Monrovia – The plunge in oil prices on the world market has dealt a devastating blow to Liberia’s oil industry dashing hopes that oil may have been the savior for Liberia’s struggling economy.
But at the same time those low prices have been an expected boost to ordinary Liberians thanks to the sharply lower price of fuel. Oil prices fell from US$120 per barrel in 2014/2015 to as low as $30, though they have risen a little of late to $50. Goldman Sachs, the U.S. investment bank—whose advice is closely followed by huge funds, has predicted that prices will not go any higher and could drop as low as US$20. Also, analysts predict oil prices could remain low for a longer time due to several factors, including huge new supplies by Iran which has recently seen sanctions lifted after an historic deal with the US, and the ongoing turmoil in Syria and Iraq.
For ordinary Liberians, things are okay and should remain like that for the longest once that means lower cost of gasoline, diesel fuel and transportation fare. “I don’t know much about this whole oil crisis thing but I think I am enjoying it,” says Timothy Johnson of the Old Road community of Smythe Road. “We don’t have electricity here from the [Liberia Electricity Corporation] so I depend on my own generator.” “If all is left with me, oil prices should drop as low as US$10 per barrel so that we can buy a gallon of gas here for US$1.50 or less,” says Jonathan King, a resident of New Kru Town’s St. Paul’s Bridge. “At least, we it will lessen the burden of the huge cost of living.” Only two percent of Liberia is supplied electricity from the LEC at 54 cents per kilowatt hour, the most expensive cost of electricity in the world.
The Liberian government is making efforts to increase the LEC grid to connect more households, and the West African Power Pool is providing electricity to parts of the country in northern Liberia toward the southeast; while the rehabilitation of the Mt. Coffee hydropower plant remains paramount to the government.
Subsequently, many Liberians depend on generators for power or as backup to the power being supplied by the LEC that is characterized by continual power-cuts. “I will like to see the hydro up and running but I cannot wait for that to happen before I get light,” says Moses Kollie, who runs a shop on Monrovia’s Gurley Street. “Sometimes I use generator for the whole day, and I am happy that gasoline is not expensive like before,” adds Kollie adds. Liberia has in its own way borne the brunt of low oil prices. A one-time promising sector has taken a nosedive. NOCAL is unable to contribute a dime to the Liberian national budget unlike in previous years. At its high point it brought in US$82.07 million in fiscal year 2012/2013.
Super-majors such as Chevron and Anadarko are relinquishing their oil acreage off the Liberian coast. To sum things up, NOCAL is so broke that it cannot afford to pay full severance pay to some 25 ex-employees redundant since September 2015. But the lower price of oil could boost the economy simply by delivering a windfall direct to Liberians’ pockets. According to Goldman Sachs, United States households have approximately US$150 billion extra to spend this year due to the fall in oil prices.
For oil dependent countries like Russia and Saudia Arabia the problem is dire. Russia loses about US$2 billion in revenues for every dollar fall in the oil price, and the World Bank has warned that Russia’s economy would shrink by at least 0.7% in 2015 if oil prices do not recover. Venezuela is on the verge of collapse as medical services, fuel and food and becoming scarce, driving social unrest. Some like Jefferson Knight of the Liberia Annual Conference of the United Methodist Church think that the oil crisis exposes Liberia’s economic weakness, and that people hoping for a longer period of low oil prices is a socioeconomic reality, not selfishness.
Liberia first began signing concessions in its extractive sector in the 1920s, and by the 1950s and 60s Liberia reached its concession pinnacle but has always failed to turn its economic growth into citizens’ development—Liberia’s growth-development paradox. “Corruption and mismanagement have been keen in terms of strangulating our economy, making our people to remain at that poverty level continuously, where a few people, who are placed in positions of trust, are benefiting from it,” Knight says. “For me, I am not supporting that oil prices should remain down forever.
I want for oil prices to go up so that it can boost revenue intake. But again, we need to put into place measures such as monitoring these revenues, especially from the oil sector. If our oil should be a blessing and not a curse like in places like Nigeria and other places, we need to put into place these measures that will help.” Professor Wilson Tarpeh, a former Minister of Finance, agrees with Knight but says NOCAL’s insolvency has nothing to do with the impacts of global oil prices. “When the prices or price of oil drops, the exploration companies will hold back future investments, but those payments that they made to NOCAL are not necessarily affected by that because NOCAL does not produce oil.
So it is wrong for anybody to say that it is because oil prices are falling. We are not producing oil,” Tarpeh says. “What happened at NOCAL was a state enterprise that got too big for what it was supposed to do. It got too big and it got too ambitious. Their expenditure profile grew beyond its reachability. They set up a grandiose system which was probably not necessary. It was not anticipatory of the future, and what bothers some of us is that NOCAL got some of the best minds. They should have been able to project what would happen, conduct its financial management properly,” he adds.
For now, life goes on and people continue to enjoy lower costs at the pumps. People are now buying more gallons of diesel fuel and gasoline at the price of L$270 than L$350 in 2014. “It is good for [SP/LP], we are selling more,” says Ansu Kanneh, Operations Manager of SP/LP that runs 17 filling stations in and around Monrovia. “So long as prices go up, you are not going to buy much. You are not going to look at US$5 to pay a gallon [of diesel fuel or gasoline] because you have generator, car and other things to run. You will only buy maybe .5 gallon,” explains Kanneh. “Now that the price is down you can be brave to use US$5 for two gallons. You can even be [encouraged] to spend US$20 because price is down. When the price depreciates the more people are [encouraged] to buy.”
That is the case even with street peddlers called “can boys” who sell in jars and afford the option of half gallon and a quarter of a gallon, mainly for motorcycles. While they concede that a lot of people are not deeming it necessary purchase gasoline from them at the current low prices at filling stations, they say they have been able to attract more motorcyclists. “I used to sell not more than 10 gallons of gas every day but now I sell up to 15 gallons,” says Trokon Williams, a can boy on the Old Road. “Now my main focus is the small mayonnaise jar (quarter gallon) we sell L$70, I sell a lot of that to the motorbike boys.” Primarily, low oil prices do provide huge benefits to consumers; however, low oil prices tend to undermine the very reason they exist in the view of Urias Taylor, a petroleum engineer, one of the employees laid off by NOCAL in September 2015.
Taylor points out that low oil prices do not only mean lack of investment in Liberia’s emerging oil sector. They mean job-cuts for oil and gas experts and auxiliaries who work directly with oil companies, a dilemma he says that is to ponder. “We know that it also benefits people for commercial purposes—for instance people who use generators—but that is just a minute portion.”
This story was produced in collaboration with the Thomson Reuters Foundation/New Narratives Liberia Oil Reporting Project, which is part of the Foundation’s pan-African program Wealth of Nations (wealth-of-nations.org) See more at www.newnarratives.org