Abstract
The world economy needs energy to run and much of that energy is crude oil. This has therefore defined international relations since the discovery of the internal combustion and diesel engines powered by crude oil. In fact the history of international petroleum politics , and in deed international politics, is dominated by attempts to restrict supply of crude oil and maintain high prices by export dependent countries or attempts to maintain sustainable, secure access to crude oil at low prices by import dependent countries. Consequently, international petroleum politics morethan anything else has defined the price of crude oil since the early 20th century to date. Unfortunately Nigeria, whose crude oil export currently accounts for 90% of her total exports and roughly 75% of her consolidated budgetary revenues except through OPEC (which is largely controlled by the Arab member countries), have No effective hold on global crude oil politics and price, and so remains vulnerable to it vagaries. Lamentably, this global crude oil politics , which is largely responsible for some 60% fall in crude oil price since June 2014 to date, has led to led to unprecedented contraction in Nigerian government revenues. It has also led to severe cuts in JV Programme Budgets, Operations and investments by the NNPC and International Oil and Gas companies (IOC), some $6bln cashcall arrears, new rounds of restructuring , divestments and heavy jobs losses in the Oil and Gas sector. And ofcourse, a charged industrial relations atmosphere. It is therefore crucial that labour leaders understand the dynamics of the oil and gas industry to enable them anticipate the direction of the industry and help their organisations and members best cope with the associated or underlying challenges.
“Follow the money” is the advice routinely offered to detectives in low-budget thrillers.For anyone attempting to understand the ebbs and flows of international politics, I offer a variant of that old line: “Follow the oil”[1].
1. Introduction
Let me also thank your leadership team for inviting me to share my thoughts with you on this very important topic- The Historical Overview of the Impact of Global Oil Politics on Crude Oil Prices, Investments and Employment Relations in the Nigerian Oil and Gas Industry. This topic is very significant and relevant to our understading of the forces at play in the oil and gas industry, especially in view of the fact that the price of crude oil which according to the World Bank[2] accounts for close to “90% of exports and roughly 75% of the country’s consolidated budgetary revenues” has fallen by some 60% since the second half of 2014.
This steep fall in crude oil price has led to severe contraction in government revenues and has once more exposed the vulnerability of the Nigerian economy to the vagaries of the international crude oil price and politics. For the oil industry in Nigeria, it has led to severe cuts in Programme Budgets, Operations and investments by the NNPC and International Oil and Gas companies (IOC). These operations and budgetary cuts have also led to new rounds of restructuring, divestments and review of strategy, redundancies and heavy job losses in the Nigerian Oil and Gas sector and an obviously charged industrial relations atmosphere.
The above situation is worsened by the fact that apart from the 60% fall in the crude oil price, the Nigeria oil and gas industry has other daunting challenges, making its situation very precarious.In addition, key economic indicators does not show that Nigeria is howsoever prepared for this crises,which analysts forecast may last longer than originally thought!
As labour leaders and workers in the Nigerian oil and gas industry, the importance of our understanding of the events, policies and politics that shape our industry , and indeed the Nigerian economy, cannot be overemphasised. This is because they will determine the fortune or misfortune of the industry, economy and by extension, that of our members and Unions. The fact is that:
“The history of the international petroleum industry is marked by attempts to restrict supply and maintain high prices. They include the Achnacarry (‘As Is”) Agreement; the abortive Anglo-US treaties towards the end of the World War II to set up an international petroleum council; and the system of allowables practiced, in the name of conservation, by various states in the United states, most notably in Texas, where the Texas Railroad Commission (TRC) was the lynchpin, setting monthly maximum allowable production levels which were then pro-rated among the producers”( Parra, 2004,p.89)[3].
It is therefore crucial that as labour leaders, we seek to understand the dynamics of the politics in our industry and how that politics affects our industry, nation, unions and members.
2. HISTORY AND OVERVIEW OF GLOBAL OIL POLITICS
“Throughout the second half of the 20th century oil has been at the heart of foreign policy. The Suez Crisis in 1956, the 1973 Arab oil embargo, the consequences of the Iran-Iraq War in 1980, and the two Gulf Wars in 1990 and 2003 most visibly illustrate how oil has been implicated in international relations. Import-dependent states have been concerned with maintaining sustainable, secure access to oil at low prices, whereas oil exporting states, mainly in the developing world, have been concerned with balancing the desire to uphold prices and revenues while maintaining market share” Bromley,S. et al(2006)[4]
The world economy needs energy to run and much of that energy is crude oil. Therefore sustainable access to crude oil has remained a key aspect of international politics and relations by all countries- importing and exporting countries alike. As noted by Bromley, et al(2006) Import-dependent countries are interested on how to maintain sustainable, secure access to oil at low prices, whereas oil exporting countries, are interested in balancing their desire to uphold prices and revenues while maintaining market share. This has formed a key basis of the relationship between these two categories of countries and their actions and inactions since the discovery of oil and its importance in powering the world economy became known.
It is important to note that besides the United States and parts of Canada, Subsurface mineral rights were and is still essentially the property of the State (Parra, 2004)[5]. This is also the position in Nigeria where the Petroleum Act gives the Nigerian State the right over subsurface mineral rights.[6] Accordingly the governments of the Oil exporting countries must either explore and develop the oil and gas itself or enter into agreements with international oil companies to do so for them under various terms. In doing so, these governments expect to have a good share of the revenue from the oil and gas exploration and production activities.
