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RESTORING TRANSPARENCY AND ACCOUNTABILITY IN THE NIGERIAN OIL AND GAS INDUSTRY

RESTORING TRANSPARENCY AND ACCOUNTABILITY IN THE NIGERIAN OIL AND GAS INDUSTRY
By
Femi Aborisade[1]
Labour Consultant and Attorney-at-Law
09093536706 Or 08091371874
Introduction
My central argument in this paper is that political corruption is at the root of corruption in the oil and gas sector of the Nigerian economy. It is not simply a question of administrative and/or organisational weaknesses. Whatever administrative and/or organisational weaknesses that facilitate corruption in the sector are consciously so programmed or designed. In other words, there is a relationship between political corruption and corruption in the oil and gas sector. Solving corruption at the political sphere level is a pre-condition for bringing transparency in the oil and gas sector.

However, an attempt to deal with corruption in the oil and gas sector must also adequately recognise that it is a fight against a network of politically and economically powerful and influential individuals, institutions, governments, government agencies cutting across the executive, legislative and judicial arms, cabals, political party leaders, media merchants, nationally and internationally.


Structure of the paper
  1. The Role of oil and gas industry in the Nigerian economy
  2. Corruption and scandal in the oil and gas sector
    1. Broad typology of corruption in the sector
    2. Five strongest corruption points in the oil and gas sector.
    3. A Few instances of scandals in the oil and gas sector, including Halliburton scandal.
    4. Lessons from NEITI’s empirical findings on elements of corruption in the oil and gas industry, 1999 to 2008.
  3. The main cause of corruption in the Nigerian oil and gas industry
  4. How to restore transparency and accountability



1.      THE ROLE OF OIL AND GAS INDUSTRY IN THE NIGERIAN ECONOMY
The Nigerian economy is dominated by the oil industry. This is why, in the literature, petroleum sector of the Nigerian economy is variously described as the “cash cow” of the economy or the “pot of gold”.  Oil has been the main source of government revenues since the 1970s. Until recently, oil accounted for close to 90% of exports and roughly 75% of the country’s consolidated budgetary revenues. 
Nigeria is rated as the world’s seventh largest exporter of crude oil, the world’s 10th biggest holder of process gas reserve, the largest oil producer and exporter in Africa, with the largest natural gas reserves in the continent. Although the significance of oil is declining drastically with about fifty percent collapse in the global price of crude oil since June 2014, the fact that about half of the Federal Government’s revenue is still coming from the oil sector shows the centrality of the subsector to the entire economy.

