Oil revenue waste in Nigeria

In the  traditional  media, academia  and trade union cycles,  governments were constantly accused of being long  on sleaze and short on substantive measures. That has now transformed into  more  debates in the parliament, civil society, on social media platform, in market places, pepper soup joints, motor parks and discreetly within diplomatic circles. The escalation of […]

In the  traditional  media, academia  and trade union cycles,  governments were constantly accused of being long  on sleaze and short on substantive measures. That has now transformed into  more  debates in the parliament, civil society, on social media platform, in market places, pepper soup joints, motor parks and discreetly within diplomatic circles. The escalation of this debate is quite desirable especially because of  increase  in production outputs of crude oil to about 2m barrels per day and relative stability of price of crude at an average of $115 per barrel for  more than a decade .  Despite the increased revenue made from oil in Nigeria, the country’s population has pitifully remained one of the poorest in the world  with many living on less than  $1.25 dollars per day according to  recently released World  Bank  statistics. Notwithstanding  the last week surprising  chew up of this statistics by President  Goodluck Jonathan and his mix up of the issue,there is apparent evidence that more than 70% of Nigerian lives in very poor condition if not in abject squalor.
The question everyone is asking is why so much deprivation in a society that has so much  abundant resources ? Why is the abundant wealth  of the nation not going round to benefit the citizenship rather than skewed around a few rich? .This situation creates wide gaps between poverty and affluence in a society and often described in Economics as non-inclusive growth or growth without development (GWD) of a country.
The blame has always been rightly  put on the door step of the minority  elite which comprise of  less  than 5% of  the over 160 million Nigerian people. This elite have continuously mismanaged oil revenue  at different levels of the value chain, starting  from production, distribution, accounting and  legislation leaving a trickling revenue for the citizens in a  process that reeks  of corruption.
Ironically, civil society groups, perhaps more than the traditional media, have played a  more active role  in probing this menace. Bodies like  Oil Revenue Tracking Initiative of Nigeria, Revenue Oil Watch Institute of USA, Berne Declaration( BD) of Switzerland,  Transparency International and the Nigeria Extractive Industry Transparency (NEITI)  have  provided counter balance opinions on what officials  of the Nigeria National Petroleum Corporation (NNPC), Federal Ministry of Finance and Central Bank of Nigeria  have released as official figures of performances of the oil sector in Nigeria.
At the upstream sector, mainly dominated by International Oil companies (IOCs) like Shell, Chevron etc there is a lack of good tracking of the exact amount of oil being produced or sold. In fact some industry watchers believe that production is largely unmetered and NNPC only rely on figures given to it by IOC. Here the Oil companies which signed  Joint Operating Agreement (JOA) and Profit Sharing Contract agreement with  NNPC produce, sell, export and even ‘swap’ oil all at once. Besides poor records of production,there  is also the  problem of underproduction or under-capacity due to outright theft of crude from the pipelines. Only recently the Managing Director of Shell Petroleum  Development Company, Mr Mutiu Sunmonu said  his company was losing  60,000 barrels of oil per day as a result of activities of criminals who attack  oil pipelines daily  to steal crude oil. At the industry level, the loss is estimated to be over 500,000 barrels per day with possibly more as the situation gets worse with increased activities of the  vandals in the face of seeming official non challance.
Even at the level of international accounting record,there exist discrepancies between Nigeria production output  and that of  Organisation of Petroleum Exporting Countries (OPEC) which allocate production quota to all its members . Other  international bodies that carry out statistical reviews of oil allocation are also reporting discrepancies  . For example, OPEC figures  differ by an average of 11% from that of NNPC in the last review. The discrepancies are  common in crude oil export data as well as petroleum sale and  consumption.
 According to a report by Oil Revenue Tracking Initiative, there is serious case of declining ‘government take’ compared to ‘oil companies take’  in the revenue accruing from oil in recent times. For example, government take in of oil revenues in 2010 was 74% compared to that of oil company take  of 26%. Between 2011-13, this figure has reduced significantly to 54% intake  for government against a sizeable  intake  of 46% for oil companies.
With what is left after all the thriving leakages at the pipelines, further  reduction is attributable to change in business agreement with oil companies, rising  cost of production, non-remittances of oil proceeds by NNPC to CBN as raised  by  the suspended  Governor of Central Bank, Mall. Sanusi Lamido Sanusi  when he said about $20billion due to CBN  was not remitted by NNPC to the federation account.
In the tense arguments that followed this allegation ,NEITI  Executive Secretary , Mrs Zainab Ahmed  was reported to have said that over alleged Oil swap loss of $8b per annum.
However, perhaps trying to pull out of the  big enough controversy, NEITI later denied the report but at least admitted that there were no cost efficiency in the transactions with offshore processing companies. Rather, there are under-delivery of petroleum products to the tune of $866m which was carried out by the companies involved in the swap. It further admitted that some $22.8b  was off the balance sheet record of the NNPC during the period 2009-11 as result of intricacies in the operation of escrow and foreign exchange accounts between the corporation and  its bankers.
Before this time, NEITI had at one time admitted that there was a loss  of about $4.8 b due to non-remittance of oil revenue by NNPC to the federation account in one of its review of same period. The report claimed losses of N98.3b to conversion rate of the Naira to the Dollar alone  as at then.
Similarly, the Berne Declaration (BD), a Swiss-based non-governmental organisation  once drew world’s attention to the fact that Nigerian government was losing billions of dollars as large volumes of oil are exported to Switzerland for far below the market price, no thanks to opaque  agreement with commodity majors like Trafigura and Vitol with some Swiss-based Nigerian subsidiaries. According to BD, the main trade of these companies which dominate about 56% of the Nigeria Oil Exports is to  sell oil below the market price.
Yet another factor responsible for the  inefficiency   in the oil industry is unjustifiable subsidies paid to oil marketing companies in Nigeria . The increase in total fuel subsidies being paid has reached such an alarming proportion that it has become a national embarrassment. Government pricing agency, Petroleum Product Pricing Regulatory Agency (PPPRA) admitted it paid N832b in the year 2013 alone. Industry watchers believe this is understated as amount lost to  false documentation are even more and government might have paid nothing less than N2trillion naira on subsidy that year.
In between production, distribution and accounting for oil revenue, there is a colossal  loss of revenue that may have given the country  better infrastructure and a strong economy.
In other oil-producing countries, the experience is  different. Countries like Brazil, Saudi Arabia, UAE and Norway  have  made trajectory growth  and economic development as a result of revenues they earned from oil.
After building world class infrastructure in the country, the UAE has Sovereign Wealth Fund of $817b, Norway  has $737 b, Brazil has $5.3 billion while Nigeria has just $1.5 billion.
Perhaps one striking report Nigeria needs to look into is the Chatham House report on good governance of different national oil companies in the world. The  respected British institution  looked into corporate best practices of successful national oil companies in the world and concluded that  private sector people are needed on their boards. In the extensive report, the house cited Petronas and Saudi Armaco as some of the  successful national oil companies that  have formidable  non-government representations.  Non government people like the oil workers’ union, retired Presidents of oil companies and accomplished individuals are postulated to ask questions bordering on local content, employment of pricing policy, social cost of programmes and weigh the risk of corruption of national oil companies on which board  they serve.
Ironically, the minister of Petroleum who once spoke along the same line of private sector involvement in running of NNPC  presided over the recent appointment of new  Directors of the oil company  made up of mainly inside operators who may have lobbied to get appointed. Keen observers are therefore left wondering if anything will change in the present structure.