After the Second World War and following the invention of the internal combustion engine and diesel engines, the international oil industry expanded speedily and world economies grew rapidly. World oil demand more than quintupled growing from 11mbd in 1950 to 57mbd in 1970(Parra). However much of the oil was produced by the 7 oil majors christened “The Seven Sisters” by Enrico Mattei, head of Italy’s
national oil company, AGIP(Parra,2004,p6) . The Seven Sister are namely: the Standard Oil Company of New Jersey (later Exxon); the Standard Oil Company of New York (Socony, later Mobil, which eventually merged with Exxon); the Standard Oil Company of California (Socal, later renamed Chevron);the Texas Oil Company (later renamed Texaco); Gulf Oil (which later merged with Chevron); Anglo-Persian (later British Petroleum); and Royal Dutch/Shell. There was also the Compagnie française des pétroles (CFP) of France( not part of the seven sisters). Together these companies controlled the international oil and gas industry and even price. By 1950, “nearly all the crude oil trading across international borders moved between subsidiaries of the seven major oil companies”(Parra). In fact from 1920 to 1973 the seven sisters were firmly in control of world oil. Barrett & Cormack (1983, p.28)[7] observe that by 1972 the seven sisters:
“Were producing 91% of the Middle East Crude Oil and 77% of the free world’s crude oil coming from outside the united States. They had substantial influence on decisions concerning where and when to drill for oil, how much to produce, and what price would be charged for the oil”
These eventually raised concerns among the Petroleum Exporting Countries who wanted to obtain more benefits from their crude oil deposits and wanted to have greater control. It was therefore not surprising that these countries namely Iraq, Iran, Kuwait, Saudi Arabia and Venezuela decided to form the Organisation of Petroleum Exporting Countries (OPEC) in September 1960. According to the OPEC Statute, the principal aim of OPEC is:
“To harmonise the petroleum policies of its Member Countries as part of its efforts to safeguard their interests. It further states that members of the Organization shall work together to ensure stable oil prices, secure fair returns to producing countries and investors in the oil industry, and provide a steady petroleum supply to consumers.”
Nevertheless, the seven sisters “continued to deal separately with each, often playing them against each other”. However the formation of OPEC was able to prevent between 1960s and 1972, further reduction in the posted price of crude oil.
Nonetheless, over a period of 13 years, OPEC had become stronger and was later joined by Qatar (1961), Indonesia (1962), Libya (1962), the United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Ecuador (1973), Gabon (1975) and Angola (2007).However Ecuador suspended its membership in December 1992 and rejoined in October 2007, Gabon terminated its membership in 1995 and Indonesia suspended its membership effective January 2009[8].OPEC currently has a total of 12 Member Countries.
Between 1973 and 1974, OPEC undertook three separate actions that clearly showcased its strength namely: The Arab Oil Embargo due to the Yom Kippur War; Production Cut and Substantial price increase.
Since then, global events and politics have had considerable impact on the price of crude oil. The economics law of free market based on demand and supply have been severally manipulated by politics and global events aimed at putting pressures on demand or supply depending on the interest of the political actors.
Unfortunately Nigeria, except through the collective efforts of OPEC(which is mainly controlled by the Arab Member Countries), does NOT have any effective hold on global oil price and so is essentially a price taker and vulnerable to the vagaries of global oil price and its politics.
3. GLOBAL POLITICS AND CRUDE OIL PRICE
“Politics still shapes the oil price. Many states that depend on low-cost oil exports for revenue, such as the United Arab Emirates and Iraq, will face long-run budget challenges if prices remain depressed near their current $50 a barrel”( Levi,2015)[9]
The two charts below show how world events and global politics have impacted on the price of crude oil. The first chart which is from Goldman Sachs shows the History of Crude Oil price and the key world events responsible for the price from 1862 to 2015.The Second chart which is from the US Energy Information Administration(EIA) corroborates the first chart and shows the impact of global politics and events on the price of Crude oil from 1970 to 2015.
It is my considered view that explaining the events indicated in these two charts and their impact on crude oil price will provide a succinct overview of the history of global politics and crude oil price. This to me will satisfy the major thrust of this part of the paper which is essentially tracing the correlation between Crude Oil prices and major political events around the globe.
Please take note that the base prices are different as the first chart (Goldman Sachs) is based on crude oil prices in 2013 US$ and the second chart (EIA) is based on 2010 real US$.
3.1 Pre-1947 Period
Several events such as US Civil war raised commodity prices from 1862 to 1865. Prices fell sharply in 1864. However fluctuations in the US drlling led to a boom-burst period between 1865 and 1890. It is however important to note that the price of crude oil doubled between 1914 to 1918 due to World War I. By 1920 the rapid adoption of automobile gave rise to increased crude oil price due to increased crude oil consumption leading to the popular ‘West Coast gasoline famine’. However the onset of the Great depression led to fall in demand for crude oil and fall in crude oil prices. There were however marginal gains in the prices during the World War II.
