A Review of the Nigerian Energy Industry

Fuel subsidy scandal and NEITI audit reports

Oscarline Onwuemenyi

01 August 2012, Sweetcrude, Abuja –
THE recent furore that engulfed the nation over the mismanagement of more than a trillion naira of public funds through fuel subsidy scam – and the alleged bribery of House Committee members who are supposed to be investigating the scam – has thrown up numerous issues with regards to the fight against corruption in the nation’s oil and gas industry. Most strikingly is the blatant inability or handicap of different administrations to apply the steel when it comes to implementing reports by local and international agencies.

In this case, many stakeholders have blamed the current bribery mess in the National Assembly and the fuel subsidy fraud on the refusal of the government to act on several reports of corruption in the nation’s oil and gas industry presented before it over the years, especially the ample audit reports from the Nigeria Extractive Industries Transparency Initiative, NEITI, which has covered more than a decade of oil and gas production in the country.

The former Chairman of the National Stakeholders Working Group, NSWG, of NEITI, Prof. Asisi Asobie who spoke to Sweetcrude at an Expert Workshop on Developing a Module on Training of Corruption Risk Assessors, organised by the Independent Corrupt Practices and other Related Offences Commission (ICPC), in Abuja, asserted that issues of corruption revealed in the fuel subsidy probe by the National Assembly was “the first time that Nigerians were made aware of the presence of huge reports that have been in the public domain already about the issues in the nation’s petroleum industry, which was produced by NEITI over the years.”

According to him, “NEITI has diligently produced information that covers over ten years of the issues in the industry, but the problem is that Nigerians did not know about it until the oil subsidy probe came.

The problem we see today is partly because the legislature itself refused to act on the reports over the years that the problem persisted.

“NEITI reports are supposed to be submitted to the National Assembly; in other words, they should have been holding public hearings on these reports since 2006, when the first report was published and they should have been holding it every year since then. If they had done that here would be need for this probe and the attendant scandals,” he added.

He stressed that if the right things were done years ago, what they industry would be dealing with presently is the remediation aspects of the report, which were also enumerated by the NEITI audits.

According to Asobie, a lot Nigerians were mistaken in their perception that the anti-corruption agencies including the EFCC and ICPC were the last bastion in the fight against corruption. “The most important government body in the anti-corruption fight is the Office of the Auditor-General of the Federation, and NEITI regularly submits its reports to that Office. The Auditor-General’s office compiles every report about corruption in the public sector every year since 1999, and they have been putting that before the National Assembly. The National Assembly has not acted on these reports.”

Over the years, the management of NEITI had faced the question of what has been the noticeable impact of its activities on poverty reduction in the land. Many citizens anxiously wonder about the efforts of the agency in generating more revenue for the national coffers, thereby making more money available for poverty reduction and wealth creation.

Ingrained in the urgency of these questions is the fact that the impact of an agency in the mold of NEITI would most probably be measured mainly in its ability to create the necessary environment to make poverty reduction interventions more efficient and effective.

The Executive Secretary of NEITI, Mrs. Zainab Ahmed explained at a recent workshop to discuss the five-year strategic plan, that in terms of the scope of the value chains, the depth of information and data disclosed, and the number of years covered, the NEITI audit reports are unparalleled in the history of the EITI globally.

She further explained that the impact of the NEITI on the Nigerian society can be measured indirectly. First, she notes, through its core function of disclosing and publishing company payments and government receipts of revenues from the extractive industry, the governments and people of Nigeria are ‘empowered’ to demand their rightful share from the Federation Account, accordance with the law. “In addition, through its financial, physical and process audits of the industry, the NEITI monitors and publicizes the extent to which gas penalities are paid by oil and gas companies, and the degree to which the penalties serve as disincentive to continued gas flaring in the Niger Delta,” she added.

