able to take a sound decision devoid of sentiment on the 3% contribution by the operators, we must first understand the story behind the headline news. The 3% is not just a product of the law. It is also not a free lunch. It is about keeping the Nigerian oil industry practices in line with the accepted international best practices framework. Oil exploration and production involve processes that pollute and cause damage to the environment (water, air and land). Pollution adversely affects the health and socio-economic life of the communities in the Niger Delta. The 3% contribution is meant to mitigate the damage done to socio-economic life of the people of the oil region. It is not as if the oil companies are doing a favour to Niger Deltans. It is an industry accepted best practice. Oil pollution affects fishing and farming which are the traditional occupations of Niger Deltans. The result of these impacts are Poverty; Unemployment (due to lack of traditional occupations), Financial exclusion etc. Pollution also affects the well-being of communities. Gas flaring results in air pollution and affects the health of communities and at the same time, leads to rundown neighbourhoods due to acid rain. To mitigate these challenges oil companies accept to carry out environmental clean-up, undertake social investments and carryout reinvestment projects. It is the general practice by oil companies all over the world. The clean-up as it is happening in Ogoniland falls under the polluter pays principle. This is the reason why Shell is involved in the clean-up. Adverse impact of oil exploration and production activities on the socio-economic life of the oil region is mitigated through social investments in such areas as hospital projects; clean water projects; health centres; empowerment projects; educational facilities; replacement of unfit housing stocks (caused by acid rain) etc.

The reinvestment projects are meant to address the issue of loss of jobs (loss of traditional occupations) by investing in downstream labour intensive projects, such as the NLNG to create employment. Upstream is technology based and does not create massive jobs for the Niger Delta communities. The 3% contribution by the oil companies to the NDDC budget is meant to address the issues raised under social investments on behalf of these companies. With due respect to the new NDDC management, I have no doubt in my mind that the NDDC is not capable of delivering quality projects on behalf of the oil companies. Hence I am suggesting that the oil companies should be directly involved in the Niger Delta Development Project through establishing an SPE (Special Purpose Entity) as illustrated on the chart. The 3% should be expunged from the NDDC to fund the SPE. The oil companies as shareholders and the SPE could enter into a construction contract with the likes of Julius Berger to deliver quality projects in the oil region. The funding can be sourced from the international commercial banks, multilateral/bilateral agencies, local banks, counter-party funding etc. Equity contributions would cover owners’ costs while the 3% should be applied in funding the SPE operating costs, interest payments and repayment of loans sourced to execute the projects. This model will create massive jobs in the region. For the benefits of the oil industry operators, I want to remind them that 10–20% of the capital cost of many new projects in the chemical, oil and other related polluting industries are being devoted to environmental protection. They are not constrained by the 3%. They can increase it whenever there is need to do so to fast-track development.

The NDDC, Niger Delta Ministry and State governments of the oil region should go back to the drawing board and revisit issues relating to the establishment of the Willink Commission in 1957. They should concentrate their efforts in addressing these issues with the 13% derivation and their receipts from the ecological fund. In order to deliver quality projects to the people of Niger Delta, the trio could enter into PPP arrangement with the likes of Julius Berger and use part of the 13% derivation in funding the PPP. If the FG continues with the current development model there is risk that the future generations of Niger Delta will be condemned to serving this generations’ mismanagement at the cost of investing in their own future. It would be a moral betrayal to choose the easy route by ducking the difficult decisions today at the cost of prosperity tomorrow.

Iringe-Koko is a chartered accountant.

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