By Aljazeera

I read that Yaradua is seeking global help for the treatment of stolen crude oil the same way stolen diamond is treated. Read:

I appeal to you and through you to all other G-8 leaders to support my new proposal which I will discuss with UN Secretary General, that stolen crude should be treated like stolen diamonds, because they both generate blood money. “Like what is now known as ‘blood diamond,’ stolen crude also aids corruption and violence and can provoke war.

He said this in Japan, at the G-8 meeting. What do you guys think? Think it is a good idea? Or a good start at least? You can read more here and here.

In the closing lines of a post on the Zambian copper industry I wondered whether anyone knew the details of the deals between oil companies and the Nigerian government. A news story I read in BusinessDay rekindled that interest, and a post I read at NigerianCuriosity made me decide to actually blog about it. The news story says that the Nigerian House of Representative found out, during a visit of the House committee on the upstream oil industry to the Department of Petroleum Resources, that the Memorandum of Understanding between Nigeria and major oil companies elapsed in 2003. Shell Petroleum Development Corporation (SPDC) Chevron, Total, Exxon Mobil and Nigeria Agip Oil Company were on the list of companies said to be affected by this. The committee chair, Mr Tam Brisibe, was also quoted to have said that Nigeria signed the MoU with its joint partners in 1986 when it had problems marketing its crude oil. The concern of the committee was that Nigeria might have been cheated of revenues due to it. But I think that the more serious concern should be about how it so happened that the MoU elapsed and nobody noticed.

But then…
…when I googled the only information I got about any MoU was from the Oil and Gas Insights website. The report said that the Nigerian government sought to terminate the MoU that governs the production of onshore oil in Nigeria. The MoU ensured that a minimum profit of $2.50 per barrel was paid to the government, no matter how low the prices of oil get. There was no maximum cap, but future explorations were assured of a tax rate of 65.75%, lower than the 85% for projects that were already in production. Under the Petroleum Profits Tax Act, the tax rate is 85% on all chargeable income; the MoU was supposed to serve as a tax incentive. A letter was written to Shell about this, telling the company that the MoU was going to be replaced with a standard tax plan.

The website also reported that the NNPC said, in January, that it was going to renegotiate the details of its joint ventures, ventures like SPDC in which the NNPC owns 55% and Shell 30%.

So?
So I still don’t understand the structure of the Nigerian oil industry, and it doesn’t seem like the chair of the House committee on the upstream oil industry, Mr Tam Brisibe, does. The fact that these two reports – one from a Nigerian newspaper quoting Mr Brisibe, and another from an industry magazine/website – are conflicting makes it even more confusing. I hope that the investigation of the House committee will help throw some light on the issues, and make the most volatile, but yet most lucrative, industry in the country a little bit more accessible to curious members of the public. I will try to follow the story.

Ref:
Oilandgasinsight
BusinessDay

… that Nigeria supplies 25% of the oil consumption of the USA?

It is pretty well-known that Zambia is a copper-rich country; it is probably also well-known that the copper industry is currently booming – in the last ten years, the price of copper has risen almost four fold. But that is not felt by the Zambian people. This is attributed to ‘secret deals’ made by the Zambian governement with the mining companies in the early 1990s. The details of the deals are not publicly known, but it is known that the mining companies get generous tax breaks, and that they pay only 0.6 percent of the prize at which the copper is sold on the world market to the Zambian government. The going rate internationally is 3 percent. The corporate tax in Zambia is normally 35 percent of the profit of a company; in the case of the mining companies it is 25 percent. In effect, the mine workers pay more tax than the mining companies.

“With a gun onto our head”
This information is from a BBC programme by Maurice Walsh on taxation. Mr. Walsh interviews Edith Nawakwi, the finance minister when the mining deals were negotiated. Ms. Nawakwi describes the situation under which she assumed the position of finance minister in 1997 as one in which they were losing the equivalent of a million dollars a day from the mining sector. On her first day at work she signed the papers of a loan of 50 million dollars, The money was used to pay the salary of mine workers. Because copper prices were low, and the government was losing money, the IMF and the World Bank ‘advised’ the Zambian government to get rid of the mining companies. The government was obviously in a disadvantaged position during the negotiations that eventually led to the privatisation of the mines.Ms. Nawakwi says:

Here is a country, you have no money, and the only people who can give money are the World Bank and IMF, and the creditors. And your colleagues wil say, Madam, we are not giving you any money. Get rid of your assets which are making you lose moey because you will be saving a million dollars a day if you don’t have that mine. And truly, I want you to understand that whatever has happened to this country, I think the 1990s were the worst. It was like Zambia was really negotiating this agreement with a gun onto our head.

Of mistakes and more mistakes
The main problem was that no provision for a change in the tax regime whenever there was an increase in the international price of copper. When Maurice interviewed a representative of the mine workers, he answered only very few of the questions he was asked. And when the current finance minister, Ng’andu Magande,was asked, he counselled patience, saying, “Copper investors have been investing in the last three four years…. While the prices have been going up, we have not achieved the production levels that we had in the 1980s. So while people might say the copper prices have been going up, the production level has not increased as much as the price, because the investors are still investing.” Hmm… I readily complain about resource curse, but I find it appalling when a government minister does not drive a hard bargain with the mining companies, especially as it is widely known that the price of copper will not stay high forever.

Nigeria?
After listening to this documentary, I was interested in knowing the details of the deals between Nigeria and the oil companies. Actually, this post was written partly because I am interested in finding out exactly how much oil companies pay to Nigeria. I am sure that someone has done – or is still doing – a PhD on the topic. So please, anyone who has any information about the details of the deal between Nigeria and the oil companies should please leave it as a comment. And anyone who is an expert on Zambia should please leave some information that might help us better understand the situation with the mines.

The information on the mines in the post was got from here

I wrote a post where I wondered whether there could be any similarities between resource and aid. Today, I read a report that analysed the danger of the current rise in the price of oil for oil rich countries. The report is published by voxeu, and it is available here.

The article says

It is still not clear what exactly prevents resource-rich countries from making use of their resource endowments. The newly emerging consensus among economists is that resource abundance slows down, or may even revert, development of growth-enhancing institutions.

It goes on to say

Recently, it has been widely discussed by policymakers and the media. In particular, the New York Times’ columnist Tom Friedman’s formulated it as the First Law of Petropolitics: high oil prices stifle the development of democracy and political and economic freedom in oil-rich countries.

Generally, there is nothing new in the arguments advanced in the paper, but anyone who wants to know the opinion of economists on the effect of oil – and a rise in oil prices – on governance issues like transparency – both in the public and the private sector – and press freedom should have a look at it.