NNPC, just copy Saudi Aramco

I had written earlier about how the Chinese National Offshore Oil Company (CNOOC) offered $50 billion (Fifty Billion USD) in 2009 for acquisition of six billion barrels of proven crude oil reserves in Nigeria’s onshore and deep offshore portfolios.

Nigeria rejected that offer.

$50b for 6billion barrels of crude translated to $8b a barrel as oil in 2009 was average $75. should we have taken the offer?

in hindsight yes. Why? Because it was a chance to get bulk cash and invest in diversify government revenues away from oil.

With $50b cash, the FGN could have created new streams of income to compliment oil and gas and reduce our dependence on fossil fuels. Case in point, China’s biggest foreign infrastructure deal to date was issued by Nigeria, the 1,402 km, $12b coastal railway from Lagos to Calabar.

This proposed line will see a 120km/h high speed train pass through 10 states with 22 stops creating 200,000 jobs just to build it. Government would reaped massively from VAT on ticket sales, etc

With the “balance of the $38b, we could have built the Mambilla and Zunguru Dams, completed the East to West Road, built a Lagos to Maiduguri to lane expressway, a Calaber to Sokoto 10 lane expressway. We will still had change to build five new petrol refineries, build a mega port in Calaber, and underground rail system in Lagos State plus solar irrigation plants and silos across the North.

These investments would have the cumulative effect of boosting commerce, thus boosting government fiscal revenues.
If, we have done this in 2009, we would not feel the effects of $30 crude oil today.

So again, with the benefit of hindsight, of what use is that Six billion barrels with Nigeria today? So when opportunities come, we take them, after a due consideration of options.

The Saudi Aramco (the Saudi NNPC) are in my mind the best example of how a state owned energy company should be run, Saudi Aramco thinks ahead, plans ahead…. we should just tell the NNPC to copy everything that Saudi Aramco does. Case in point, Saudi Aramco bought refineries in the US, The US reduced imports of Nigerian oil, Saudi oil exports to the US was stable…why? The Saudi owned refineries simply continued to import Saudi oil to the US. NNPC made no strategic investments in our largest market, so we suffered.

Saudi Arabia also employed the same strategy in Asia, buying refineries in Korea, Japan etc, When Iran was banned, we had an opportunity to lock in the Asian markets, we did not, soon we will be pushed out of Asia, as we can’t compete on price. We have still not learned to take advantage of opportunities.

However it what Saudi Arabia want do next that intrigues me. They want to sell 5% of Saudi Aramco via an IPO and give the $2trillion they will raise to their Sovereign Wealth Fund, who will then start to buy up wonderful companies overseas. In essence they are diversifying their economic base, from crude oil sales receipts to dividends from non oil sector, thus reducing dependence on oil, etc etc

Why can’t we copy them?

The crude oil in leases in Nigeria are owned majorly 60% by NNPC and 40% by the oil majors eg ExxonMobil. Why can’t we still offer 50% of our 60% stake in the Joint Ventures to China to buy? If we can get even $25b bulk cash, debt free cash, we give that to the Nigerian Sovereign Wealth Authority, and they then also invest, similar to what Saudi Arabia is doing.

The Nigerian Sovereign Investment Authority should be given a mandate to invest in non oil and gas business across the world, diversify the revenue streams of the Consolidated Revenue Fund (FAAC) so each year the CRF receives USD earning from oil and nonoil sources.

Keep in mind again even if we sell 100% of NNPCs JV, we will still earn VAT and Petroleum Taxes after the sale.

The clear positive is that we get out of the forex cash draining business of Joint Ventures cash calls we cannot fund, we diversify our revenue base, we own fantastic companies abroad we can even lobby those companies to set up a local manufacturing plants, we retain our FX earning ability at really technically, no cost.

So if we didn’t take the opportunity to sell when oil was $75, can we not take this opportunity to sell when oil is $30. Selling means the Government is finally out of the active oil business, and became a passive receiver of revenues….

Time is running out, Tesla has just launched its Model 3 electric car, i.e. a no petrol car, its costs $35,000, (N7m). The car has pre orders of $7.5b in in one week! A car without petrol is the future, The world is sending us a message, if cars and houses can be powered without crude oil, then we better sell our oil reserves…. while we have the chance…..and the opportunity.

Its our problem, we can fix it

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