3.2 The Post World War Automotive Boom 1947
The end of the Second World War II was the beginning of post-war reconstruction and industrial boom. This period also witnessed the automotive boom. This led to significant increase in the demand for crude oil and shortages of supply leading to significant increase in crude oil price.
3.3 The Suez Crises
The First Major crisis after the Second World War that impacted global Oil prices was the Suez Canal crises in 1956 which arose out of Franco-British imperialism coming in contact with the rising Egyptian nationalism under the then President Nasser. The crisis started when the then Egyptian President Gamal Abdel Nasser, nationalised the Suez Canal on 26th July 1956 raising fears that the Egypt would control the canal and the supply of Middle East oil to the Western World [10]. In response, Britain , France and Israel invaded Egypt[11],[12]. However the invasion did not make Britain and lis allies regain control of the Canal[13]. As Bamberg(2000)[14] observed “no event in the post-war years exposed more starkly the decline in Britain’s power and Western Europe’s growing dependence on Middle East oil than the Suez Canal crisis”. The Suez Canal crises marked the first international crises in the global oil politics. The crises however led to some 10% decrease in crude oil supply forcing crude oil price upwards.
3.4 The Yom Kippur War and the Arab Oil Embargo
Enter the Yom kippur war[15],[16]which was basically an extension of the Arab – Israeli imbroglio with its various alliances and consequences. However, at this point because of the now growing fervour amongst Arab nations against the West and Israel, the Oil producing nations of the Middle East presented a more united front against Western imperialism in their quest to subdue Israel .
Oil was again, one of the most portent tools with which the war was fought. Though Arabs largely lost the battle in the field, they however were able to rally round and form a cartel of Oil producers with which they were able to enforce their political desires.
This came in form of Oil embargo against the West[17]. The embargo created serious supply gap in the international market and spiked up the price of Oil from 1973 in combination with the emergence of OPEC at this time. This regime of price increases continued until late 70s when it started experiencing a downward trend as indicated by the downward graph in 1979 until the Iranian revolution of that year.
3.5 THE IRANIAN REVOLUTION
The Iranian revolution[18],[19]which as far as we are concerned is an offshoot of the growing Arab nationalism which was spurred by Nasser’s Suez nationalisation, dethroned the conservative western backed government establishing the Islamic republic[20].
The immediate effect of this on Oil prices was an upward spike as one of the governments which was backing the West in that region had been dethroned and Western Oil interests nationalised as a consequence. Oil prices were buoyed on the wings of this revolution and as consequent steps were taken by the West to contain the Iranian revolution.
3.6 THE IRAN – IRAQI WAR
As the global oil prices crested around the U$70s per barrel in the early 80s, the Iran – Iraqi war[21] ensued subsequently pushing the price of Oil into the U$80/barrel range. It has to be remembered that this war was as a result of the desire of the West to contain the Iranian revolution and ensuring that its spread into other parts of the middle east is minimised.
Saddam Hussein was therefore armed and spurred into battle against the Iranian regime creating instability in that region and shutting off some of Iranian Oils temporary from global supply. This peaked at the 80s until the global economic recession of the 1980s set in.
As a result of the global economic recession, there was a glut of supply in the global market as a result of weakening demand effectively putting a downward pressure on Oil prices continuously from the early 80s to late 80s. Prices plummeted from the its peak down to below U$20 per barrel wrecking the economies of most of the Oil dependent nations as fiscal insufficiency became the order of the day and this included Nigeria as one of the worst hit nations.
3.7 THE US PRICE CONTROLS
The US government in its bid to stem the negative impact of the Oil embargo and the rising influences of OPEC on global Oil prices on its domestic economy and the lives of its citizens established a mechanism for controlling the effective price of Oil within the American market. This was through a series of taxes and incentives.
The immediate impact of this disguised subsidy was that American refiners and consumers were not paying the exact cost of oil based on existing international prices of the crude Oil prices. In essence, the cost of crude in the US was always lower than that of the International market effectively cushioning her citizens and companies from the full impact of the increasing Oil prices.
This continued till around 1985 when both prices converged as could be gleaned from the graph.
3.8 SAUDIS ABANDON SWING ROLE
Hitherto, Saudi Arabia had played the role of a swing producer directing the prices of Oil by either increasing supply gaps or withholding supply to increasing prices. This it was able to do because of the quantity and character of its Oil as a leading producer and exporter.
The role of Saudi Arabia which was used to influence prices either way helped in stabilising Oil prices but as prices plummeted, cutting down supply will harm Saudi economy further reducing its market share and give advantage to perceived enemies of the Saudi nation so, in 1987, it abandoned this role effectively at this time leaving Oil prices low at around the U$30 per barrel mark until another event in the gulf changed the prices of global Oil.
3.9 THE GULF WAR
Iraq had accused Kuwait of allowing it to be used by the West to destabilise Oil prices and having had its territorial ambitions focused on some Kuwaiti territories, Saddam Hussein invaded and occupied Kuwait in 1991. The international community gave him a mandate to leave Kuwaiti territory but his refusal led to the Gulf war.
Iraq was as a result chased out of Kuwaiti territory by the US supported by other Western powers. The period of this occupation and subsequent putsch by the Western powers created serious instability in the global supply of Oil and this led to the swing that is noticed in the graph as prices jumped to above U$50 Dollars for the first time in a long time.
