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Lessons and pointers from the Bonga South West

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Lessons and pointers from the Bonga South West

By Kingsley Kemepade…

The World Bank Group commissioned survey christened the Global Investment Competitiveness Survey of 2017 spells doom for a country like Nigeria. In brief, it drove home the point that Foreign Direct Investment (FDI) dropped by 16% in 2017 from the previous year. The survey highlighted the role of investment climate determinants in steering FDI decisions. Some key determinants are: rule of law, political risk, efficiency of government agencies; these are all areas where the boxes do not check for Nigeria.

FDI is a major catalyst for national development as it is undoubtedly the largest source of external finance. Now why do we need external finance? Simple, the level of poverty and illiteracy is very high, as a people, we are not the most productive. Besides the capital, the technical know-how, novel managerial and regulatory skills, mentorship of indigenous companies and of course a robust and consistent daily output are other crucial add-ons of access to FDI. Since we know all these, why is it so difficult for us to create the required environment?

Quantum Global Research’s report on Africa’s investment index released in March, 2018 speaks volume; Nigeria wasn’t in the top 10. Our people say that when the wood insect gathers wood, it is on its own head that it carries them. This African proverb succinctly conveys the message of action and consequences. It is surprising that a good number of us who claim to be educated cannot practically relate. If we do not work, we will starve, if we do not save, we will be poor, if we do not open our doors and hearts to learning and collaboration, we will not make progress. These are non -negotiable truths of life.

On the 3rd of February, 2016, the Royal Dutch Shell postponed its final investment decision on the Bonga South West and cited global cost-cutting as the rationale. Fast forward to March 15, 2018 and it is reported by the Business Day that the company has again pushed further the calendar for a final investment decision on $12billion Bonga South West/Aparo development in an apparent uncertainty over its business in Nigeria which it says faces various risks and adverse conditions that could have a material adverse effect on its operational performance.

Is this the first time our investment climate has chased away good things? I vividly remember Richard Branson’s Virgin Atlantic/Nigeria, Dunlop Tyres and many more. In the case of the Bonga South West, it is clear that political instability and harsh business regulatory environment led to the deferred decision to go live. The associated risk is off the charts. Yes the profitability of the asset is not in doubt but other key indices are.

The company’s 2017 annual report was very unequivocal, it reads, “In our Nigerian operations, we face various risks and adverse conditions. These include: security issues surrounding the safety of our people, host communities and operations; sabotage and theft; our ability to enforce existing contractual rights; litigation; limited infrastructure; potential legislation that could increase our taxes or costs of operations; the effect of lower oil and gas prices on the government budget; and regional instability created by militant activities.

Read Also: The Value Of Diversity: Restructuring To Save Nigeria

Any of these risks or adverse conditions could have a material adverse effect on our earnings, cash flows and financial condition”. It is not rocket science that the energy sector is efficiency seeking in nature and as such the competition for funding is very fierce. So who is beating this drum of madness that we are dancing to? The available matrix of alternative energy makes this reality very saddening. This asset and several others need to be produced as soon as possible to fund the diversified economy we desire.

Truth be told, the world is gradually moving away from oil and so must we. The apple does not fall far from the tree you know? The company’s decision to stall its Final Investment Decision is hinged on its predicament with the Nigerian government regarding its stake in the controversial OPL 245. In simple terms, they do not trust us! When you break down the requirements of a final investment decision, what we find at the core of any prudent investor’s consideration include: return on capital invested (in this case, $12 Billion), risk and finance structure.

The Knack of the Nigerian government to convolute our future with the most mundane and irrelevant of things (nepotism, religion and ethnicity) compounds issues further. Its habitual breach of contracts and unwillingness to meet its financial or social obligation hasn’t gone unnoticed. OPL 245 is in Nigeria and belongs to all Nigerians by virtue of our laws on property ownership. It doesn’t matter whether it is controlled by a Chairman or an Alhaji.

What is important is that we make a good case for foreign investors to decide on Nigeria as their preferred investment destination since we lack the funding internally. What is also important is that we follow the law through and through. Does the law outline the requirements and procedure for the acquisition of stakes in an oil block and was that law followed through by the promoters of OPL 245 and other field owners?

As a nation, we are cloaked in poverty and are in dire need of infrastructure and capacity building. Are we going to steal the money required, or sell what we have while it is still valuable? OPL 245 and the Bonga South West will not hold their current value forever but as a nation we must strive to maintain our integrity for eternity if there is anything left of it.

 

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