Oil and Gas Free Zone in Nigeria: What is it all About?

Posted: August 25, 2015 in Corruption, Human Rights, Institutions, Markets, Niger Delta Crisis, Special Interest Groups
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OGFZ Pic

It was recently announced in July 2015 that Brass in Bayelsa State, Nigeria has been designated as an “Oil and Gas Free Zone” by the federal government. It was shocking to find out at a popular Nigerian eatery on the Old Kent Road, London that some university educated and hardworking men (originally from various parts of the Niger delta) solemnly thought “Oil and Gas Free Zone” (OGFZ) meant that Brass will be free from all oil and gas exploitation i.e. become a protected green zone. Such a misunderstanding is not unusual since the “free” like “foreign aid” in the global economy mean the opposite of their customary meanings.

There is nothing ‘free of’ in the Brass OGFZ but is dedicatedly “free for” international oil and gas concerns and local rent-seekers in government. An OGFZ is synonymous with an Export Free Zone which is an exclusive enclave usually within a developing economy which is either resource-rich or labour-rich and is established to provide conditions of minimal taxes and near irresistible incentives to attract “investment” from economies that can benefit from its cheap operation costs and cheap resources. Put shortly EFZs are enclaves used to promote enhanced or unrestricted exploitation of resources and labour in the global economy, in the case of the Brass OGFZ it is petroleum resources and cheap labour.

There is also the Onne OGFZ in Rivers State, Nigeria. The arguments many make for the establishment of EFZs is that they provide vast opportunities for much needed foreign investment. It has since it designation in 1997 attracted around $300 million in foreign i.e. an average of $16.7 million per annum. This is not a vast but a very derisory level of investment for a nation that can and did earn up to $100 billion per annum with the Onne OGFZ being the main export hub. Moreover, because of substantial foreign investment much of the value created in OGFZ and the wider oil and gas sector is not retained in Nigeria but repatriated to foreign investors. Foreign investment is not a “free lunch” but routinely an “expensive lunch” which less than 1% of the Nigerian population benefit directly from. The main beneficiaries of the foreign investment in Nigeria are foreign investors and local rent-seekers. Such a fact under any cogent logic would negate the benefits of OGFZs in Nigeria; but such is fuel for the illusion of foreign investment driven prosperity.

What is the need for OGFZs anyway? There are six corporate petroleum exportation terminals in the country. Shell owns two exportation terminals in Forcados and Bonny; Agip has one in Brass; Mobile has one in Qua Iboe; Chevron has one in Escravos; and Texaco has the Pennington Terminal. OGFZs are supposed to be “self-contained” processing centres for exporting petroleum products. Are there any refineries or chemical industries “localised” within the Onne and Brass OGFZs? What resources are being processed at these OGFZs that a regular export terminal cannot handle?

Tax breaks as an incentive for foreign investors would sound like a joke to international oil cartels and investors. By way of numerous mechanisms, oil concerns and oil services companies have very skilfully avoided paying several billions taxes annually to the Nigerian government since the beginning of oil production and exportation in the country up till today. If oil concerns are already expertly avoiding massive taxes with effortless ease taxes, how can tax breaks be credible incentives for investment in the sector? Then there is the lack of good infrastructure to attract foreign investors. Only those that will make quick vast profits under conditions of low risk tend to invest. Those intend on violating the provisions of corporate social responsibility with impunity may also be attracted.

Both Onne and Brass like Forcados, Bonny, Qua Iboe, Escravos and Pennington are oil and gas export facilities that have neighbouring populations. The focus of the OGFZ is export to refiners and consumers in foreign nations. However, very little or no consideration is given to socio-economic plight of neighbouring local populations. As such the local source population for petroleum products is sacrificed for the convenience of the foreign target population of the same products. Patriotism is not extended to markets. Unfortunately, both the source and consumer populations are systematically ignored and uninformed, respectively, in the considerations and realities inseparable from oil and gas exportation.

It is always amazing how the preponderance of rent-seeking shows its shiny face in the responsibilities necessary or possible for the oil and gas sector in Nigeria. While the federal government with the support of Niger Delta state governors make the ostensible derisory achievements of OGFZs look like dividends of monumental foresight and planning it simultaneously tries to blot out it obvious and massive failings of the oil and gas sector. The Nigeria government has failed in a series of deadlines to end gas flaring in Nigeria; Nigeria is reportedly the biggest gas flarer in the world – a significant contributor to climate change. The Nigerian government appears to wash its hands off every demand (international and local) for cleaning up the heinous pollution in the Niger Delta, and ecocide hotspot, by shifting the responsibility to an endless tomorrow. Well, President Buhari has hopefully changed all that hopefully for the better, even though new oil spills are still happening regularly.

The combination of investments that benefit foreign concerns, products that benefit foreign consumers and the transformation of oil pollution clean-ups / gas flaring / impacts on local populations by the government into endless “avoided costs” cannot be a good justification for the establishment of OGFZs since it is emphatically not the stuff of real economic growth or development. OGFZs under the circumstances are just another “rent opportunity” and “exploitation opportunity”. One may dare conclude that in reality Nigeria is one big OGFZ.

Grimot Nane

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