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Overcoming the Limits of EITI in Nigeria by Dauda Garuba

Overcoming the Limits of EITI in Nigeria

By Dauda Garuba*

 

The 30th edition of the International Board meeting of Extractive Industries Transparency Initiative (EITI) is due to hold in Bern, the capital of Switzerland, on 21 and 22 October, 2015. As the hub of global commodity market, the forthcoming EITI Board meeting presents both an opportunity and a challenge for Nigeria. In terms of opportunity, it provides Nigeria a platform to speak the truth to Swiss powers about the inglorious role its companies have played in shady oil deals with their Nigerian counterparts. Two major reports – The Big Spenders by Bern Declaration and Natural Resource Governance Institute (2012) and Inside NNPC Oil Sales by Natural Resource Governance Institute (2015) have the details of this.

 

The Big Spender shows the significant risks posed by the lack of transparency in transaction of Swiss trading firms like Arcadia, Glencore, Gunvor, Mercuria, Socar Trading, Trafigura, and Vitol to African oil exporting countries. Nigeria alone accounted for $37 billion out of the approximately $55 billion worth of crude oil purchased by these companies from top ten sub-Saharan Africa between 2011 and 2013 through least scrutinized processes. Inside NNPC Oil Sales reveals how poorly structured oil-for-products deals and transactions with foreign oil traders – Swiss companies inclusive – complicated the flows of currency, oil and fuel, resulting in unfettered access of unqualified intermediaries to huge wealth at the expense of revenue loss (estimated at $32 billion) for Nigeria. This, if anything, is a continuation of Switzerland’s past role as a haven for money stolen from Nigeria.

 

In the absence of a substantive multi-stakeholder board of Nigeria’s subsect of the global initiative, one huge challenge awaiting Nigeria would be how to swiftly implement decisions reached at the forthcoming EITI Board meeting, especially ahead of the country’s second validation exercise that would be due in January 2016. Having adopted EITI as part of a broader economic reform agenda aimed at addressing the failure of natural resources to translate into poverty reduction, conflict transformation and sustainable development, Nigeria has made such significant progress as production and dissemination of five oil and gas reports covering 1999-2012, three solid mineral reports covering 2007-2012 and one Fiscal Allocation and Statutory Disbursements (FASD) report covering 2007-2011. Resulting directly from that are increased oil revenue earnings, demonstrable engagement with solid mineral development, capacity development for civil society and media, increased citizens’ interest and engagement with natural resource g... and implementation of some modicum of remedial activities based on findings and recommendations of past NEITI reports.

 

This is the context in which Nigeria’s adoption and implementation of EITI has been lauded in many quarters as a tool for redressing the prevailing resource curse. Having transited from an agro-based economy into a rentier one built around oil, Nigeria has, for too long, grappled with challenges arising from the reckless quest for oil business and its associated  vices of corruption and prebendal behaviour of a ruling elite that is steeped in unproductive and wasteful spending of oil revenues. Consequent upon that is the severance of relationship of rights and obligations (social contract) between citizens and public officer holders. This situation is what the adoption of EITI aimed to reverse through healthy democratic debate of NEITI audit reports.  Nigeria’s medal as the EITI best implementing country in 2013 was a demonstration of progress in the NEITI process.

 

Despite that, EITI implementation has confronted challenges in Nigeria, and indications are that things will remain the same, except serious commitments and steps are taken by President Buhari administration to advance the process. Among present challenges of the process is the snail speed in the implementation of the recommendations of NEITI audit reports, now covering one and half decades. Despite general consensus among stakeholders that far-reaching reforms are necessary to reposition the extractive industry for it to attain global competitiveness and deliver maximum benefits for the people, not much has happened. According to a source, so challenged is the industry that “every institution along the extractive industries value chain that potentially could prevent fraud is weak.”

                   

The oil and gas sector is the most affected in this regard, given the central role it plays in the Nigerian economy. Besides NEITI audits, other independent probe of the operations of the sector – including those commissioned by the government – point to its colossal decay and inability to function to acceptable standards of comparative best practices. Among these are: KPMG report on the NNPC; House of Representative Ad-Hoc Committee report on the fuel subsidy regime; two Aig-Imoukhuede-led committee reports on fuel subsidy claims and payments; Kalu Idika Kalu report on refineries; Dotun Sulaiman Committee report on governance and global best practices in the NNPC; Nuhu Ribadu-led Petroleum Revenue Task Force report; Nigeria Natural Resource Charter benchmarking reports (2012 and 2014); and PwC report on the alleged unremitted funds into the federation account by the NNPC.