Poverty In The Midst Of Plenty
Nigeria is a paradox – a rich country with majority of the citizenry living in poverty. According to Prof. Watts (2009), relying on the IMF, over $700bn had been realized as oil revenue between 1960 and about 2009. About eighty five per cent (85%) of this sum accrues to only 1% of the population. The remaining 99% of Nigerians struggle over 15% of the collective wealth.
The National Bureau of Statistics (2012) established that between 1979 and 2011, the country earned about N51.5 trillion from crude oil and that between 2000 and 2011, N48.4 trillion was earned. The earnings grew from N724.4 billion in 1999 to N4.4 trillion in 2007 and peaked to N8.8 trillion in 2011.
The critical question to pose is where has all the oil money gone? What is the impact of oil wealth on the overall wellbeing of the people? In spite of the massive collapse in the price of oil, the problem of Nigeria up till today, is not a lack of money but how to ensure that the commonwealth is devoted to serving the common good rather than being captured for the greed of  a few. If the average wellbeing of Nigerians was better when the price of oil collapsed to about $9/barrel in the late 1990s, definitely, at about $50 per barrel currently, it would be wrong to accept that “Nigeria is broke” to the extent that labour rights and the welfare of ordinary people would continue to be criminally neglected and attacked.
In spite of its oil wealth, Nigeria is now reckoned to be one of the 25 poorest countries in the world. Officially, more than 70% of the estimated 170 million people wallow in chronic poverty while only about 1% swim in scandalous astonishing opulence.  
It is a paradox that there is a sea of poverty in the Nigerian sea of stunning wealth. Unemployment is unprecedented. Insecurity is unprecedented. Boko Haram atrocities in the North, armed robbery and kidnapping for ransom in the South. Yet, Nigerian politicians are not concerned. All we are inundated with on a daily basis is how deregulate minimum wage on state basis, why state enterprises, including refineries should be privatised,  deregulated, liberalised, commercialised, concessioned, and so on. All we witness from time to time are disputes about positions, power, influence and money, political defections, rallies sponsored with public money, and so on, without a thought on a programme of social security schemes to address widespread poverty.
Indeed, the relationship between the ruling class and the rest of the society can best be described as a predatory relationship, a relationship in which one organism (the predator) captures and feeds upon the other organism (the prey). Members of the ruling political classes in Nigeria, without exception, capture the resources that belong to all; they live in opulence while the masses live in abject poverty. The ruling political parties in Nigeria have brought this country to its knees. They have captured, monopolised, stolen, looted or diverted resources that should have been used for the welfare and socio-economic development of the larger society, to their private benefits.  Thus, in spite of huge resources, the ruling parties can only give us squalor, homelessness, darkness, diseases, hunger, misery, frustration and hopelessness.
If the heavy dependence of the Nigerian economy on oil money is adequately appreciated, then, it would be clear that corruption in Nigeria is rooted in corruption in the oil subsector of the economy. Tackling corruption in Nigeria therefore is about restoring transparency and tackling corruption in the oil and gas sector of the Nigerian economy.
2.      CORRUPTION AND SCANDAL IN THE OIL AND GAS SUBSECTOR
Broad typology of corruption in the oil and gas sector
Obioma (2012), cited by Donwa, Mgbame and Ogbeide (2015)[2] suggests that corruption in the Nigerian petroleum sector may be categorized into four levels, as follows:

a)      Policy Corruption: This involves deliberately designing the working framework of institutions in a way to ensure they produce predetermined outcomes, not in public interests but to serve private and/or group interests. The controversies and delays surrounding the Petroleum Industry Bill (PIB) also fall into this category.

b)      Administrative Corruption: This refers to corrupt acts perpetrated in the course of day-to-day running of sections and departments, resulting in individuals extracting illegal personal and/or group benefits, either by not performing official duties or by manipulating the performance of official acts to favour select individuals in commercial and operational activities.

c)      Commercial Corruption: This includes areas such as abuse in the procurement processes – rigging of tenders, taking of kickbacks, inflating costs, and so on.

d)     Grand Corruption: this refers to forms of corruption, which enjoy the direct influence of political actors, which often involve direct theft of massive amounts of money through diversion of production, diversion of revenue flows to non-existing Joint Venture accounts, fraudulent cash cash call arrears, non-remittance into Federation account, diversion of petroleum products, and so on.

