Political uncertainty goes with the territory. An industry prowling the globe for exploration and development opportunities knows it confronts the risk of unpleasant surprise when it establishes operations where governments lack stability. International oil companies acknowledge such risks in former republics of the old Soviet Union but are proceeding nevertheless to invest. They must do likewise in Nigeria, where political risks recently intensified.
On Nov. 16, Nigeria's president, Gen. Ibrahim Babangida, postponed until next June the Dec. 31 presidential elections that will complete the country's transition from military to civilian rule. After firing executives of the two main political parties, Babangida disqualified all presidential candidates and demanded a new nominating process.
The move has two interpretations in Nigeria. In one view, it is a brazen attempt to retain power for the military. In the other, it is an attempt to start Nigeria's democracy on proper footing, a score on which the annulled presidential primaries failed, Babangida said, due to corruption.
HINTS DUE
Babangida will provide hints about which view is correct as he forms a military-civilian council to handle executive functions until June. Preference toward old-line military cronies would look like an attempt to establish a power balance against newly elected state and national legislatures. Inclusion of reformist civilians would reassure doubters about Babangida's democratic intentions.
Financial distress raises more-immediate concerns for the country's stability. Fears arose this month about the government's ability to pay civil workers' salaries. Failure to make payroll might lead to demonstrations, which could stir unrest elsewhere in a largely impoverished population. Even if he's otherwise determined to complete democratic reform, Babangida-who says he will not seek election to the presidency-might feel compelled to prolong military rule until the fiscal crisis eases.
These setbacks to Nigerian democratization come at a bad time for the international oil industry. Recognizing that democracy needs a solid economic foundation, the government began more than 2 years ago to encourage oil and gas activity, from which it derives 96% of its foreign exchange revenues. It made exploration and development licenses available on reasonable terms and took steps-including plans for an LNG export scheme-to reduce gas flaring. Foreign companies have responded enthusiastically, signing a series of joint venture and production sharing agreements.
URGENT NEEDS
But oil and gas projects require time, and Nigeria's revenue needs, as the civil payroll crisis shows, are urgent. The country must service external debt totaling $30 billion. And its legacy of investment misadventures and corruption keeps some international assistance out of reach. A natural concern for expatriate oil companies is that a desperate electorate might lose patience with economic reform and its most visible manifestation the expanding presence of profit-minded foreigners. In fact, Nigerians so far seem to recognize that they have only one alternative: economic and political chaos.
Oil companies venture into Nigeria, with its rampant corruption and operating challenges, for one reason: to make money. The country's high drilling success rates and promising geology thus should help them deal with whatever political surprises may lie ahead. After the election delay, however, new evidence of the government's commitment to democracy and economic progress-ideals that assure a role for foreign capital and technology-would not hurt.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