 

The apparent slow pace and/or inaction by the government on the recommendations of these reports constitutes a limit to EITI implementation in Nigeria. From the different NEITI audit reports, the petroleum industry harbours the biggest corruption stench in the country, while the state oil company – Nigerian National Petroleum Corporation (NNPC) – has been fingered on all fronts as the hub for identified gaps. Surprisingly, the corporation has resisted calls for its reform.

 

The solid mineral sector – despite arresting government attention, courtesy of World Bank’s support for its development – continues to experience a lull response from civil society. Except for two main works by the Civil Society Legislative Advocacy Centre (CISLAC) and Global Rights, no major engagement has happened in the sector. The result is that the deeply enriching NEITI audit reports in the sector are scarcely disseminated and often unused after their official launch. To this extent, civil society has fallen cheap to the same criticisms it makes of Nigerian government’s failure in economic diversification.

 

Perhaps, the biggest obstacle that EITI implementation is yet to overcome in Nigeria is its inability to deliver poverty reduction, reduce conflict and guarantee sustainable development as anticipated in the concept that gave birth to it. In the aftermath of fuel subsidy protests across Nigeria in January 2012, it was obvious from the reports of the various probe panels that transparency does not automatically deliver accountability. While the NEITI’s FASD report covering 2007-2011 has tackled earlier criticism of EITI as a narrow initiative and advanced the new EITI Standard response to that criticism, its findings across national and subnational government levels have not demonstrated any judicious utilization of the extractive revenues in Nigeria. Available statistics on the country’s poverty profile reveals that people living in relative poverty grew from 54.4% in 2004 to 69% in 2010, while figures of absolute poverty grew from 54.7% to 60.9% for the same periods respectively. Given that Nigeria’s EITI implementation started in 2004, this is not a good performance. While amnesty declaration may have delivered relative peace in oil-rich Niger Delta, violent competition for political position to preside over oil allocations has not receded as a feature of elections in both Niger Delta region and elsewhere, while statistics of Nigeria’s performance in the Millennium Development Goals (MDGs) were not any resoundingly fantastic at the dawn of 2015. All these have reduced the efforts and outputs of NEITI to naught, prompting remarks by the immediate past NEITI Board Chairman (Ledum Mitee) and the NEITI Executive Secretary (Zainab Ahmed) that the situation is capable of undermining Nigeria’s chances of realizing the benefits of the global initiative.

 

Thus, the gamut of issues for reforms are legal and institutional, including passage of the Petroleum Industry Bill (PIB), amendment to the NEITI Act 2007 to allow access to payments, costs and earnings by oil companies, publication of licenses/transactions under contracts, restraint from undue political interference in NNPC affairs, and agreement on mechanisms for funding it operations with a view to stemming “Cash call” on non-Joint Venture (JV) operations resort to Alternative Finance Arrangements (AFAs).

 

There are also technological and capacity development issues requiring mandatory automation and interface of systems across relevant government agencies (CBN, FIRS, Nigeria Customs Service, Office of Accountant General, Petroleum Products Pricing and Regulatory Agency, etc). Other efforts should be acquisition and deployment of requisite multi-faceted metering infrastructure and capacity building on independent tracking of crude oil production and sales data and installation of surveillance technology for pipeline monitoring, and oil fingerprinting against activities of vandals and thieves to enable accuracy for quantity of oil produced and stolen.

 

Regulatory and transparency/accountability actions aimed at achieving conformity in the principles guiding companies’ conduct of self-assessment of the Petroleum Profit Tax (PPT) liabilities and a review of eligibility criteria for licensing oil marketing and trading companies is required to close identified gaps in crude oil sales and operation of the Petroleum Support Fund (PSF). Other issues are introduction and implementation of modern financial management systems and techniques, and restriction of domestic crude oil allocation to absorbable capacity of local refineries. In the face of a new environment for reforms and given the relationship between type of government and realizable economic prosperity, it is still possible to overcome the gaps limiting EITI implementation in Nigeria. What Nigeria should not overlook, especially in the wake of ongoing reforms in the oil and gas sector, is to use the opportunity provided by the EITI Board meeting in Bern request and secure commitment from the Swiss government to incorporate provisions aim at achieving disclosure of commodity trading firms’ payments to its transparency legislation.

