By OSAZE OMORAGBON
Since President Muhammadu Buhari declined assent to the Petroleum Industry Governance Bill (PIGB), a lot has been said about his desire to set the oil and gas sector straight. The PIGB as many expected, was meant to be the wrecking ball to take down the impunity and corruption that ran riot in the sector since hydrocarbon was discovered some six decades ago. However President Buhari returned the Bill to the National Assembly; citing his displeasure over the 10 percent retained earnings for the proposed regulatory commission among other reasons.
Stakeholders had salivated over the prospects of taming the ‘elephant’ in the oil and gas sector: the Nigerian National Petroleum Corporation (NNPC) which has been rightly described as a state within a state. In truth, the NNPC is not different from most National Oil Companies (NOCs) in developing countries, with their ill-defined roles and functions and has also been the most opaque state-owned enterprise.
Established some 40 years ago, the NNPC has been a cash cow for most governments starting with the military dictatorships of the 1980s. According to some estimate, over $400billion has been siphoned from Nigeria since oil was discovered. Recently, the Nigeria Extractive Industry Transparency Initiative (NEITI) alleged that the oil sector was responsible for about 93 percent of the $218billion illicit financial flows from Nigeria between the end of the civil war in 1970 and the start of the global financial crisis in 2008. One can only imagine the scale of outflow from the sector in the last 10 years not covered by the report and especially when considering the discoveries made by the EFCC of the slush funds used for the 2015 elections and the infamous Malabu oil deal. Most of these monies have found their way out of the country, according to NEITI, through oil theft, money laundering, transfer pricing and tax evasion by multinationals that dominate the sector. Expectedly, these, NEITI says, accounts for 60 percent of the illicit flows out of Nigeria.
Similarly, the Benchmarking Exercise Report (BER) carried out in 2017 by the Nigeria Natural Resource Charter (NNRC) shows that government’s earnings from Production Sharing Contracts (PSC’s) are the lowest in the world even as deep-water royalties remain at zero. The Report which is the third in a series since the first one was released in 2012 attributes this to weak accountability, lack of transparency and ill-defined regulatory functions of multiple agencies and obsolete oil and gas laws among other reasons. The Report spelt out what needs to be done to prevent such huge loss of revenue, especially in a country facing a lot of development challenges.
The question is what can be done to reverse this trend? First, President Buhari should make signing the PIGB before the expiration of the current 8th National Assembly in June a priority. He should own the agenda of cleansing the oil and gas sector, as the substantive minister of petroleum resources. President Buhari’s anti-corruption credentials will be dented if meaningful progress is recorded in the reform of the oil and gas sector in the coming months.
Importantly, shady dealings in the oil and gas sector are what fuel corruption in the larger society as attested to by the ongoing investigation of politically-exposed persons linked to Diezani Allison-Madueke, Nigeria’s former petroleum minister. Sorting the oil and gas malfeasance will to a great extent reduce official corruption. A key focal point of the 2017 NNRC Benchmarking Exercise Report is the Precept Four which deals with taxation and other company payments. The Report highlighted the link between weak accountability and lack of transparency in the sector and total revenue receipt to the government. It scored Nigeria poorly (17 out of 100) under its Resource Governance Index which puts the country in the bottom percentile of the 89 countries assessed on the licensing of oil facilities.
Secondly, the Niger-Delta region has been relatively peaceful in the last two years and it is important that the government take advantage of the ‘peace window’ to fast-track reforms. This benign environment accompanied by a still fairly respectable crude oil price offers the government the opportunity to put things right in the money spinning sector.
Thirdly Nigeria’s fiscal regime according to experts is favourable to the country. However, with the discovery of oil and gas in several neighbouring such as Ghana, and recently in Tanzania, Mozambique and Uganda among others, many are concerned that foreign direct investments are being lost to these new comers. Nigeria is thought to have lost $250billion due to the non-passage of the PIB. This is equivalent to eight times the federal budget and many are worried it may never be recouped given that most oil wells are matured and yield marginal benefits. The unsavoury situation could however be reversed if more prospecting licenses are issued according to experts.
Fourthly, signing the PIGB would have saved the losses the country has incurred from obsolete laws estimated at about $20billion. One of such laws is the Deep Offshore and Production Sharing Act of 1993 which gives incentives for deep-offshore drilling to oil companies such that those drilling beyond 1000 metres pay no royalty until crude oil price exceeds $20 per barrel. Given that oil price has averaged not less than 20 dollars in almost two decades; the law needs to be updated. The government is now going after ‘defaulters’ to recover lost revenues. The estimated back taxes and royalties are twice the 2018 budget ($8.9billion) of the six states that make up the South-South region. Observers say the government is going after these monies in a bid to shore-up dwindling receipts from crude oil which accounts for about 90 percent of its earnings.
Industry watchers have expressed caution over the way and manner government goes after defaulters. To them, the country could lose in the long run if investments are scared away due to perceived arbitrary application of the law. However, the government can show that it is committed to reforming the oil and gas sector by expediting action on the PIGB and getting it signed before the expiration.
Osaze Omoragbon is an economist based in Lagos