Introduction
The Nigerian economy is heavily dependent on the oil and gas sector. The sector accounts for about 65% of government revenue and 88% of the nations export earnings.[1] However, what the nation earns in oil revenue cannot meet its budgetary needs, hence, the need to service some of her expenditure through debt. A number of factors have been attributed to Nigeria’s inability to fund its expenditures, however, much focus has been placed on revenue generated from the oil and gas sector. This is necessary in light of the long-standing challenges of corruption, lack of transparency, political instability, poor business environment, and unaccountability which has bedevilled the management of revenue generated in this sector.
Secrecy of NNPC’s Operations
Much of the revenue loss has been attributed to poor practices, including lack of transparency and accountability in the State owned companies, Nigerian National Petroleum Company (“NNPC”) and its subsidiaries. The NNPC first published its 2018 Audited Financial Statement in 2020 after 43 years of its establishment[2] and the operation of its finances and contracts in secrecy. Several writers have called for the reform and restructuring of the NNPC, the deliberate entrenchment of corporate governance policies in the organisation’s practices, ensuring independent performance audits in areas of concern, including: the Domestic Crude Allocation,oil-for-product swap initiative, NPDC oil sales and related operations, NNPC’s oil trading subsidiaries, refinery crude oil transport arrangement, and the JV cash call account.[3] The recently passed Petroleum Industry Act (“PIA”, “Act”) incorporates under Chapter V of the Act, necessary policies which is anticipated to drive a commercially-oriented and profit-driven national oil company through restructuring. By its provisions, the NNPC will become a limited liability company. The Act also includes necessary functions of the NNPC limited relating to transaparency to include annual audit, and the application of the principles of corporate governance[4] in the running of the company[5].
The negative effects of the challenges rocking the Nigerian oil and gas sector has necessitated the clamour by international bodies and various stakeholders for the Nigerian government to develop policies and working structures which would ensure transparency and accountability in the sector and in turn boost the confidence of both investors and its citizens. Notably, several international bodies and stakeholders have provided a guide to oil-rich nations including Nigeria to ensure that these nations benefit adequately from their resources through transparency. The guide emphasizes the need to maintain international standards in its extractive sector, continuously improving on its policies, monitoring, evaluation, and enforcement.
Contributions of the Extractive Industries Transparency Initiative
Worthy of note is the Extractive Industries Transparency Initiative (“EITI”), which has made a remarkable impact in the Nigeria oil and gas sector since its conception in September 2002. It developed its Statement of Principles to guide its aim of increasing transparency in payments and revenues in the extractive sector[6]. In November 2003, Nigeria joined EITI as a candidate country and established the Nigeria Extractive Industries Transparency Initiative (NEITI), the Nigeria subset of EITI. The Nigerian government also gave legal backing to NEITI through the NEITI Act which was passed in 2007, and also established the National Stakeholders Working Group [7] responsible for the formulation of policies, programmes, and strategies for effective implementation of NEITI’s mandate. At the 5th EITI Global Conference in Paris in March 2011,[8] Nigeria was declared to have become compliant with EITI’s standards, following an expression of satisfaction by the International Board of EITI of her commitment to embracing openness and transparency in the management of oil, gas, and solid mineral revenues through her support to the work of NEITI and its audit processes.
The EITI Standard covers key issues across the extractive value chain. This includes how licenses and contracts are allocated and registered, who are the beneficial owners of licenses awarded, contents of fiscal and legal arrangements, production quantity, payments to host governments, revenue allocation, and its contribution to the economy, including employment demography. EITI has set a global standard requiring and encouraging companies to publish what they pay and the government to disclose what they receive. Thus, ensuring that the economic benefit of Nigeria’s resources is of benefit to its citizens.