 

Dr. Dauda Garuba is Nigeria Officer at Natural Resource Governance Institute (NRGI).

 

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Comment by daniel gilbert on November 10, 2015 at 11:49

Thanks, Dauda.  

btw: re-reading my post below, I see spell check has "helpfully" changed Conseil d'Etat to "Console d'Etat".  My apologies for not spotting this first off.

Comment by Dauda Garuba on November 10, 2015 at 11:40

Thanks for your kind comments and useful suggestions, Daniel. I am with you on how best to resolve the 'mess' (although I will call it 'pain') that the PIB has become. I am not surprised about this because it was anticipated. My very first reaction to the document when it was first submitted to the National Assembly in December 2008 was that it was just omnibus. The explanation I got the from somebody who was part of the process was the present difficulties were anticipated, except in less magnitude. The decision to stick to the the omnibus document was informed by the conviction that it would be beneficial to undertake a big fight once and for all than engage in several fights with several bills. The reality is that the strategy has failed. Going forward (especially in the face of proposition by the new Group Managing Director of the NNPC, now a minister-designate to propose another PIB in one year), I strongly believe we should EITHER have a new PIB within the first year of the Buhari administration or choose the option you have argued. This is necessary because of the fact that a new PIB will not automatically address the rot in Nigeria's oil and gas industry. It will still require many years of taking the proposed restructuring and reforms to a logical conclusion. And we need to have all that happen within the 4 years term of the Buhari administration, without necessarily anticipating a second term. Nigerians are tired of policy reversals. It will be another thing entirely if he expresses interest to seek for a second term and he wins. As for now lets work within the 4 years that is currently guaranteed. 

Comment by daniel gilbert on October 28, 2015 at 16:22

First of all, the above is an excellent post.  

This is true both in terms of the narrative argument(s) of the post and also the rich set of links to PwC, KPMG,  Kalu Idika Kalu and Nuhn Ribad-led reportsto name but a few; in short, the post provides a library of useful resources for further reading, which is very welcome.  

The post even taught me a new word or two, e.g. "prebendal", that is relating to a prebend, a form of benefice held by a prebendary which (historically) affords the holder an ecclesiastical stipend (regular financial payment).  In secular life the analogy to day-to-day life in secluded neuks (if you need to, then just Google it :-) ....  just as I had to Google "prebendal") of the Nigerian extractive industries is obvious, and pithy.  

I was also taken by your point, Dauda, that civil society has failed to engage fully on EITI as it relates to hard minerals, as opposed to petroleum.  A major failing, as you say.  But that is not all: you highlight the limitations of the realities of NEITI (mining and petroleum), realities that senior NEITI figures past and present are reported as now saying as potentially undermining Nigeria's chances of realising the benefits of the initiative.  For example, the ultra-slow follow up on NEITI recommendations, and the opaque nature of some petroleum trades in Nigeria.

Lastly, the reference to the PIB is highly pertinent.  I understand that the new government has put the PIB on hold, reviewing what on earth to do with this would-be all-encompassing petroleum Bill (covering upstream, midstream, downstream etc.) that is so long in the gestation.  I would suggest that the best thing would be to cut the thing up into constituent parts and try and get each part optimised (e.g. upstream exploration regulatory and legal regime), drafted into a Bill and passed as an Act, rather than seek a miracle cure in the form of one single PIB.  But that is just my perspective.  If the worry is that the different bits would not hold together properly (starting off with no outright contradictions between the laws' legal provisions), then perhaps the Nigerian political set up has an institution to properly ensure that they do?  I don't know if it does.  In France the equivalent is the Console d'Etat.

Personally, I would start off with trying to unravel the mess that the PIB has become over time, and seeking a more rational set of legal provisions (both hard and soft law). If the legal framework can be reformed then perhaps the new President will have a better chance of tackling the byzantine Nigerian petro-politics, regarding which reform of the NNPC is a totemic end goal.  Or is there a better place to start?

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