How lack of transparency in oil sector under-develops Nigeria

Daily Independent, Nigerian Newspaper

By Chukwudi Nweje Acting Features Editor

President Jonathan Diezani Alison Madueke, Minister of Petroleum Resources

Transparency and accountability in the nation’s oil sector was the central focus recently in Lagos when the Human and Environmental Development Agenda (HEDA) Resource Centre supported by FOSTER (Oxford Policy Management) held an interactive session with journalists on ‘how to build cross-border campaign against oil theft, strengthen citizens awareness on corruption and enhance transparency and accountability in the Nigerian oil sector’.

The session focused on the need for civil society organisations and the media to make use of the opportunities inherent in the Freedom of Information (FoI) Act as a tool for bringing about transparency and accountability in Nigeria oil sector.

The need for the session is better appreciated considering Nigeria is reliant on oil exports for more than 95 percent of its foreign exchange revenues. Thus, whatever happens in the oil sector has a direct consequence on the Nigerian economy.

Nigeria’s oil sector

With 37.2 billion barrels of proven oil reserves in Nigeria as of 2011, the country was ranked as the largest oil producer in Africa and the 11th largest in the world. At the rate, it was estimated that the crude oil deposits would last for up to forty-five (45) years even if no new oil was found. – (Wikipedia / CIA fact sheet on Nigeria)

The same source also put Crude Oil production at 2.524 million barrels per day (bpd) (2012 estimate) and exports at 2.341 million bpd (2010 estimate). Statistics from the Department of Petroleum Resources (DPR) seem to collaborate this, suggesting that the country produces an average of 2.5million barrels per day.

However, Godwin Ojo, Executive Director of the Environmental Rights Action / Friends of the Earth Nigeria, ERA/FoEN, is quoted by a national daily as saying that the country produces over 4 million barrels of crude oil daily.

Whether the production figure is averagely 2 million bpd or higher is an on-going subject of debate. But Ojo had argued that “as long as the oil companies continue to refuse to meter their oil wells, the nation would be in the dark on the actual quantity of crude they pump daily”. He further said that the lack of transparency and accountability in the oil sector is responsible for the massive corruption in the industry.

Lack of transparency 

The oil sector in Nigeria is seen by many as one of the least transparent anywhere in the world especially when it comes to oil flows, sales and accruing revenue.

As ERA/FoEN had noted, the absence of meters at oil wells has resulted in a situation where no one can say with certainty how much crude is sold daily by the country.

All figures quoted in various reports are mere estimates or at best what the Nigerian National Petroleum Corporation (NNPC), Nigeria’s oil industry manager say is produced. The result has been that criminal interests have cashed in on it to steal crude oil

Debo Adeniran, Executive Chairman Coalition Against Corrupt Leaders (CACOL) agrees that the NNPC and its subsidiaries are shrouded in so much secrecy and massive corruption.

He said, “It is very ridiculous how our leaders lie blatantly to Nigerians every day. It is no longer news that the NNPC is the cesspit of official corruption in the country and the conduit pipe through which our common patrimony is diverted into private coffers.

He has persistently called for a more open and transparent approach in the running of the oil sector.

Another industry player who pleaded anonymity agrees that lack of transparency and accountability in our petroleum industry has grossly undermined our economy in recent years.

He said: “There is no iota of doubt that lack of transparency and accountability in our petroleum industry has grossly undermined our economy in recent years. This is especially in terms of revenue generation that has been terribly dwarfed in the sector by corruption, mindful that we are operating a kind of mono-economy largely driven by oil export.

“Not helping matters are other factors like illegal bunkering, proliferation of d so-called artisanal refineries, recent oil discovery, exploration and exploitation in many countries around d world and the new challenges of shale oil and alternative, clean energy sources.

“In my opinion the Petroleum Industry Bill (PIB), in its undiluted form will hold all the aces for transparency and accountability in the oil sector amid the aforementioned challenges to our oil income. Again, with political will the present administration in Nigeria can sanitise the embattled sector”, he said.

Crude oil a curse or resource 

After more than 53 years of oil exploration and exploitation in Nigeria, not much development can be boasted of as dividends of oil exploration and exploitation not just in the oil bearing communities in particular, but the country as a whole because of the lack of transparency and accountability in the oil sector,

In fact, many argue today that Nigeria’s crude oil is a Resource Curse, a paradoxical situation in which countries with an abundance of non-renewable resources experience stagnant growth or even economic contraction. The resource curse is believed to occur when a country focuses all of its energies on a single industry.

Nigeria has concentrated on the crude oil industry since the discovery of the commodity in the 1950s, to the detriment of other sectors of the economy.