The five strongest corruption risk areas in the oil and gas industry
Gillies (2009) cited by Donwa, Mgbame and Ogbeide (2015)[3] has also proposed that the following five key areas are more susceptible to corrupt practices in the Nigerian oil and gas industry:
  • Award of licenses: Gillies (cited above) explains that the Petroleum Act gives the Minister of Petroleum full authority or discretion in the award of oil blocks and allocation of licenses for the exploration, prospecting, and mining of oil. In most cases, the Ministers tend to be the errand boy of Mr. President or the Head of State, depending on the political regime – military of civilian. The licenses given for the oil blocks, in certain cases, may hardly be paid for in reality. In some cases, they may be awarded to a select few to secure patterns of behaviour supportive of the ruling regime. The beneficiaries of the oil blocks, in such contexts, may simply resort to sell them to foreign oil companies to earn enormous resources without making any investment, at the expense of the Nigerian poor people.
  • Award of contracts: Primarily the oil and gas sectors involve numerous awards of contracts to oil service companies. The process of such awards usually creates conflicts of interests, resulting in award of contracts to companies owned by insiders, cronies, politicians, in and out of the various arms of government.
  • Bureaucratic bottlenecks and inefficiencies: a typical contract award is required to scale through three stages, depending on the size or the sums involved. Larger contracts often require the approval of the Federal Executive Council. Gatekeepers exist at each of the stages, with the effects of undermining the efficiency and costs of operations in the subsector.
  • Bunkering: Bunkering is defined as the theft of crude oil directly from pipelines, flow stations, and export facilities (Gillies, 2009). From the works of Gillies (2009) and Gentile (2007), the estimated quantity of crude oil theft through bunkering in Nigeria ranges from 100,000 bpd, 180,000 bpd, 200,000 bpd (equivalent to the entire Cameroun’s oil production), to 600,000 bpd. According to the International Energy Agency, the figure of the crude oil theft in Nigeria, at a point, was estimated at US $7 billion annually (Oketola, 2013).  Bunkering is perpetrated by a network of governments and oil companies. It has been suggested that the armed militia who are involved in bunkering tend to enjoy the sponsorship and support of top government officials, particularly at the levels of the executive and law enforcement agencies. The specific act of bunkering through under-recording of crude oil into export vessels can hardly take place without the complicity of government and oil companies’ officials. It has also been suggested that communities tend to support the activities of those involved in crude oil theft because they tend to derive some benefit from such activities, as against the criminal neglect of their welfare by government.
  • Export of crude and importing refined products: the processes of exporting crude oil and importing refined products are laden with corrupt practices. As Donwa, Mgbame and Ogbeide (2015) explain, the exporting process involves the NNPC issuing “lifting” or export contracts to international oil trading companies, some NNPC-affiliated companies, and a few foreign governments. These traders buy the crude from NNPC at market price and sell to refineries and other buyers internationally. Similarly, the importing process of petroleum products involves the NNPC also awarding licenses to private companies to import refined petroleum products – e. g. petrol, kerosene, and diesel. Even though the Federal Government claims to subsidise the cost of the imported products, it has been established that the process is overwhelmingly corrupt such that what government actually subsidises is corruption – eg., payment for products that were never imported, multiple payments for the same set of imports, false demurrage claims, and so on.

A Few Instances Of Scandals In The Oil And Gas Sector
  • Unremitted $20bn:
The then CBN Governor, Mallam Sanusi Lamido Sanusi, established with documentary evidence, the fact that the NNPC did not remit into the Federation account the sum of $20bn between January 2012 and July 2013, alone:
In summary, it is established that of the $67 billion crude shipped by NNPC between January 2012 and July 2013, $47 billion was remitted to the Federation Account. It is now up to NNPC, given all the issues raised, to produce the proof that the $20billion unremitted either did not belong to the Federation or was legally and constitutionally spent. There is no dispute that $20 billion out of $67 billion has not been paid into any account with the CBN”.
  • The Farouk Lawan (House of Reps) Panel implicated the NNPC in the fuel subsidy scam of $6.5bn.
  • The N10b allegedly spent by the former Minister of Petroleum, Mrs Diezani Alison-Madueke on hiring private jets during her travels.
  • THE HALLIBURTON SCANDAL
In the Halliburton scandal, a US oil service company pleaded guilty to paying over US$180million in bribes to many top Nigerian public officers to secure four contracts, worth over US$6billion. The beneficiaries and the amount involved are as stated below:

THE HALLIBURTON SCANDAL[4]
S/N
Periods
Beneficiaries ( company / Individual)
Amount involved
1.
1994 – 1995
General Sanni Abacha (former Nigeria Military Dictator)
$40 Million
2.
1996 – 1998
Dan Etete (former Minister of Petroleum under Abacha)
$2.5 Million
3.
1996 – 1998
M. D. Yusuf (Former Inspector General of Police and Chairman of
LNG)
$75,000
4.
1998
General Sanni Abacha’s brother, Abdulkadir Abacha
$1.887milion
5.
1999 – 2000
Atiku Abubakar (former Vice President, 1999 – 2007) and Don
Etiebet, ex Petroleum Minister)



$37.5 Million

6.
2001 – 2002
Olusegun Obasanjo and Atiku Abubakar, and Funsho
Kupolokun (Former President, Vice President and GMD, NNPC
respectively)

$74 Million

7.
2001 – 2002
Bodunde Adeyanju, ex personal assistant to Obasanjo.
$5 Million

8.
2001 – 2002
Ibrahim Aliyu, a retired federal permanent secretary (Urban Shelter
and Intercellular)