The underlying philosophy of the Extractive Industries Transparency Initiative (EITI) is the belief that strengthened transparency of natural resource revenue can reduce corruption, transform economies, reduce poverty and raise the living standards of entire populations in resource-rich countries. Nigeria’s voluntary decision to embrace the EITI was in the context of the comprehensive socio-economic reform programme embarked by the Federal government in 2003. The Nigeria Extractive Industries Transparency Initiative, NEITI, was therefore part of the institutional and governance reform.

The primary objectives of the NEITI are to ensure due process and transparency in the payments made by all extractive industry companies to the Federal Government and statutory recipients. Others include monitoring and ensuring accountability in the revenue receipts of the Federal Government from extractive industry companies, eliminating all forms of corrupt practices in the determination, payments, receipts and posting of revenue accruing to the Federal Government from extractive industry companies.

NEITI is equally expected to ensure transparency and accountability in the application of resources from payments received from extractive industry companies and promotes conformity with the principles of the Extractive Industries Transparency Initiative. NEITI output is represented mainly by three comprehensive audit reports, covering financial flows, physical volumetric data, governance or management processes on issues in the oil and gas sector for the period 1999 – 2008. During this period, the country has produced three reports which are not only disaggregated but are in three inter-related parts – financial, physical and process.

Indeed, the audit reports revealed very weighty issues which when addressed would significantly improve governance and revenue management in the industry. According to Ahmed, “The issues include poor institutional linkages between the technical and the financial aspects of the industry, poor information system exemplified by much reliance on paper-based data and information storing, retrieval and sharing system. Other lapses include inefficient system of financial management, poor metering infrastructure and grossly inefficient measurement for crude oil production accounting. Besides, there was no precise, clear and workable basis for determining production volumes, royalty purposes and reliable fiscal regime.”

Ahmed stressed that the NEITI reports exposed inadequate capacity of the relevant regulatory agencies to confidently and rigorously verify royalty and petroleum profit tax computations prepared by companies in a manner that checks large discretionary powers of the Petroleum Minister. “These deficiencies revealed by NEITI in all its audits have over the years cost the Nigerian government dearly. They were the key sources of waste, fraud and monumental corruption,” the Executive Secretary stated.

Asobie argues that there are several benefits that have accrued to Nigeria from implementing the EITI, including the benefits from the creation of a new ‘consensual framework’ for reporting and disclosure of payments and receipts in the extractive industry sector.

He pointed out that by embracing the EITI principles, “the sector is now becoming open for public participation and scrutiny. For instance, as public opinion surveys indicate, the generation and publication of accurate data and credible information on flows of revenue, physical volumes of production an governance or management process and practices in the oil and gas sector have become major tools for holding companies and government to account.”

Asobie further noted that there is widening acceptance of the necessity for due process, coupled with transparency in the payments made by the extractive industry companies to government to government and other recipients. “In addition, there is growing acceptance of the imperative of promoting accountability and ending corruption in revenue payments and receipts in the sector and belief that citizens’ welfare is likely to be maximized when there is entrenched culture of transparency and accountability, by government, in the application of resources and revenues generated in the sector.”

He added that within the four years of NEITI, between 2004 and 2008, there was evidence of credit rating of Nigeria and higher level of credibility for the government within the international community. According to him, NEITI as part of the overall government economic reforms agenda has clearly pointed the way on how to increase the revenue accruing to the Federation Account.

In general, NEITI has put the nation on the alert that it has information to show that the fiscal regime now being operated does not enable Nigeria to optimize its financial benefits from the oil and gas sector, and should not be consolidated into the Petroleum Industry Bill (PIB) currently before the National Assembly.

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  • Fuel subsidy fraud, subsidy panel bribery saga, several committees investigating the same thing, NEITI Report, EFCC files charges against some hapless characters, shortly thereafter, the EFCC drops charges against two of the accused, etc, all amounts to an open can of worms and the inaction of a government clearly bereft of ideas on how to deal with the situation.