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Governance Nigeria Oil Gas Industry

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Governance and the Nigerian Oil and Gas Industry

The idea of the Petroleum Industry Bill popularly called the PIB  began in 2007 following the recommendations of a Presidential Committee set up to carry out oil and gas sector reforms in Nigeria. The reforms were expected to form the nucleus of Nigeria’s aspiration to become one of the most industrialized nations in the world by the year 2020. For the country to realize this tall dream, it was envisaged that the major source of revenue to the Federation account, (the oil and gas sector) must be re-positioned for greater efficiency, openness, and competition built on corporate governance as obtained in other resource-rich nations.  (NEITI and the PIB)

The PIB is highly viewed to be the key to achieving a transparent regulatory framework and competitive fiscal rules of general application is being pushed vigorously by the ministry.

It is a little disconcerting that all players are placing so much emphasis on the PIB, however much can be done to increase transparency and discipline within the industry.

In 2002, Tony Blair launched the Extractive Industries Transparency Initiative (EITI) at the Johannesburg summit on sustainable development. It involves governments, companies, investors and civil society organisations.

The approach relies on the governments of ‘host’ countries (where the extraction is taking place) to take the lead and to publish all revenues they receive from companies. Where these host governments are willing to act, the EITI can bring important progress. It will not work for countries where the government does not engage, even though it is likely that it is in these countries that reform is most needed. Much benefit can be derived from a transparent Oil and Gas industry with effective Governance.

  1. Extractive industries (oil, gas and mining) have generated enormous revenues for a number of countries.
  2. Revenue payments, when effectively spent, have the potential to bring about dramatic improvements in citizens’ lives. When spent on public investments in health and education services, they can help lift poor children out of poverty.
  3. Paradoxically, huge revenues from extractive industries have frequently fuelled corruption, exacerbated conflict and weakened economic development, resulting in damaging impacts on children’s lives.
  4. Effective use of revenues is strongly linked to accountability, which in turn requires transparency of information. Where a country is receiving payments for the rights to oil, gas and minerals, its citizens need to know about the types and volumes of these payments.
  5. This information can help them to exert pressure on their governments for better spending on key basic services such as health and education, for example, through Poverty Reduction Strategy processes.

Commercial oil companies need to focus on the mid- to long term and deliver adequate shareholder returns, reduce marginal costs, sustain scale and pursue as much growth as they can;

National oil companies must continue to manage long-term resource needs, maximize short-term income, make the right commercial and partnership choices-and persist with building infrastructure capacity in the near future;

The oilfield service sector must work to absorb the new capacity expansion coming on stream, deal with falling client budgets and cope with the increasingly short-term focus of shareholders.

Nigeria Oil and Gas Corruption in the News.

It appears that a significant lack of Governance and transparency exist throughout the industry in Nigeria. Nigeria has been in the international press over the years with regards to various Governance and corruption issues.

Jonathan silent on role in N155bn oil scandal, Punch Newspaper May 2012 – The Federal Government has refused to explain the role played by President Goodluck Jonathan and other government officials in a scandal allegedly involving government officials, Shell, ENI subsidiaries in Nigeria, a Nigerian oil firm and a former petroleum minister. However, on Thursday, the civil society and opposition parties criticized government’s silence, while also calling for a probe. A report by the United States-based anti-corruption NGO, Global Witness, had said that Nigerian subsidiaries of both Shell and ENI agreed to pay $1.092bn to the Federal Government for oil block OPL 245.

Oil and gas has highest bribery rate By Guy Chazan July 2012 FT – With most oil and gas produced in third-world countries, the industry is far more exposed to the risk of corruption than other kinds of business. To cite one example, Nigeria, Africa’s biggest oil producer, and a place where western oil majors such as Shell, Total and ENI have been operating for decades, comes 143 out of 182 in Transparency International’s 2011 corruption perception index.