In Nigeria, we call it the Gulf Oil windfall of which its proceeds grew wings and have become a subject of unending inquiry in Nigeria even though the Pius Okigbo Report had made it findings known on this matter.
3.10 OPEC 10% QUOTA INCREASE AND ASIAN FINANCIAL CRISES
Starting from 1993 to 1998, two major global factors influenced the downward movement of prices in the international Oil market; the increase of export quota for OPEC members and the beginning and deepening of the Asian financial crises.
As a result of internal pressures from member countries and because of fiscal needs and a desire to capture more of the crude Oil global market share, OPEC increased members’ export quota by 10% across board. The Asian financial crises also began and spread and since the Asian tigers were the drivers of world economic growth at that point and jointly leading consumption centres for global Oil thus demands, economic recession in that region meant industrial crises impacting negatively on the demand for industrial inputs of which Oil is one of its major drivers.
These have immediate implications for supply of crude which increased in the market thus depressed price subsequently as demand also began to deep as a result of the financial crises. Twin forces were therefore unleashed on the market simultaneously – upward in crude supply as a result of increased quota coupled with downward demand as a result of Asian financial crises.
Each of these on its own is capable of forcing down prices but when taken together, the downward spiral became very significant as prices of international crude dipped to below the U$10 per barrel mark in 1998.
3.11 SERIES OF OPEC CUTS (4.2 Million b/d)
Beginning 1999, OPEC began a series of export cuts to shore up prices of crude in the international market. It was able to cut a total of 4.2mb/d of crude from the market.
This manoeuvring pushed up prices and coupled with the now recovering Asian economies, international prices of crude began to pick up and began the upward spiral buoyed by other factors as the coming into play of the 9/11 attacks in the US with its consequences – Afghan and Iraqi wars which took away large volumes of Oil from the market pushing Oil prices further up.
Production ramped up but with increasing consumption, OPEC spare capacity fell which created further panic within the market pushing prices up to above U$100b/d by 2008 and beyond when the global financial crises began to set in and began to put downward pressures on prices again. This lasted till 2011 when the Arab spring and its spiralling consequences created the Libyan uprising which forced up prices again keeping prices between U$125 and 140 until it began its present downward journey.
From the charts so far discussed and the explanations, it would have become very clear that the price of crude Oil which Nigeria so much depends on for almost 90% of her total export earnings is influenced largely by global politics and events. Nigeria unfortunately has not become strong enough to make major impacts on global politics and cannot therefore effectively pretend to control the nuances of global Oil prices.
It is therefore a receiver of whatsoever outcomes is foisted on it by global political power houses. The best sensible course of action for any nation that finds itself in such a situation is to move away consciously from this dependence disentangling itself from the destructive yoyo which its swings can cause to its developmental trajectory. Whatever you cannot reasonably control becomes a stochastic variable which is very difficult to deal with in every form of planning.
4. GLOBAL POLITICS AND CURRENT FALL IN CRUDE OIL PRICE
“Why is the price of oil falling?…Four things are now affecting the picture. Demand is low because of weak economic activity, increased efficiency, and a growing switch away from oil to other fuels. Second, turmoil in Iraq and Libya—two big oil producers with nearly 4m barrels a day combined—has not affected their output. The market is more sanguine about geopolitical risk. Thirdly, America has become the world’s largest oil producer. Though it does not export crude oil, it now imports much less, creating a lot of spare supply. Finally, the Saudis and their Gulf allies have decided not to sacrifice their own market share to restore the price. They could curb production sharply, but the main benefits would go to countries they detest such as Iran and Russia. Saudi Arabia can tolerate lower oil prices quite easily. It has $900 billion in reserves. Its own oil costs very little (around $5-6 per barrel) to get out of the ground.” (The Economist, 2014[22])
Crude Oil price has fallen more than 60% since June 2014[23]. This has become a major challenge to the crude oil exporting countries such as OPEC. As the quotation from the Economist Magazine explained, there are four main causes for this dramatic fall in crude oil price which has been sustained for over a year now. The demand for crude oil has fallen seriously due to weak economic activities in China, Europe and most parts of the world, and there is increasing move to other fuel sources.
However the major reason for the current fall in price and its sustained fall is the struggle for market share between OPEC (mainly Saudi Arabia) and US Producers especially the US Shale Oil Producers. As crude oil prices soared to some $110 over the past four years, the oilmen of North Dakota and Texas set about extracting oil from shale formations previously thought unviable boosting United States of America (US) crude oil production by more than a third, to nearly 9m barrels a day (b/d), which is just 1m b/d short of Saudi Arabia’s output[24]. Please see the table below for the estimates of the US Shale Oil Production, which in 2014 was some 4mln barrels per day.
EIA Estimates of U.S. Shale Oil Production[25]
This has worsened the oversupply in the international crude oil market.
