Implication of oil discovery and production in Lagos

Lagos, the home to Nigeria’s most critical commercial activities, has officially added another component to its already sparkly economic prospects when it was reported that it is expected to join the league of oil-producing states in Nigeria, as significant amount of oil reserves were discovered in the offshore Dahomey Basin of the state. Goddey Odin examines the implication of this against the backdrop of remaining focused on the strategic sectors that have made the state what it is today.

According to a media report, “Yinka Folawiyo Petroleum Company Limited (YFP), a wholly-owned indigenous firm and operator of the OML 113 offshore Lagos on Tuesday (May 3) announced the commencement of production of crude oil from the field.”
The product in large commercial quantity was discovered after a joint venture led by YFP Company Limited, which has been exploring the Aje Field offshore Lagos. The company has taken the final investment decision on the exploration of the field with drilling expected to commence soonest.

Tunde Folawiyo, chairman, YFP, in a statement attested, “the attainment of this milestone is indeed a laudable achievement not just for the YFP, but for the Nigerian oil and gas industry as a whole and indeed Lagos State, which can now be addressed as an oil-producing state.”

The discovery by Afren plc and Yinka Folawiyo’s Joint Venture simply gives Lagos a space into the oil-producing states club, which already has 9 states.

Akwa-Ibom tops the list as the largest producer of the product in the country, followed by Bayelsa, Delta, Rivers, Cross Rivers, Imo, Abia, Anambra and Ondo state respectively. While presently, the combined states of Akwa-Ibom, Bayelsa, Delta and Rivers account for 80% of crude oil production in the country, Cross Rivers, Imo, Abia, Anambra and Ondo state combined the account for about 20% of its production.

According to analysts, with this discovery, Lagos is set to generate more than N30 billion worth of internal revenue every month.
The state is set to face certain implications, which come along with the product discovered. First of all, Lagos state will enjoy all the benefits of being an oil producing state, adding to the revenue generation for the country. By Implication, the state will be entitled to the benefit from 13% derivation fund, which is meant for the development of oil communities from the Federal Government, in addition to some percentage of funding for socio-economic and infrastructure development from the federation account.

As an oil producing state, certainly, the revenue of Lagos state will increase drastically adding to the state’s current status, being the highest in revenue generation in the country with the current total revenue of N101.69 billion in the first quarter of 2016. Such achievement is expected to generate employment and give room for expedient development for the state and making other positive contribution to the country’s economy at large.

Nevertheless, the start of production brings up certain questions and concerns, especially regarding the management on the return and proceeds from the field- the royalty and tax. This comes as a result of the overstayed large-scale corruption that has eaten deep into the Nigerian system and held the country to ransom over the years.

Lagos state government must as a matter of urgency take precaution of the issue and not necessarily get carried away by the merry of the discovery, especially focusing all their attention on the oil at the detriment of other means of the state’s revenue generation.
Aside the positive impact of oil exploration in the state, the state must learn from the experiences of the Niger Delta region, which are still in focus till date as regarding the implication of oil exploration to the environment and the inhabitants.

It is no longer news that many communities in the Niger Delta battle with a very large amount of environmental degradation and pollution, which are the effects of the oil exploration activities within the circumference of the area. This indeed should be a major concern for the Lagos state government, especially the commission of its environment.

Lagos is already known for its dense population and over-crowding, which is one of the many reasons for its frequent traffic congestions. The discovery, which will definitely attract many investors and “oil tourists” to the field, will as well attract more population from other parts of the country to Lagos- where many people believe “money flows”.

As a precautionary means, the government should make sure it settles every community involved or that will be affected as a result of this exploration, so as to avoid the birth of militant groups in Lagos, which could arise as a consequence of none or improper settlement with the host communities.

As it is known, militancy is just one of the symptoms of the deeply rooted problems in the Niger-Delta regions. Hence, the Lagos state government should learn from that and also make provision to reduce any gas flaring, oil spills, illegal refining, oil theft and kidnapping that could arise following the discovery.

According to a research conducted by Baird Julia, it was estimated that between 9 million and 13 million barrels have been spilled in the Niger Delta since 1958. The research reveals that 50 percent of oil spills in the country was due to pipeline and tanker accidents, while other causes include sabotage (28%) and oil production operations (21%).

We must bring back to focus that the bunch of militancy in the Niger Delta has made Nigerian oil fields among the most dangerous in the world with negative repercussion on the nation’s economy. Militancy has cost the country’s economy a lot of damage.

A recent study by the International Centre for Reconciliation (ICR), Coventry Cathedral, put the total value lost to the Nigerian economy from bunkering and disrupted oil production between 2003 to 2008 at 14 trillion naira, approximately 100 billion dollars, while the former chairman, Senate Committee on the Niger-Delta and Conflict Resolution, Senator David Brigidi claims that Nigeria lost an estimated $58.3 billion between 1998 and 2007. These are paramount issues that cannot be overemphasised, which Lagos state government should put into consideration while it takes proactive measures towards the challenges in the near future of oil exploration in her territory.

In a way to check the activities of the companies during exploration, government should as a matter of necessity place a huge penalty, with the international standard on any company or firm that does not compensate the host communities which the oil exploration could cause any hazardous challenge to their health and means of livelihood, especially to the farmers and fishermen.

In a quick response to the news that Lagos has joined the league of oil producing states, economic analysts have advised the state government to exercise caution by remaining focused on the strategic sectors that have made the state what it is today.

As reported in the media, Opeyemi Agbaje, senior consultant/CEO of RTC Advisory Services Limited, advised the state a ‘fully developed economy’; not to be carried away and allow it to be subjected to the volatility of oil earnings, when it already has sustained means of generating revenue.

He emphasised the need to focus more on these strategic sectors than the volatile oil, which according to him, Lagos “has fully developed banking, telecoms, manufacturing, maritime, insurance and other strategic sectors.”

Lagos state should as well learn to avoid the mistakes, which gave birth to the incessant challenges confronting the other oil producing states in the country. Hence, the state government should continue to utilise and relish the benefits and opportunities inherent in the integral spheres, including maritime, communication and other sectors.