A Review of the Nigerian Energy Industry

Oil sector still shrouded in secrecy, says report

11 December 2014, Lagos – Concerns have continued to mount over the level of transparency in the oil and gas sector, as a recent report by the Nigeria Natural Resource Charter (NNRC), revealed that the operations and award of contracts in the sector remained shrouded in secrecy.

The 2004 Benchmarking Exercise Report launched by the charter in collaboration with the Center for Public Policy Alternatives and Natural Resource Governance Institute (NRGI), said the scarce or inadequate information, insufficient audits and poor financial reporting standards for public entities like the Nigerian National Petroleum Corporation (NNPC) continued to undermine industry processes.

oil workersAccording to the report, Nigeria scored a 38 per cent on oil sector reporting practice, ranking 42nd out of 58 countries in 2013.

The former Minister of Petroleum Resources and a Co-Chair of the Group, Odein Ajumogobia, who led the launching of the report in Lagos yesterday, said that it came at the right time when Nigeria needed to sit tight and re-strategise on proper management of its natural resources.

The Programme Manager, NNRC, Ademola Oshodi, suggested that whoever wins the 2015 elections should develop a clear roadmap for how to reform the petroleum sector.

Oshodi stressed that oversight actors should also apply pressure on policy makers for the reform to take place. “Journalists, civil society groups, members of the National Assembly and others can use this assessment of the sector to inform and organize their advocacy both in advance of and following the elections. The findings serve as a reference tool for holding government and key stakeholders accountable for their decision making, with each red score representing costly shortcomings that must not be ignored,” he stated.

Specifically, the 2014 Benchmarking report stated that, “oil contracts in Nigeria is notoriously shrouded in secrecy, which allows for no public scrutiny or oversight of contractual terms and revenues deriving to government.”

Besides, it cited a consensus among stakeholders that the Federal Inland Revenue Services lacks sufficient capacity to administer and enforce the tax system effectively.

The report however emphasised the prevalence of a high sense of political influence and cases of conflict of interest in awarding oil contracts. This situation was said to have persisted despite sufficient criteria, rules and terms for allocating oil contracts and licenses.

It also observed that, “there are no clear roles or standards for the main government actors involved in the industry. The NNPC often plays the role of both industry participants and regulator, although the regulatory role is in theory with DPR., NAPIMS, the industry’s cost regulator within the NNPC oversees spending by the JVs in which the NNPC has majority shares, a clear case of self-regulation. In addition, the NNPC has been used to finance many unrelated activities by government.

“The relationship between the NNPC and DPR suggests regulatory capture, as the DPR’s limited resources and capacity make it reliant on the oil companies to fulfil even basic monitoring functions and it is unable to provide any real oversight over the NNPC or the other companies.”

On the industry regulations, it stated: “Since 2012, there has been no progress made with respect to the Petroleum Industry Bill (PIB), the bill seeking to comprehensively reform the entire governance and regulatory framework of the oil and gas industry in Nigeria.

“The bill’s provisions are not in the most ideal form, and it is stalling for a number of reasons including disagreements over its fiscal provisions, especially allegations of being a revenue bill; lack of resolution of challenges of policy discretion; and other regulatory issues with its proposed institutions.

“If the bill is eventually passed with the most optimal provisions for the management of the sector, the achievement of its reform objectives will largely depend on proper implementation.”

The report however recommended alternative options such as decoupling the PIB into at least two component parts–administrative/institutional reforms on one hand, and the revenue generation/fiscal/ tax regime on the other, so as to effectively reform these parts independently.

In this article

Join the Conversation