Unfortunately:
“The Saudis and their Gulf allies have decided not to sacrifice their own market share to restore the price. They could curb production sharply, but the main benefits would go to countries they detest such as Iran and Russia. Saudi Arabia can tolerate lower oil prices quite easily. It has $900 billion in reserves. Its own oil costs very little (around $5-6 per barrel) to get out of the ground.”[26]
The result of this decision and the battle for market share between the Sheikhs in the Gulf and the US Shale Producers is the sustained fall in the international price of crude oil. Crude oil is currently under $50 per barrel from around $115 per barrel in June 2014. The Sheikhs project that at current crude oil price a lot of the Shale Oil Producers in the United States will be out of business. The table below from Merrill Lynch shows the breakeven prices of the US Shale Oil Producers. Reports indicate that some of the current Shale producers whose breakeven prices are higher than the crude oil price are having financial difficulties at the moment[27] . Unfortunately for OPEC Producers, the Shale production may not be abating soon as recent reports reveal that “Exxon and Chevron both announced plans to substantially increase U.S. crude production, largely as a result of their shale operations”[28].
As if the above is not enough, there are fears of sustained further fall in crude oil price due to the nuclear agreement between Iran, the five permanent members of the United Nations Security Council, Germany and Iran in July 2014. The agreement will put additional Iranian oil supplies on an over supplied global market. This will definitely put more pressure on crude oil price and lead to further fall in price for a sustained period of time. As the table below from EIA shows the more drastic impact of the Iranian agreement will be felt in 2016. According to the EIA:
“Iran has the technical capability to increase crude oil production by about 600,000 b/d by the end of 2016. The pace and magnitude at which additional production volumes reach the market depend on how quickly Iran meets conditions triggering sanction relief and how successful Iran is in production and marketing operations. EIA expects most of this increase would occur in the second half of 2016. These additional Iranian volumes are expected to put downward pressure on global oil prices in 2016, as Saudi Arabia and the rest of producers in the Organization of the Petroleum Exporting Countries (OPEC) are not expected to make production cuts to accommodate additional Iranian volumes in a well-supplied global oil market”[29]
The main implication of the above analysis is that the crude low regime of crude oil price is not expected to give way till 2019. This has great consequences for investments and operations in the oil and gas sector, and economies of countries that depend heavily on crude oil exports like Venezuela and Nigeria. Already analysts at Goldman Sachs project that crude oil price will remain around $50 per barrel by 2020[30].
It is therefore doubtful if President Mohammadu Buhari will be able to deliver his campaign promises to Nigerians if the price of crude oil which accounts for some 90% of Nigeria’s total export revenue and 75% of total consolidated revenue continue to hover around $50 per barrel between now and 2019.
5. CRUDE OIL PRICE, INVESTMENTS AND EMPLOYMENT RELATIONS IN THE NIGERIAN OIL AND GAS INDUSTRY
The current regime of low oil price which began since the second half of 2014 and has been sustained for over a year now as explained the the last section is not expected to improve till 2019. Already the fall in crude oil price has began to take its toll on the oil and gas industry cutting deep into revenue projections and big losses at the end of quarter 3 2015. This has also led to significant contraction in exploration and production activities globally as the oil and gas companies embark on massive cost cutting measures to weather the storm.
This no doubt has grave consequences for jobs and employment relations in the global oil and gas industry, Nigeria inclusive. For instance, the BBC reported on 9 September 2015 that “the contraction of Britain’s offshore oil sector has already stripped out 65,000 jobs” and that “the cuts came as operating expenditure on existing assets was slashed”. The USA Today of March 31, 2015 reported that “Planned oil industry layoffs in the U.S. are approaching 100,000 in the past four months(i.e. December 2014 to March 2015) with more likely to come”. Also, Forbes of October 22 2015 report that:
“The collapse in oil prices has so far claimed more than 200,000 jobs worldwide. Leading the bloodbath are the oilfield service giants; Schlumberger SLB has axed more than 20,000 oilfield service workers, about 15% of its staff. Rival Halliburton is cutting 18,000, Weatherford International 14,000, and Baker Hughes BHI 13,000. Among the big integrated oil companies Royal Dutch Shell appears to have the highest total with 7,000 laid off’’. [31]
Expectedly, the fall in crude oil price has begun to negatively impact very heavily on the Nigeria oil and gas industry, and indeed the Nigerian economy. Already there strong fears that some 120,000 direct and indirect jobs may have been lost in the Nigerian oil and gas sector[32].
Unfortunately, the situation in Nigeria is made worse by the fact that there were existing serious challenges in the industry which were yet to be addressed by the government and other stakeholders. Key amongst these challenges are: Some 400,000 barrels of Crude Oil is stolen daily through Pipeline vandalism, Well Head vandalism and Illegal Crude Oil Diversion; Escalating insecurity and kidnapping in the Niger Delta leading to significantly increase in the cost of doing business ; Government’s inability or refusal to fund JV budgets and expenditures thereby stalling on-going oil and gas projects and operations; Huge cash call arrears; and the Non Passage of PIB which has reportedly stalled some $80bln in investments in the sector as international investors adopt a wait and see attitude refraining from making any new investment pending the passage of the bill.
There are also very serious challenges in the Nigerian downstream sector as the Nation’s four refineries produce at far less than their installed capacity forcing the country to import much of its needed refined products, and embracing a subsidy regime to reduce the cost per litre to the public. Unfortunately the Subsidy programme has become unsustainable under the current regime of low crude oil price, opaque and riddled with corruption.