Transparency under the Petroleum Industry Act 2021
Despite Nigeria’s commitment and attempt to uphold EITI’s Standards in its oil and gas sector over the years, Nigeria recorded a weak performance in the 2021 Resource Governance Index scoring 53 points[9]. The poor performance was largely premised on poor licensing processes and contract disclosures, non-disclosure of the interest of public officials in oil and gas companies, and limited disclosure of significant beneficial ownership information, including the nation’s poor business enabling environment. Notwithstanding its performance in the Resource Governance Index report, there is no doubt that Nigeria is committed to maintaining EITI’s standards and the PIA lends credence to this commitment. The Act establishes the Upstream Regulatory Commission (“Commission”) and charges the Commission with keeping a public register of the licences and leases granted by the Minister of Petroleum Resources, beneficial ownership, and award, renewals, assignments, amendments, suspension, and revocation[10].
In furtherance of Nigeria’s commitment to maintaining EITI’s standards and also implementing the Open Contracting Data Standard[11], the Act provides that an award of a petroleum licence or lease shall be conducted through an open, transparent, and competitive process in the presence of the NEITI, the Ministry of Finance, and the Ministry of Petroleum Resources. Section 83(1) of the Act also makes it compulsory for holders of a Petroleum Prospecting Licence (“PPL”) to submit yearly summaries of royalties, fees, taxes, profit oil shares, and other payments to the government within 6 months after each calendar year to the Commission and the Accountant General of the Federation. The information submitted by a licensee to the Commission shall be non-confidential and published on the website of the Commission. Subsection (3) further provides that texts of existing contracts, licence or lease, and any amendment or side letter with the NNPC, shall not be confidential and mandates the Commission to publish the contract on its website within one year after the effective date of the Act. It states that the contract shall be made available to the Commission by contractors of NNPC, and failure to comply with the provision of this section makes contractors liable to an administrative penalty of US $10,000 for every day the default subsists.
Petroleum contracts are vital documents that set out the legal basis for oil and gas projects. Publishing contracts allows the public and relevant stakeholders to scrutinize contracts entered into by the government entities and oil and gas companies and also creates a medium of accountability. Without access to the information contained in these contracts, the impact of these agreements on the nation’s finance and development may remain unknown.[12] It has been opined that transparency will be promoted where confidentiality requirements in all procedures, contracts and payments associated with the industry are redefined, because lack of transparency has allowed corruption to thrive under the guise of confidentiality requirements in the contracts.[13] We anticipate that the due implementation of the PIA alongside the strides of NEITI will further strengthen Nigeria’s commitment to transparency.
Notwithstanding the enactment of the Act, a lot of doubt has been expressed regarding the implementation of some transparency obligations imposed by the Act, particularly on the Commission’s ability to enforce these provisions. An obvious fact however is that the Commission cannot solely perform these functions and enforcement would require the support of other Ministries, Departments, and Agencies (MDAs) of government, including the multi-stakeholder groups which oversee the activities of NEITI. NEITI’s recent communication of its intention to disclose and commence recovery of tax debts owed by oil and gas companies to the Federal Government using anti-corruption agencies is very instructive on the subject of collaborative implementation.
A further illustration of the measures employed by NEITI in its bid to entrench transparency and accountability in the Nigerian oil and gas sector, is NEITI’s establishment of a beneficial ownership register which captures registered owners of oil and gas companies, owners of divested wells, license, and leaseholders, including companies bidding for extractive industry contracts. NEITI’s audit and information gathered from the register helps Nigeria in the implementation of its National Action Plan as a member State of the Open Governorship Partnership. The Corporate Affairs Commission following the lead of NEITI, has also established an electronic beneficial ownership register to capture at the point of registration or change, names of beneficial owners of a company. On a global scale, the BHP Foundation and Open Ownership, institutions working with leading civil society organisations and international institutions to promote responsible governance of natural resource wealth, in partnership with EITI are developing a global program and system ‘Opening Extractives’, to end the use of anonymous companies linked to corruption and mismanagement in the extractive sector.[14] We will be looking out for the domestication of this strategy from NEITI in the near future.
