Countries of the World/COUNTRYS.BIN/dp/0263/02633.txt

Text File | 1991-06-25 | 28KB | 440 lines

$Unique_ID{COW02633}
$Pretitle{357}
$Title{Nigeria
Chapter 3C.   Mining}
$Subtitle{}
$Author{Robert Rinehart}
$Affiliation{HQ, Department of the Army}
$Subject{percent
production
oil
government
petroleum
coal
nigeria
nigerian
1970s
gas}
$Date{1981}
$Log{}
Country:     Nigeria
Book:        Nigeria, A Country Study
Author:      Robert Rinehart
Affiliation: HQ, Department of the Army
Date:        1981

Chapter 3C.   Mining

     Until the mid-1960s mineral production played a relatively small part in
the economy, accounting annually for only about 1 percent of GDP. Mining's
share began rising thereafter as the exploitation of petroleum increased, and
in 1970 the sector contributed over 10 percent of GDP (petroleum alone
accounted for well over 9 percent). In the mid-1970s mining's share had risen
to over 30 percent, exceeding even that of agriculture at current prices. The
latest available figure (for FY 1977-78) estimated the sector's contribution
at 28 percent, second to agriculture's, but this was largely attributed to a
substantial decline in petroleum production because of government pricing
policies and a subsequent drop in foreign purchases.

     The 1979 Constitution vested in the federal government ownership and
control of all domestic minerals, mineral oils, and natural gas within the
land area, territorial waters, and exclusive economic zone of Nigeria. In the
case of solid minerals the Ministry of Mines and Power had responsibility for
the issuance of prospecting rights and authorizations for exploitation,
retention, and disposal of such minerals. The Nigerian National Petroleum
Corporation (NNPC) had similar responsibilities for petroleum and natural gas.
The NNPC was also an operational enterprise on its own, although to mid-1981
most of its activities were in the form of participation in partnerships with
private foreign firms. In addition the government was directly involved in
mining through the state-owned Nigerian Coal Corporation (NCC), the Nigerian
Mining Corporation (designed to engage in commercial prospecting and mining,
refining, and marketing of solid minerals except coal), and the Associated
Ores Mining Company (concerned with locating and mining domestic raw
materials, other than coal, for government-owned iron and steel complexes).

     Besides petroleum and natural gas, known mineral resources of some
importance in mid-1981 included tin, columbite, iron ore, lead, zinc,
limestone, kaolin, and coal. Gold was also present as were silver, graphite,
molybdenum, wolframite, tantalite, gypsum, and clay. Deposits of various
minerals were worked from the early 1900s. Considerable mineral exploration
has been carried on both by private entrepreneurs and by the government's
geological service, whose activities began about 1919, but the full extent of
the country's resources still remained largely to be determined in 1981.

Petroleum and Natural Gas

     The mining of petroleum was the largest single economic activity in
Nigeria in 1981 in terms of value of production. The first export of Nigerian
oil was made in 1958, a year after commercial production started (see Social
and Economic Development, ch. 1). By 1965 foreign exchange earnings from oil
exceeded those from cocoa, then the leading export commodity. Earnings
continued to rise steadily thereafter; in the early 1970s they accounted for
over four-fifths of all merchandise export receipts and from 1973 through 1979
for more than 90 percent of the total (see table 6, Appendix). Oil revenues
had also become the major source of government recurrent income-between 70 and
80 percent annually between FY 1974-75 and FY 1979-80-and the principal source
of funding for the country's development plans (see table 7, Appendix).

     In early 1981 there were about 140 producing fields, including onshore
and offshore operations. Located in the Niger delta region, mostly in Bendel,
Rivers, and Imo states, their output at the time varied widely ranging from
about 300 barrels a day to over 100,000 barrels per day; but most fields were
small-almost half had outputs under 14,000 barrels per day. Total proved
reserves were variously estimated at between 17.5 billion and 20 billion
barrels. The government was promoting exploration in other parts of the
country, as well as in the delta region, to increase reserves. The most
promising new areas were the Anambra, Benue, Bida, Lake Chad, and Sokoto
basins. The government's terms, however, had attracted only moderate interest,
and to mid-1981 no significant new finds had been reported. The total
production capacity of the existing fields in late 1980 was between 2.4 and
2.5 million barrels a day, but output during that year averaged under 2.1
million, chiefly because of a government production ceiling of 2.15 million
barrels set in mid-1979. Production first reached 2 million barrels a day in
1973. Thereafter through 1980 daily average output fell below that level only
in 1975 (largely because of a glut in world supplies) and in 1978 when
government pricing policies and production from major new fields in other
parts of the world (including Alaska, Mexico, and the North Sea) reduced world
market demand for Nigerian oil. In January 1981 Nigeria increased the price of
its oil. World demand for oil declined as the year progressed, and there was
a sharp decline in purchases of Nigerian oil, which through May continued to
be sold at the new price. In response, production was cut back, and there was
every indication that output would average well below 2 million barrels per
day on an annual basis.

     Until the early 1970s foreign oil companies operated in Nigeria with few
restraints. A joint operation by the Shell and British Petroleum corporations
(Shell-BP), which was the first to discover oil in commercial amounts,
dominated the field. After the end of the civil war the government announced
its intention to secure control over ("indigenize") all aspects of the
petroleum industry. As the principal agency, it established the Nigerian
National Oil Corporation (NNOC) in 1971, and Nigeria became a member of the
Organization of Petroleum Exporting Countries (OPEC). NNOC quickly acquired a
35 percent interest in French and Italian government-owned firms. In 1973,
after lengthy negotiation, it secured a similar holding in Shell-BP and
shortly thereafter in the producing agencies of United States-owned Gulf and
Mobil oil companies. The arrangement also included a 35 percent holding in
BP's separate Nigerian marketing organization. Under the agreements with
producers, each shareholder was entitled to an amount of the production
proportionate to his equity holding. At the same time, the producers were
required to pay taxes and royalties on their share of the production. In
1977 the NNOC was replaced by the NNPC, which had much wider powers and
authorization to undertake on its own or in partnership any commercial
activity in the petroleum field. In mid-1979 the NNPC increased its holdings
to 60 percent in all foreign oil operations, thereby reducing further the
amount of production retained by the companies. Until 1976 the latter had
been able to buy back oil from the NNOC at a discount, but subsequently
purchases of available oil could be made only at the prevailing state sales
price.

     The NNPC's holdings were enlarged further in August 1979, but under
different circumstances, when BP's 20 percent share in the Shell-BP producing
operation and its 40 percent equity in the joint NNPC-BP marketing
organization were nationalized. The reason given by the Nigerian government
was the alleged supplying of crude oil, by subterfuge, to South Africa in
total contravention of Nigeria's stand against all dealings by international
firms with that country (see Southern Africa, ch. 4). Britain owned 51 percent
of BP, and the move was widely interpreted at the time as an attempt by
Nigeria to influence British policy on Southern Rhodesia (later Zimbabwe)
(see Britain, ch. 4). The government stated that compensation would be