As if the above challenges are not bad enough, in 2014 half way into the year, the NNPC announced a 40% cut in the JV Programme budget after the JV partners had gone ahead to spend on the basis on the DEVCOM approved figures and the 2013 levels. The effect of this is a significant cut in exploration and production activities from the second half of 2014. In addition, the NNPC and the government owe the JV partners some $6bln in arrears of cash call. This $6bln arrears of JV cashcalls and the 40% unilateral cut in JV programme budget forced the JV partners who are major oil companies to significantly scale down their operations in Nigeria and also owing their contractors thereby exercabating the problem in the Nigerian oil and gas sector.
The net result of all these is a very big decline in investment in the Nigeria oil and gas sector; steep fall in Nigerian oil and gas operations; unprecedented increase in redundancies, asset divestments, restructuring and right sizing in the Nigerian oil and gas industry.
Indeed this is a very difficult time for the Nigerian oil and gas sector and indeed Nigeria. The sector and the economy has seen unprecedented number of job losses (some 120,000 direct and indirect jobs have been lost in the Nigerian oil and gas sector) as companies and organisations struggle to keep afloat in the midst of pressures from international crude oil price and Nigeria’s inability to make needed reforms especially passage of the Petroleum Industry Bill (PIB), diversification of the economy and stoppage of crude oil theft.
At present, the Nigerian economy is in a very bad shape and is obviously not prepared for any sustained fall in crude oil price as global analysts forecast.
Permit me to show you a view of the economic indicators of Nigeria to enable us appreciate the precarious situation of the Nigerian economy.
As the table above shows, Nigeria’s external debt has been growing since 2012 and has reached US$10.316bln. A more comprehensive view of the debt profile is presented in the table below , and shows that Nigeria’s total debt as at June 2015 is about $63.8bln. Even at that State Governments are still borrowing while the Federal Debt stock is growing.
Nigeria’s Public Debt Stock as at June 30, 2015
Debt Category
Amount Outstanding in USD Amount Outstanding in NGN
A.
External Debt Stock (FGN + States) 10.317.Bln 2.032 Trln
Domestic Debt Stock (FGN Only) 42. 633bln 8,397 Trln
Sub-Total 52.950 Billion 10.429 Trillion
B.
Domestic Debt of States* 10. 857 Bln 1.690 trln
C.
Grand-Total (A+B) 63.807 Billion 12.119Trillion
Source: Debt Management Office, Federal Republic of Nigeria.
Unfortunately, Nigeria is clearly not prepared for any sustained low crude oil price as the Excess crude account is now just above $2bln from $8.7bln in 2012 and external reserves are down to $31.6bln[33] . You can contrast this with Saudi Arabia with an external reserves of $900bln. Also the Naira was devalued from rom N155 to nearly N200 to a US$ ;while there are still further pressures on the country for further devaluation. Although President Mohammadu Buhari and the Godwin Emefiele the Governor of Central Bank has ruled out further devaluation of the Nigerian Naira, it remains to be seen how they can hang on to that policy with the expected sustained low oil price regime.
Let me state again, that if the current regime of low oil prices continue till 2019 as forecasted by analysts at Goldman Sachs, President Mohammadu Buhari may not be able to deliver on his campaign promises, and if the government does not initiate well thought out plans to engage the people with the true position of things, this may lead to serious uprising giving the great hopes the campaign gave to ordinary Nigerians!
At present many State Governments are unable to pay the salaries of their workers as the federal allocation has dwindled seriously. Already many of the state governments including States in the Oil rich Niger Delta are resorting to borrowings and the federal government bailout funds to pay workers salaries.
The fact remains that in the coming months, analysts expect the country to rise above politics by making the needed bitter reforms such as removal of fuel subsidy and cuts in the public sector expenditure, if it must remain afloat. Analysts foresee a situation where many State Governments will in 2016 and 2017 or thereabout begin massive lay-off of public sector employees as many States governments in Nigeria may not be able to cope with the current wage bill of the workers if the current economic crises occasioned by the fall in global crude oil price and industry scale oil theft continues.
Consequently it is my considered view that the current economic crises in Nigeria occasioned by the misfortunes in the Nation’s oil and gas sector as hereinabove explained, calls for a proactive review of the approach to industrial and employment relations by the government, unions , and employers in the Nigerian oil and gas sector. The truth is that industrial harmony is needed more during periods of economic crises such as we presently have. Moreover “industrial harmony is inextricably linked with economic progress of the country” (Agarwal,1982) [34] .
