A Review of the Nigerian Energy Industry

Big Spenders Report, resource curse and tears of many nations

Chijioke K. Mama 23 February 2015, Sweetcrude, Lagos – Governance in Africa is far from transparent. This is also true in many other parts of the world. Despite repeated rhetoric, the level of corruption in the management of Africa’s natural resources is alarming. Worse is the fact that governance is intentionally shrouded in a mystical secrecy.
crude-oil-pipe-702x336-436x336Big Spenders: Swiss trading companies, African oil and the risk of opacity” is the theme of a report released by Swiss-based Berne Declaration, BD, in July 2014. BD is a non-profit campaigning for more equitable relations between Switzerland and underprivileged nations. The report validates the unexpressed fears of many suffering citizens in sub-Sahara Africa. By selecting 1,500 crude sales transactions in 10 sub-Saharan oil producing nations of Nigeria, Angola, Cameroun, Chad, Cote d’Ivoire, Republic of Congo, Equatorial Guinea, Gabon, Ghana and Sudan; BD highlighted the presence of “Resource curse” in Africa.
“Resources curse” is a situation where resource-rich nations exhibit higher levels of poverty, lower-quality of governance and democracy than less resource endowed nations. Many of these nations and their governments are involved in shady transactions relating to the sale of oil and gas commodities. These governments and their National Oil Companies, NOC, allegedly create condition that encourages corruption in buyer selection and price determination for commodity sale in oil, gas and mining industries. This is often in connivance with foreign commodity trading giants. The report identified that Swiss companies purchased close to 25% of total sales between 2011 and 2013, buying over 500 million barrels of oil valued at $55 billion.

Salient points of the Report
    All NOCs in Africa are fully owned by their respective governments, thus proceeds from the sale of oil, gas and mineral are usually transferred to the state treasury or held in part by the NOCs. The NOCs themselves are involved in the sale of significant portions of national productions. They obtain crude oil from many sources , including their share in Joint Venture initiatives, government’s allocation in production Sharing Contracts, in-kind payments received from private companies as part of royalties or tax liabilities and production from their own E&P operations. The procedure and guidelines for these transactions and the consequent payments grossly lack integrity in many of the countries studied, according to BD’s research.
    In spite of the recent global movement to increase transparency in the extractive industries, especially in developing nations, many nations and commodity trading companies are yet to adopt measures meant to promote good practices. The Extractive Industries Transparency Initiative, EITI, has been adopted by about 45 nations, yet public disclosures with respect to payment made to government and NOC in many developing nations have been shunned. This leaves citizens at the mercy of corrupt leaders and institutions.
    The share of commodity sales in sub-Saharan Africa involving Swiss giants is significant enough to attract the attention of the Swiss government (and other commodity-buyer nations), via the enactment of laws that mandate public disclosures for these commodity traders. They are believed to have perfected “the skill of forging the right (wrong) political relationships with African governments” However, a report last year from the Swiss government (June 2014) has indicated a preference to exclude such payment in future regulations requiring public disclosure. This makes it even less likely that citizens will ever have a tool to confront a resource-corrupt government.
    The commodity traders frequently declare revenues in excess of $100 billion, placing them in the league of companies like Apple and Chevron and raising suspicion about the legitimacy of their business involvements.

Implications for the citizens
The Mo Ibrahim Prize for Achievement in African Leadership could not find a winner among African leaders for the year 2009, 2012 and 2013. A systematic procedure for selecting African leaders who have demonstrated leadership excellence has failed to identify any winner during this period. This portrays the state of transparent leadership in Africa and the effectiveness of governments and leaders in delivering citizens’ expectation.
The deliberate lack of transparency in commodity payments for resources that account for significant percentages of the GDP and government revenue should be a serious source of concern for sub- Saharan Africans. If citizens are not provided the tool required to hold their governments accountable, then executive profligacy will be promoted and enshrined while blatant and brazen corruption will be celebrated. No other entity is more culpable than the institutions of the affected nations which continually support opacity in payments from commodity sales and also continually produce leaders who see public resource as a means to personal gains.

On Nigeria’s commodity trading
It will be naïve to attribute the absence of transparency in the sales commodities that constitute up to 90 percent of government revenue to any one individual, regime or institution. Neither the president nor the concerned cabinet can be solely held accountable. The lack of integrity, transparency and standard rules in these transactions is a systemic anomaly that benefits many institutions and individuals.
The crude oil sales procedure in Nigeria is sufficiently complex (maybe deliberately so) to indict – literally – everyone in the chain. This includes agents who constantly connive to see that metering facilities at major loading terminals are constantly in a broken state, making it impossible to capture accurate data on sales (a situation that benefits both buyers and sellers). Also culpable are high ranking functionaries and their foot soldiers that consciously mystify other areas in the transaction to create the needed opacity.
It’s hard; however, to completely exonerate the leadership of the Nigerian government from the theft. Having inherited a systemic problem, it behooves the leaders, especially law makers, to enact laws that introduce the much-needed transparency. This will ensure that all aspects of the nation’s development-critical extractive industry are channeled towards the provision of the needs of the much-suffering masses. Dakar to Abuja, N’Djamena to Luanda, the same gory picture is seen of affluent nations with tear-eyed suffering citizens and millions of households lacking the most basic of needs which are taken for granted in resource-poor nations.
*Chijioke K. Mama is a Senior Oil and Gas analyst based in Lagos. Chijioke.mama@yahoo.com | 070-6101-3333.

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