Editorial: Mr. President, Sanitize the Oil Sector
Successive Nigerian governments have deliberately created and left open a system of mammoth shadow revenue taps in the nation's oil sector. The Federal Government has refused to address the urgent need to bring transparency and due process to the bidding through which oil blocks are allocated and the process for reviewing existing concessions; permitting corrupt bureaucrats and politicians to siphon billions from the national treasury. This is provocative and unacceptable. Ahead of the planned sell-off of licenses for the 31 oil blocks put on auction by the government, President Goodluck Jonathan has an historic opportunity to ensure transparency and open competitive bidding for the oil mining leases as stipulated by existing laws. On this, history will not judge Mr. President kindly if he fails to ensure that Nigeria takes this remarkable step to end the rampant corruption and impunity in the oil sector.
The President cannot be speaking of transformation yet continues practices that have made Nigerians desperately poor and hopeless. The policy of allocating oil blocks to indigenous firms, initiated in the early 1990s, was to develop technical and commercial capacity in the upstream sector of the industry. But in typical Nigerian fashion, oil blocks have become perks of office. Politicians and bureaucrats in the sector have often awarded oil blocks to friends and relatives who have no knowledge of the industry. These people become billionaires by selling their allocations to foreigners for huge commissions.
It was hardly surprising therefore, that in its 2013 Resource Governance Index (RGI) - a global ranking of the governance of extractive industries in the world's leading 58 natural resources-rich countries - the international extractive industries watchdog, Revenue Watch Institute (RWI), ranked Nigeria 40th in its assessment. Nigeria's ranking, based on issues such as the transparency with which taxes and other revenues are remitted to the government and reported correctly confirmed the correct status of Nigeria's oil industry as one riddled with corruption and lacking in transparency.
RWI's embarrassing ranking and characterization of the governance of Nigeria's oil sector as 'very weak' was corroborated by the Nigerian Extractive Industries Transparency Initiative (NEITI). In its review of the 2013 RGI, NEITI revealed that its annual audit of Nigeria's oil and gas sector found $9.6 billion in outstanding payments owed the Federal Government by oil companies, including the Nigerian National Petroleum Corporation (NNPC). Neither the NNPC nor the Ministry of Petroleum confirmed or denied this claim. Rather, the revelations of spurious financial dealings and sharp practices following the mass protests against removal of fuel subsidy by the Jonathan administration confirmed that the huge amount the government claims it is expending on fuel subsidy was bogus and actually not paid for fuel consumed by Nigerians. A large chunk of the amount was simply stolen by unscrupulous individuals who exploited the corrupt system to rip off the nation through over-invoicing, smuggling, round tripping and other dubious deals. In effect, government has been subsidizing corruption, and not Nigerians.
Going by information from the House Ad-Hoc Committee on the Subsidy Regime, 24 million liters of subsidized petrol was said to be smuggled daily to other countries. This amounts to 8.8 billion liters of petrol annually which is in excess of the country's annual consumption projection of about 12.7 billion liters. When multiplied by the official subsidy of N76.38 per liter, it amounts to a whopping N672.14 billion lost by government to corruption annually. Nigeria is also said to consume about 35 million liters of petrol daily. But marketers receive subsidy based on 58.9 million liters, giving an excess of 24 million liters daily. In a year, that amounts to 8.7 billion liters of excess petrol imported with subsidy paid but not consumed by Nigerians.
According to the audit report by KPMG, SS Afemikhe and Co, the NNPC ripped off the nation to the tune of N11.8 billion as subsidy on lost petroleum products not consumed by anybody. Faced with this blatant short-changing of Nigerians, the agencies and departments handling the oil industry cannot give proper account of what is happening. The NNPC has no records of what is produced, or the actual quantity of petrol consumed in the country despite the huge importation that warrants outrageous subsidy payments. Shamefully, neither the PPPRA nor the NNPC can give proper accounts of the transactions. Instead, both agencies present conflicting figures for the same transactions. While the PPPRA claimed that it paid N630 billion subsidy in 2008, the NEITI put the figure at N350 billion.
If this is not shocking enough, recall that on August 16, 2011, the Jonathan administration paid Malabu Oil and Gas, a company owned by former petroleum minister, Dan Etete, US$ 1,092,040,000 (about N155 billion) as part of an out-of-court settlement of a long running legal dispute over oil block, OPL 245. Malabu won the block while Etete was petroleum minister in 1998. The license was revoked in 2001 over alleged failure of Malabu to fully pay the signature bonus, and to develop the field. It was reallocated to Shell and Agip. Malabu challenged the reallocation at the Abuja High Court. Following the court's decision, Malabu appealed.
The Federal Government, the defendant in the case, decided in 2006 to settle out of court rather than contest Malabu's appeal. But the Obasanjo and Yar'Adua administrations refused to compensate Malabu for the reallocation. In 2010 when Jonathan became Acting President, Malabu asked the Federal Government to compensate it for the reallocation and for agreeing to withdraw its appeal against the Federal High Court's ruling. In a bizarre decision, Jonathan personally arranged for Shell and Agip to pay Malabu US$ 1,092,040,000, in return for Malabu's waiving all claims in the controversial block.
The circumstances surrounding the deal may not exactly fit into illegality; it nevertheless leaves much to be desired in terms of public morality, accountability and transparency. More so, it typifies an official endorsement of public officers' abuse of their offices. How are the livelihoods and capabilities of 163 million Nigerians enhanced when their government arranges the payment of US$ 1,092,040,000 to a company? Ultimately, Nigerians will bear the brunt of the payment Malabu received. This is income lost to Nigeria as Shell and Agip, not being charities, will recoup this amount somehow. This can only happen in Nigeria.
In brokering the deal, the Jonathan administration portrayed government's complicity in the country's long history of openly rewarding flawed process. The President has exhibited profoundly disturbing and confounding enthusiasm to reward abuse of office, which reflects the kid-gloves with which corruption is treated in Nigeria. The Civil Service Codes forbid public servants; and on taking office, ministers swear to an oath that forbids the conversion of official duties to personal advantage. Yet, many officials routinely award juicy contracts to themselves through proxies, and to their relatives and friends. Sadly enough, nobody has been indicted or punished.
Jonathan has the onerous responsibility of confronting this hydra-headed monster crippling the nation's economy. The National Assembly has failed to pass the all-important Petroleum Industry Bill (PIB) with squabbles over distribution of oil revenue. Not only is an opportunity to improve transparency in the oil sector being lost, the failure retains and even expands the opaque discretionary powers that have often been abused by Oil ministers. If the oil in Nigeria was owned by communities in which they are found, as obtains in many parts of the world, it is doubtful if oil blocks would be bestowed as gifts to shadowy companies owned by state elites. A model that reconciles justice with economic efficiency and conforms to authentic federalism is to allow ownership and governance of oil to revert to Nigerian communities who will pay significant taxes to the Federal Government. This should be high on the agenda of the President if he truly means to transform Nig