$11.7 Million

9.
2001 – 2002
Mohammed Gidado Bakare, a retired Chief Planning Officer
$3, 108, 675
10.
March, 1999
Nasir Ado Bayero, Son of the Emir of Kano (Gosmer International,
Risers Brothers)

$600,000

11.
1999 - 2000
Shinkafi and Glosmer International

$195,000
12.
March, 1999
Edith Edeghoughou

$290,000
13.
March, 1999
Zertasha Malik and Grety overseas

$600,000
14.
March/June,1998
Grety Overseas and Riser Brothers

$1.12Million
15.
2001 and 2002
Principal officials of the Nigerian Federal Inland Revenue Service

$2.4 million


TOTAL AMOUNT INVOLVE IN THE BRIBERY SCANDAL.
$181,650,675
Source: Usman, S. O. (2011). The opacity and conduit of corruption in the Nigeria oil sector: Beyond the rhetoric of the anti-corruption crusade. Journal of Sustainable Development in Africa. 13(2), 294-308.
LESSONS FROM NEITI’S EMPIRICAL FINDINGS ON ELEMENTS OF CORRUPTION IN THE OIL AND GAS INDUSTRY
In NEITI’s 10 years of empirical findings covering the period 1999 to 2008, the key challenges of corruption have been summarized as follows:
  1. Discrepancies between Company-Reported Payments And Government-Reported Receipts Of Payments. According to NEITI, these discrepancies over the 10 years came to US$2.6 billion.
    1. Unrecorded government liftings (exports)
    2. False capital allowance claims on non-associated gas
    3. Loss in PPT on overclaims of investment tax allowances
    4. Claims on intangible drilling and development costs in excess of financial statements
    5. Claims on operating expenses in excess of companies’ financial statements
    6. Contested interpretation of PPT fiscal value
    7. Contested interpretation of royalty legislation
    8. Dividends, interests and loan repayments made by NLNG but not recorded by NNPC
    9. Lost imports
    10. Claims on non-associated gas

NB: It is important to note, however, that the discrepancies, according to NEITI, were limited to only the potential losses that the auditors could readily quantify and estimate.
The Reports highlighted a large number of additional problems and challenges in the oil sector, many of which were likely to have caused losses in revenue for the government but were impossible to estimate.
  1. Domestic Crude Value Reconciliation and indebtedness by the NNPC: NEITI explains that ordinarily, subsidy payments “should normally be made from the CBN through the Petroleum Support Fund on the approval of the Accountant General of the Federation (AGF) based on claims approved by the Petroleum Products Pricing Regulatory Agency (PPPRA). However, the reconcilers observed that NNPC deducts the subsidy claims directly from the domestic crude proceeds before remitting to the Federation Account.” This practice appears to have been partially continued as recent publications on the website of the NNPC show that total receipts for crude oil and gas exports between January and September 2015 were $3.69bn.  Out of the receipts, $610m was remitted to the Federation account while $3.09bn was used to fund Joint Venture cash calls during the same period.

3.      The actual amount of oil produced in Nigeria is not known. NEITI explains that “oil is measured at terminals but not at well heads of flow stations”. For this reason, oil theft takes place between these points, resulting in lost revenue for the government.
4.      Unclear tax legislation which has led to beneficial interpretations of tax liabilities by oil companies “resulting in reduced revenue for government both from PPT and Royalty payments”. NEITI also points out that “the tax regime of the sector is one characterised by ‘unregulated self-assessment’, which encourages tax evasion and tax under assessment. NEITI further found for example that “Tax assessments submitted by two companies do not match their own internal audited financial statements”.
5.      Application of legal incentives: NEITI found that “there are interpretation differences between NNPC and PSC contractors regarding how the PSC agreements and legal incentives should be applied…”.
6.      Overstatement of costs in tax assessments: According to NEITI, this implied that companies might be abusing capital allowances in an attempt to reduce their tax liabilities.
7.      Information Technology: NEITI found that “I.T. systems in government are not sophisticated enough to deal with financial information flows from the sector.
8.      Conflict of interests: NEITI found that the NNPC was both the buyer and seller of oil, thus creating a conflict of interests and resulting in lost revenue for the Government.