Conclusion
The Nigerian government owe it to her citizens to ensure their adequate welfare through the provision of basic infrastructure needed for day to day sustenance. Since oil remains the major revenue source to the country, then effective resource governance is paramount to satisfying the need of her citizens. There is no doubt that transparency and open contracting would reform the oil and gas sector, creating an avenue to rebuild public trust in the government. Although, the Nigerian government has made great efforts in its bid to complywith international standards on transparency and accountability set by several international bodies to which it belongs, it is largely believed that the exercise of strong political will is required to produce the much desired outcome in the sector. Notwithstanding past failures of the government on the subject matter of transaparency, we are optimistic about the boost and transformation that would take place with the implementation of the PIA.
Footnotes
[1] Wale Ajayi; ‘Nigerian Oil and Gas Update’; KPMG: https://home.kpmg/ng/en/home/insights/2019/04/Nigerian-Oil-and-Gas-Update.html. Accessed October 26, 2021.
[2] Bassey Udo; ‘After 43 years, NNPC publishes audited financial accounts’; Premium Times; https://www.premiumtimesng.com/news/top-news/397884-after-43-years-nnpc-publishes-audited-financial-accounts.html; Accessed 23, 2020.
[3] Aaron Sayne, Alexandra Gillies and Christina Katsouris; ‘Inside NNPC Oil Sales: A Case for Reform in Nigeria’. Natural Resource Gocernance Institute; thttps://resourcegovernance.org/sites/default/files/NRGI_InsideNNPCOilSales_CompleteReport.pdf. Accessed October 23, 2021
[4] See Chapter V of the PIA, Sections 53 (Incorporation of NNPC Limited); Section 61 (Application of the Principle of Corporate Governance), Section 62 (Annual Audit of NNPC Limited).
[5] How well the state-owned enterprises are governed has a significant impact on their performance and value, as well as on public finances, economic growth and competitiveness. OECD; (2010); Accountability and Transparency: A Guide for State Ownership; https://www.oecd.org/corporate/ca/accountabilityandtransparencyaguideforstateownership.htm. Accessed October 23, 2021.
[6] The EITI International Secretariat; The EITI Principles; https://eiti.org/document/eiti-principles; Accessed October 5, 2021.
[7] The NSWG was established by Section 5 of the NEITI Act, Section 6 of the Act also provides for the composition of NSWG.
[8] Haruna Yahaya & Co (Chartered Accountants); NEITI 2015 Oil and Gas Industry Report; https://eiti.org/files/documents/neiti-oil-gas-report-2015-full-report-281217.pdf; Accessed October 6, 2021.
[9] Natural Resource Governance Institute; 2021 Resource Governance Index: Nigeria (Oil and Gas); https://resourcegovernance.org/analysis-tools/publications/2021-resource-governance-index-nigeria-oil-and-gas; Accessed September 20, 2021
[10] Section 7(f); Petroleum Industry Act, (“PIA”) 2021
[11] Open Contracting Data Standard; The Open Contracting Data Standard (OCDS) enables disclosure of data and documents at all stages of the contracting process by defining a common data model. It was created to support organizations to increase contracting transparency, and allow deeper analysis of contracting data by a wide range of users. https://standard.open-contracting.org/latest/en/. Nigeria’s commitment to OCDC was brought about through its membership in the Open Government Partnership (OGP) in 2016, and the commitment to information disclosure in Nigeria committed to operating its several sectors of its economy including its extractive sector.
[12] Rob Pitman and Anne Chinweze; The Case for Publishing Petroleum Contracts in Nigeria; the-case-for-publishing-petroleum-contracts-in-nigeria.pdf (resourcegovernance.org); Accessed September 23, 2021.
[13] Olabode A. Oyewunmi, Olusola J. Olujobi; (2015); Transparency in Nigeria’s Oil and Gas Industry: Is Policy Re-engineering the Way-Out; International Journal of Energy Economics and Policy; Vol 5 ; (ISSN: 2146-4553); 630-636; https://core.ac.uk/download/pdf/79125196.pdf. Accessed October 26, 2021.
[14] BHP Foundation https://eiti.org/supporter/bhp-foundation. Accessed September 23, 2021.