Nasir El-Rufai The Punch Newspaper Feb 2014 – The House of Representatives Ad hoc Committee on fuel subsidy found that the NNPC paid itself N847.94 billion even after it had been paid N844.94 billion by the Petroleum Products Pricing and Regulatory Agency in 2011, suggesting that the company had been making double withdrawals for years from the treasury. The NNPC “was found not to be accountable to anybody,” the committee said. Curiously, the government has not deemed it fit to make the NNPC halt its practice of selling 100 per cent of Nigeria’s crude through middlemen. It was found that it sells to these third parties at $9-10 less per barrel than the prevailing price, representing millions of dollars in losses to Nigerians each year. How about the scandals surrounding its concessionary allocation of 445,000 barrels per day and the crude oil swap?

Nasir El-Rufai The Punch Newspaper Feb 2014 – A report by the Human Rights Watch, a New York-based pressure group, says “oil revenues have been misused, undermining democracy, facilitating corruption and depriving the public of important services.” The ongoing investigation of missing oil money only reinforces this terrible image. And the figures are eye-popping: they range between $10 billion and $20 billion within 19 months. It has never been this horrific.

Confronted once again with the financial atrocities at the NNPC and its subsidiaries, Nigerian officials have, regrettably, resorted to the usual nefarious and diversionary tactics of keeping the public in the dark about the depth of looting in our oil and gas industry. But the Financial Times recently said the “conclusions drawn in independent research using official data are that, whichever way you look at them (the different figures), the numbers are indeed not adding up.”

Saharareporters.com March 21014 – Unsettled by questions swirling around the world about Nigeria’s missing crude oil earnings as well as the overall management of the Nigerian economy, Finance Minister Ngozi Okonjo-Iweala has launched a major public relations campaign to save her reputation from ruin. Several sources disclosed that the minister wants to insure her political survival while sending signals to the international financial community that she is angry with those behind the scandal in the oil sector, specifically Petroleum Minister Diezani Alison-Madueke.

In the last three months, Nigeria has been the focus of international attention. Reporters, financial analysts and investors have raised concerns about the unresolved controversy over the billions of dollars of crude oil sales that the Nigerian National Petroleum Corporation (NNPC) reportedly did not remit with the Central Bank of Nigeria.

The above news items are certainly not exhaustive. It would be impossible to provide all the items appearing in the newspapers in this publication; however what is obvious is that lack of Governance, lack of transparency and incessant corruption appear to be the order of the day. Such issues stem across public and private sector as well as local and international companies operating in the country.

The 2013 Resource Governance Index (RGI) of the Revenue Watch Institute (RWI), which measures the quality of governance in the oil, gas and mining sector of 58 countries across the globe, has placed Nigeria 40th in the overall global ranking.). The 58 countries that were accessed produced ca. 85 per cent of the world’s petroleum, 90 per cent of diamonds and 80 per cent of copper. The extractive sector contributed a third of gross domestic product and half of total exports on average. Nigeria with oil revenues that totaled about $50.3 billion in 2011, ranked 40 out of 58 countries with relatively strong performance on its institutional and legal setting component contrasting with poor enabling environment (http://marineandpetroleum.com/content/nigeria-ranks-40th-quality-governance-oil-and-gas#sthash.luSXyncJ.dpuf

In conclusion the main issues can be summarized as follows:

  1. Substantial public access to information but incomplete revenue disclosure policies – Nigeria’s minister of petroleum resources grants licenses for oil exploration, while the Department of Petroleum Resources (DPR), under the minister, oversees the licensing process and regulates the sector, yet some revenues in royalties, rents, license fees and bonus payments still bypass the treasury and are not reported to the legislature.
  2. Lack of contract transparency and incomplete reporting on most aspects of the petroleum industry.
  3. Government is yet to embrace openness and accountability in its operations
  4. Incomplete government monitoring, with substantial conflict-of-interest disclosure requirements, based on the practice where the Minister of Petroleum Resources still exercises wide discretionary powers in the award of oil licenses, with limited oversight of the process by the National Assembly.

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