3.      THE MAIN CAUSE OF CORRUPTION IN THE NIGERIAN OIL AND GAS INDUSTRY
The argument by SPDC clearly shows that the main cause of corruption in the oil and gas industry, which includes oil theft, is governmental and political involvement.

According to Sunmonu (2013: 30)[5] the SPDC has argued that:

“The truth is that small criminals in the creeks of the Niger Delta bursting pipelines and stealing crude oil are not working for themselves. Like the drug cartels around the world, they are being sponsored by big principalities and powers in high places, which the government should go against if the fight against crude oil theft is to be won”.

Indeed, one of the former leaders of NUPENG, Comrade Akpatason (2013:21) has provided an excellent insight in explaining that oil theft cannot take place at the rate experienced in Nigeria without the connivance and conspiracy of government institutions and their officials. Akpatason[6] had explained, with the benefit of his experience, that:

“Crude oil theft is not possible without the connivance of the security agencies, because petroleum tanker or vessels (are) not small objects, (they) are large enough for anybody to see from anywhere. Barges and ships are not small, and they are the instruments they use in carting crude oil away. The security agencies were given uniforms and arms to protect Nigerian interest, but they are using it to protect criminal syndicates against the Nigerian people”.

4.      HOW TO RESTORE TRANSPARENCY AND ACCOUNTABILITY

i.                          Establish and/or verify the quantity of barrels of crude being produced. Metering infrastructure to determine the quantity of crude oil being produced on a daily basis ought to be installed.
ii.                        Prosecute all those who had been arrested in connection with incidences of oil theft.

iii.                      Establish or disclose the true actual cost of producing one barrel of crude oil so that the true actual profit margin per barrel can be determined. Without establishing these figures, those who are in control of the sector would continue to short-change the rest of the society. It has been established that in the course of 2006, the average price of a barrel of crude oil on international markets was in the range of $65-$75, while costs per barrel ranged from $4-$5 (in the Middle East), $12 (in the Gulf of Mexico), to $15 in the North Sea (Obioma, 2012). This meant that the profit margins ranged between $50 to over $70 per barrel.

iv.                      Regular publication of revenue flows (the sources, the rates, the amount, etc) on a daily and/or weekly basis so as to make it difficult for manipulation of figures, provided that the remuneration of the political chief executives is brought within limits, reflective of the economic realities of Nigeria and the living standards of workers in the industry.