This is definitely not the time for adversarial industrial relations by the Unions, Management, or Government. There must be a deliberate and proactive transformation from an adversarial to a partnership relationship as a basis for labour/management co-operation and as a strategy for addressing the challenges currently faced by the oil and gas sector and the Nigerian economy (Ferguson, 1980, p72 and Tichy and Devanna, 1986:p77)[35],[36]. The unions and the employers must as a necessity work together to co-create win-win solutions. Labour unions, management and government must work together as partners to co-create win-win solutions to the current challenges facing the Nigerian oil and gas sector and the Nigerian economy.[37]
Moreover partnership can provide a framework within which a more positive working relationship can develop. It will also improve communication and co-operative relationship between the government, employers and trade unions thereby enhancing mutual trust and perceptions of fairness. Partnership is viewed as representing a ‘positive-sum game’ where both parties ‘win’.[38]
6. RECOMMENDATIONS
The Nigerian labour movement especially NUPENG and PENGASSAN, together with their labour centres NLC and TUC, must collaborate with the Nigerian Government, employers and other stakeholders to evolve appropriate strategies to protect its people from the vagaries of global politics, ups and downs in the international crude oil price as well as effectively resolve other outstanding challenges in the Nigeria Oil and gas industry. Without these strategies and their effective implementation, the current administration of President Mohammadu Buhari, and any other administration for that matter, will be incapable of delivering on its campaign promises to the Nigerian people. Similarly, without these strategies and their effective implementation, the Nigerian labour movement especially the two Unions in the oil and gas sector-NUPENG and PENGASSAN would be unable to deliver on their objectives to their members and the general public and would therefore be in danger of becoming irrelevant leading to their eventual extinction.
Some of these strategies that must of necessity be pursued and advocated by the Unions include:
6.1 Adoption of Partnership Approach to Industrial Relations:
As I have mentioned before, this very difficult times in our industry calls for a strategic shift in our approach to industrial relations. Indeed, the Unions must partner with the management and the government to co-create win-win solutions to the current challenges facing the industry and the organisations their members work for.
Although conflict is not totally eliminated by engaging in partnership relations (Woodworth and Meek, 1995[39]; Cohen-Rosenthal and Burton, 1993[40]), the partnership approach however provides an agreeable platform for the swift and sustainable resolution of industrial conflicts. This is an important advantage of the partnership approach and greatly underscores its adoption as a framework for sustainable labour and employment relations. The truth is that the management and the unions must necessarily work together to ensure the survival of the organization because without the organisation, there would be no management, no workers and therefore no labour union.
However effective partnership can only take place in an environment of mutual trust and respect. Empirical evidence reveal that in a climate of mutual trust between labour and management, trade unions help rally workers to co-operate with management’s efforts to improve the performance of the organisation (Beisheim, von Eckardstein and Müller, 1993 quoted in Gyes, 2003:p74 )[41]. Moreover a climate of mutual trust has considerable impact on how communication is received, and is unfortunately hardest to establish during times of change and crises (Quirke ,1995)[42]. This therefore underscores the need for both management and the Unions to develop and maintain an atmosphere of mutual trust and mutual respect as a cardinal principle of labour-management relations.
The Unions must also partner with the government to ensure the survival of the nation’s oil and gas industry because without the sector, NUPENG and PENGASSAN will become shadows of itself like the Unions in the Nigerian Railway. Therefore, this is not the time for adversarial labour relations by the Unions, management or government!
6.2 Diversification of the Nigerian Economy and Review of Our System Fiscal Federalism
Every government agrees that diversification of the Nigerian Economy is key and strategic to the development of the country. Unfortunately successive governments have not done anything significant to actualise it. It is therefore crucial that the administration of President Mohammadu Buhari which is premised on change, takes practical steps to ensure that the Nigerian economy is diversified by truly growing other sectors such as agriculture, solid minerals, manufacturing and services.
There is an urgent need therefore for the Labour movement to put pressure on Government at all levels by engaging them at all levels of policy and programmes to design frameworks for moving Nigeria out of the the grips of the Oil and Gas industry. We must increase our advocacy outreach in this direction so that Governments will understand the urgency to move away from this present comfort zone and spread the nation’s root into various sectors such as agriculture, solid minerals mining, manufacturing and services etc. We cannot afford to continue putting all our eggs in one basket as they say.
Furthermore, the country must be courageous enough to review her system of fiscal federalism such that states and local governments would be effectively motivated to grow their economies in their areas of comparative advantages, rather than continue to depend on federal allocation.
6.3 Passage of the Petroleum Industry Bill and Conclusion of the Reforms in the Nigerian Oil and Gas Sector
The passage of the Petroleum Industry Bill (PIB) into law will signal the commencement of the conclusion of some 15 years of reforms in the Nigerian Oil and gas industry. Indeed its non-passage by the 6th and the 7th National Assemblies despite all appeals by various stakeholders presented the country as very unserious. Also, the fact that the PIB has been the subject of discourse in the National assembly for 8 years without any progress created significant uncertainty in the Nigerian Oil and gas industry and made investors to adopt a wait and see attitude. This uncertainty therefore led to the loss of $80bln in investments[43] and arrested development of the industry. Therefore NUPENG and PENGASSAN must ensure that the PIB that addresses the main challenges of the Nigerian oil and gas sector is passed into law before the end of 2016. Some of these challenges which have been aforementioned in this paper are: issues of endemic corruption in the industry; under funding of the Joint Venture operations, Oil theft and Pipeline vandalism, importation of refined petroleum products, fuel subsidy and the institutional bottlenecks in the industry.
It is not enough for the government to present the PIB or any of its parts as is being currently suggested to the National Assembly. We have seen that since 2008. Government must , more importantly show the necessary political will to ensure that it is passed into law and implemented to the letter.
The NLC, TUC, NUPENG and PENGASSAN must therefore as a matter of utmost urgency ensure through its various platforms that enormous pressure is brought on the Government and the National Assembly to pass this Bill into Law before the end of 2016.
