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ropo@email.com Edmonton, Alberta, Canada

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A PRACTICAL SOLUTION TO NIGERIAN FOREIGN DEBTS

igerian mounting external debts have always been and are still a major source of concern for the Nigerian government and people, both at home and in Diaspora. The present debt situation is really a drain on Nigerian scarce resources. When a country continues to use about 30% of her annual budget to service her foreign debts (approximately $US34 billion), then something has to be done urgently. I am not sure if many of us know the implications of this in the long run. Nigeria has probably paid more than she presently owes, to external creditors, through debt servicing.

Debts forgiveness or cancellation, as presently championed by president Obasanjo, is not a practical solution. No western country will cancel Nigeria debts. Even, Nigeria by some standards is not qualified for such a charity gesture. My suggested practical solution is that Nigeria should muster enough courage and pay back its debt once and for all with in a space of two years. How will the government get money to pay $US34 billion? This is the main focus of this write-up and I will discuss below the steps that the government has to follow to achieve this and why the government should take these steps now.

Nigeria cannot continue to appeal to international community to cancel her debts when she has assets that are several times larger than her external liabilities (debts). Also, Nigeria problem has been a lack of courage by her leaders to manage these assets to the maximum benefits of her populace in a transparent manner. Hence, I am using this medium to appeal to the Federal government of Nigeria to sell some of Nigeria equity in the JVCs (Joint Venture Contracts), that she operates along with some multinationals in Nigeria and use the proceeds to pay Nigeria foreign debts. In the following paragraphs I will state how this can be achieved.

Nigeria through NAPIMS (Petroleum Investment Management Services - an arm on NNPC) operates JVCs with majors (multinational oil companies) in Nigeria with an average equity ownership of approximately 60%. Excluding gas production and condensates production from ExxonMobil's Oso field, roughly half of the Nigerian oil productions come from her joint ventures with Shell Nigeria. This production is approximately 1 million barrel per day, which translates to about 365 million barrels per year. At current price (US$43 per barrel) of bonny light crude (Nigerian crude oil grade), this is about US$15.695 billion per year. About 60% of this directly accrues to the Nigerian government through the 60% equity participation, which translates to US$9.417 billion.

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The standard rate for valuing profitable oil projects worldwide using the discounted cash flow (DCF) method is 18% return on investments. Now if we assume that the Nigerian JVCs are making a return of 18%, it means that the current 60% of Nigerian equity in her JVCs with Shell Nigeria is valued at about US$57.317 billion. All of these figures are approximates and initial estimates and are based on current market figures but the actual value might not be far from these figures. Nigerian external debts of $US34 billion is approximately 65% of US$57.317. So, it means that by selling 65% of Nigerian 60% equity in the JVCs that she operates with Shell, Nigeria can generate enough cash to pay her external debt right now instead of continuing to use 30% of its annual budget to service debts.

This a staggering discovery on my part and I have pondered over this for quite some time before I finally muster enough courage to put this down on paper in a coherent manner. I am sure some economists might be wondering if my calculations are right but one the objectives of this write-up is to show that this option is practicable and should be investigated further by people in government. Also, more work should be done in terms of assets valuations and modalities on how the equity can be sold within a short period of time. In fact, I am of the opinion that the value of the 60% equity might actually be more than the rough estimate of US$57.317 billion given above.

This is the best time that the sale of such equity makes more sense because oil price will not continue to be as we have in the present. Listing the equity for sale on international exchanges like the New York Stock Exchange (NYSE), Toronto Stock Exchange (TSX), London Stock Exchange (FTSE International), Frankfurt Stock Exchange, Hong Kong Stock Exchange (HKEx) and the Stock Exchange of Singapore (SES) will be a very wise decision. This is because of the availability of sophisticated investors on these exchanges who will pay high premiums to snap such equity into their portfolios.

Nigerian sedimentary basins are prolific and this is a known fact worldwide among investors in the oil and gas sector. Imagine what will happen if Nigerian places advertisements in the international media that she wants to sell this equity. It will create a ripple effect and the equity will probably be over subscribed because Nigeria is a proven oil and gas region. The China National Offshore Oil Corporation (CNOOC) Limited did the same thing in 2001. The company's shares, which were offered through an IPO (initial public offering) and issued as American depository receipts (ADRs), were over subscribed and quickly snapped. CNOOC's shares were listed on the New York Stock Exchange (NYSE) and the Hong Kong Stock Exchange (HKEx). Nigeria can do the same thing with careful planning and make more money today than did CNOOC in 2001 on a dollar-to-dollar basis.

Selling 65% of Nigerian 60% equity in the JVCs that it operates with Shell Nigeria will affect future oil revenues only slightly. Nigeria will still generate revenues from her remaining equity in Shell JVCs and other JVCs that she operates with other majors as well from companies who operate the PSCs (production Sharing Contracts). The impact of lesser revenue will not be significant. In fact more advantages will be derive from this sale. It will bring more accountability on the part of Shell Nigeria because additional knowledgeable shareholders will now be on board to scrutinize and probably reduce wasteful spending of cash calls. Also, complete elimination Nigeria external debts will enable government to use Nigeria's hard-earners money on some other social and economic matters of urgent attention instead of wasting the money on debts servicing.