v.                        Democratic management of the industry, including representatives of trade unions in the sector, the central labour organisations, communities’ representatives, professional bodies, in the governing and management structures in the sector. It does not appear to me that autocratic type of Management based on the whims and caprices of politically appointed GMDs and Ministers can inspire sustained smooth running of the sector. For example, while appearing at the Ministerial screening exercise, Dr Emmanuel Ibe kachikwu spoke like an autocratic Manger, saying, among others, that he had given the Management of the refineries a 90-day deadline for the plants to commence full operation and that the non-performing ones would be shut down. According to him, at the end of the 90-day ultimatum in December 2015, “we will look at management issues and tidy them up and procurement issues and tidy them up as well. But those that are not (performing) we will have to shut down and do complete maintenance.” He also declared, at the Ministerial screening, “I’m glad that over the last few weeks, Port Harcourt, for example, has come out of the albatross and is producing right now at about 67 per cent capacity. Our target is to grow Port Harcourt to about 70 t0 75 per cent capacity by the end of the year. Warri is beginning to signal that there is a likelihood that it will come on stream. If any refinery produces below 60 per cent, then it is not production because the performance capacities of refineries worldwide are in the 90 per cent and above categories, and that is when you begin to make yields. That is when it can be said to be a profitable refinery.” (see http://www.nairaland.com/2708689/nnpc-loses-120bn-two-month accessed on 9/11/15). But a few days ago, the same Kachikwu lamented that the country “needs $500m to fix the nation’s crude oil refineries, which have all shut down” (See Sunday Punch, 8 November 2015:8). According to media reports, he further stated that he “… has not dropped the idea of conducting forensic audit on its account books”. One would have expected that the first step a new GMD would embark upon is to conduct an audit in order to understand the real issues as the man behind the wheel.
vi.                      Elected Democratic bodies, including trade union and labour movement representatives, to be set up for the award of licences for exploration, prospecting, and mining of oil, rather than leaving such to the discretion of the Minister or Mr. President’s directives.  
vii.                   Execution of projects, primarily, through direct labour in the NNPC and/or collaboration with governments, nationally and internationally, through Public-Public-Partnerships as opposed to contractocracy and Private-Private-Partnerships.
viii.            Establishing of clear and open criteria for the award of contracts to service companies where such cannot be carried out in-house through direct labour on account of lack of skills or appropriate technology required.
ix.                      Establish mandatory timelines for the award and completion of contracts. Indeed, a policy may be established, in appropriate situations, such that failure of public officials to perform their duties within the stipulated timeline means consent, provided that any public official that makes government to incur losses through deliberate inept attitudes would be made to personally suffer the consequences, in terms of being responsible to assume such losses on behalf of government and being made to go through prosecution processes.
x.                        Massive investment in training and retraining so that workers and staff in the industry acquire the necessary skill to operate and monitor various categories of activities in the industry.
xi.                     Establish more refineries and carry out repairs of the existing ones. Ensure the refineries acquire the capacity to refine the crude for both domestic consumption and export. Those who have diverted the investments meant to carry out Turn Around Maintenance (TAM) over the decades should be brought to justice. Where this is done, there would be no need for subsidy on domestic consumption of petroleum products. Rather, the sector would generate surplus for investment in public enterprises for public good. Resist the privatisation of the refineries. Rather, government should take the fight against corruption to the oil and gas subsector.
xii.                   The fight against corruption should not be discriminatory. All those involved in the ruin of the oil and gas sector, including the refineries, should be brought to justice. What they have looted in money and physical assets should be traced, wherever they may be, internationally, seized, forfeited and recovered and they should be allowed to cool their legs in prison for the rest of their lives.
xiii.            Urgent review of tax legislation to clear ambiguities and provide against self-tax assessment by oil companies.
xiv.            Carry out urgent review of incentives regime in order to remove any ambiguities in their application to any agreements.
xv.                    Penalise falsification of tax assessments or non-disclosure of relevant facts to enable proper tax assessment. 
xvi.            Acquire appropriate level of I.T. to effectively monitor financial information flows.
xvii.          Enforce constitutional and statutory remedies against the offence of conflict of interests, without discrimination.
xviii.        Government should give implementation of Chapter II of the Constitution the priority attention it deserves to discourage young people and community members who participate in oil theft or support those who carry out acts of bunkering, on account of being criminally neglected.
xix.            The Federal Government to demonstrate transparency by disclosing how much it recovers from looters, the names of the looters, the bargain behind the recovery, as recoveries occur, from time to time. It is not sufficient for government to publicly declare that certain recoveries have been recorded without publicly disclosing all the details.
xx.                    Take an inventory of all assets, bank account details, buildings, of all public officers, past and current, and disclose the assets of all those possessing 5% of the GDP and above. Those who cannot justify how they acquire such assets should be prosecuted and the assets seized. Those who may show by proof that the assets were legitimately acquired should be made, by law, to be liable to paying 100% property tax on such assets.

I thank you for your attention.

Femi Aborisade, Esq.
12/11/15.





[1] Being Paper delivered at the NUPENG 2015 Annual Education Seminar on the theme “Global Oil Politics, Investments and Employment Relations in the Nigeria Oil And Gas Industry” held on 11th - 13th September 2014 at Immaculate Royal (Int’l) Hotel, Port Harcourt Road, Opposite Imo State House of Assembly, Owerri, Imo State.
[4] See Usman, S. O. (2011). The opacity and conduit of corruption in the Nigeria oil sector: Beyond the rhetoric of the anti-corruption crusade. Journal of Sustainable Development in Africa. 13(2), 294-308.
[5] See M. Sunmonu (2013) “Powerful Nigerians Behind oil Theft – Shell” in The Punch, Thursday, February 21, 2013, Lagos, p. 30.
[6] See Akpatason peter (2013) “Blame Crude Theft on Security Agencies - Akpatason” in Vanguard, May 7, Lagos, p.21.

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