6.4 Good Governance and Anti-Corruption.
Government at all levels must identify leakages in the system and block them effectively. Duplicated services must be stopped, while agencies that carryout similar activities must be merged for effectiveness and efficiency. The fight against corruption must be pursued tenaciously; while the cost of governance pruned down significantly. Let me commend the leadership of NLC and TUC for the September 10th 2015 National Day of Action against Corruption and for Good governance. It is a step in the right direction. However the scale of corruption in Nigeria and the desire for good governance by the ordinary Nigerians dictate that the labour movement goes beyond that, at least to prove critics. The Labour movement must match words with action!
The labour movement must also ensure that government at all levels does not take the easy part of business as usual and borrowing to maintain current levels of expenditure. The labour unions at units, branches, local governments, states, industrial and national levels should identify possible leakages in the system and compile them for review and implementation by the various governments and organisations in Nigeria.
6.5 Review of the Nigerian Labour Laws.
The Nigerian labour laws are out-dated and out of tune with current reality. They have therefore become sources of industrial conflicts. As the international prices of Oil plummet further, employers in the Industry will begin to experience severe pressures as profits decline and operational capacity dwindle. These pressures will lead to to cuts on cost which will impact negatively on Job security and general workers welfare. This will increase Industrial Relations stress and make workplace relations become more explosive and less manageable.
NUPENG, PENGASSAN, together with their labour centres NLC and TUC must ensure that the gaps in our labour laws that have allowed employers latitude to abuse the rights and privileges of workers should be reviewed especially those which allows increasing substitution of formal workers with casual workers. Laws must be strengthened to protect workers and to also protect the industry
A good start point is for the labour Unions to approach the National Assembly with a view to ensuring that all progressive labour bills that were not passed by the 6th and 7th National assemblies are passed by the 8th National assembly. Also some Labour Bills like the Occupational Safety Bill which was passed by the National Assembly but not assented to by former President Goodluck Jonathan before leaving office, are passed into law.
6.5 Education and Training of members and labour leaders:
Education and Training remain the most viable option for building capacity and transmitting the appropriate strategy of the Union’s top leadership for the current challenges facing the global and Nigerian oil and gas sector. To this end, I once more commend the leadership of NUPENG for this seminar. The truth is that an educated person is an empowered individual who become a great resource in co-creating win-win solutions, especially at this difficult times. The trade union movement must therefore not allow itself to be left out in this quest for increasing capacity to understand our environment and co-create win-win solutions. We should seek out ways to train our cadres, our operatives, our officers and our general members. We must educate them on the dynamics of our industry, the society around us, our politics, economy and the global environment. Our social partners with whom we engage with are always involved in training, we should also take this more seriously to avoid falling behind.
6.6 Organise and Re-organise
The strength of the trade union lies in its committed members and number. It is in its ability to mobilise large membership both directly and indirectly that provides the foundation for its effectiveness. The greater the membership of the unions, the greater its solidarities thus, the greater its strength. Organising is therefore at the heart of every trade union activity which it must determinedly pursue in its quest to remain strong that will put it in a better pedestal as it engages other social partners. However organising in a period of global crises when organisations are embarking on redundancies and the unions are losing members is a difficult task. Nevertheless, it remains one of the activities the Unions must embark on successfully if it must continue to be relevant. It therefore calls for a more strategic approach to organising.
6.7 Increasing advocacy outreach to social partners and the larger society
When the movement begins a passionate and aggressive spreading of the gospel of the trade union movement amongst our social partners and of course the larger society, there will be a better understanding of what the movement stands for. This we believe will reduce confrontations and change perceptions in the minds of the social partners. As negative perceptions are changed or conquered, some of the challenges confronting the movement would be overcome putting it on a better stead for survival into the future. The Movement must therefore seek to tell its own story and not wait for others to talk about it. All avenues must be exploited to get the stakeholders understand us, our dynamics, our functions and our achievements including our roles and values to them.
7. CONCLUSION
Finally, let me conclude by thanking you once again for the opportunity to share my thoughts with you. Let me also advise that at these difficult times both globally and locally for the Oil and gas industry, the Unions in the oil and gas sector –NUPENG and PENGASSAN together with their labour Centres NLC and TUC , must as a matter of necessity be part of the solutions to the challenges. They must proactively review their approach to industrial relations and embrace the partnership approach to industrial relations as a policy. As a matter of utmost urgency, they must collaborate with other stakeholders in the Nigeria Oil and Gas sector to co-create win-win solutions and come up with ideas that will lift the industry from the current pit of miry clay to solid rock. For instance, they must engage the government, the employers and their members to ensure that recommendations presented in this paper and in your workshop are given priority considerations. They must NOT stop at ideas and recommendations. They must also collaborate with other industry stakeholders, their members and their civil society partners to ensure that the ideas and recommendations are articulated, accepted by policy makers and effectively implemented for the overall good of the Nigerian oil and gas sector ,and the Nigerian economy!
Thank you for your attention.
Solidarity Forever.
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. Comrade Hyginus Chika Onuegbu is the Rivers State Chairman of the Trade Union Congress of Nigeria and the immediate Past PENGASSAN National Industrial Relations Officer. He can be reached 08037404222/08098404222.