As a matter of fact, in February 2013, the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) also express the view that the oil sector of the country “is killing the economy”.

The chambers Director General, Dr. John Isemede was quoted in an online report as saying that the oil sector is affecting businesses in the country negatively by failing to add real value to them. He said the oil sector has caused substantial decline in agricultural exports, which began in the mid-1960s and continued to date.

Many factors particularly oil theft and pipeline vandalism has led to revenue receipts from crude sales falling dramatically and leading to a $9bn reduction in the Excess Crude Account.

Oil theft in Nigeria

The issue of oil theft in Nigeria is a reoccurring problem and a source of worry to every stakeholder in the Nigerian project.

In the past months, rampant theft and pipeline vandalism has led to revenue receipts from crude sales falling dramatically, leading to a $9bn reduction in the Excess Crude Account. This in turn has also resulted in a decline in allocation to the states from the Federation Account.

The Federal Government though has made moves towards checking the menace. Earlier this year, President Goodluck Jonathan had earmarked a of $1billion (N163 billion) for the implementation of a comprehensive programme designed to combat crude oil theft, vandalism of oil and gas infrastructure, as well as the apprehension and prosecution of crude oil thieves.

This, according to him, will include further action to enhance the security of pipelines and other oil industry infrastructure, resolve community-related issues, boost youth empowerment in oil-producing areas and enhance the commitment of oil companies to the discharge of their corporate social responsibilities.

But, is the government being sincere? If the government is truly committed to tackling oil theft, how come there has been little success at curbing the illicit trade?

Complicity of security agents

The federal government currently has a Joint Military Task Force charged with the duty of fighting oil theft. However there are allegations that these security operatives also partake in the theft. They have been accused of aiding and abetting criminals while only arresting those who refuse to pay them off.

The Speaker of the House of Representatives, Aminu Tambuwal seems to believe that some government officials are involved in the theft.

Not long ago while inaugurating the House Ad-hoc Committee on Crude Oil Theft, he had said that crude oil thieves are being sponsored by the Federal Government, insisting that the crime is not being perpetrated by ordinary criminals, but by those who enjoy the backing of government. He noted that the only way to fight oil theft is for the Economic and Financial Crimes Commission (EFCC) to arrest and prosecute suspected crude oil thieves in the country.

A report published by Chatham House, an independent policy institute based in London suggests that an estimated 150,000 barrels of crude oil are stolen every day in Nigeria. It said that while the vast majority of this is sold internationally, approximately 25% stays in the Niger Delta for refining and consumption. It said: “Illegal oil refining in the region comes with steep economic, environmental and social costs. Unless the problem is better understood and key drivers of the illegal economy are analyzed, the trade could come to undermine the stability of Nigeria’s legal oil sector.”

Plausible underlying reasons for theft

Apart from the apparent involvement of big multinationals and local business in oil theft, some factors that could have pushed local militias into oil theft include perceived injustice and neglect of the oil bearing communities by the federal government.

For many in the Niger Delta their communities which are the proverbial goose that lays the golden eggs have not benefitted from crude oil exploration and exploitation in the last more than 53 years of oil activities in the Niger Delta.

Moreover, with multinational oil companies often denying oil spillage from their pipelines as an act of sabotage by vandals from the communities in order to avoid paying compensation, some militants see oil theft as reaping their own share of the ‘national cake’.

UNEP assessment

An August 2011 assessment by the United Nations Environment Programme (UNEP) on the affect of oil pollution from over 50 years of oil operations in Ogoniland had indicated that the environmental restoration of Ogoniland could prove to be the world’s most wide ranging and long term oil clean up exercise ever undertaken if contaminated drinking water, land, creeks and important ecosystems such as mangroves are to be brought back to full, productive health.

According to the report, while some on the ground results could be immediate, overall the report estimates that countering and cleaning up the pollution and catalyzing a sustainable recovery of Ogoniland could take 25 to 30 years.

Till date, action has yet to be taken on the report. As a matter of fact, Amnesty International has accused the federal government and multinational oil company Shell of grossly ignoring the UN report on devastation of Ogoni-land.

Why theft persists

Following exhaustive deliberations at the interactive session on the need to take concrete steps towards addressing oil theft and enthroning accountability and transparency in the oil sector, key factors identified to be militating against successfully tackling oil theft include: the relative definition of what constituted oil theft.

For instance, for mainly farming and fishing communities in the oil bearing communities who have lost their means of livelihood (oil polluted rivers and oil clogged farm lands) may see illegal oil businesses as the only other alternative means of livelihood.

There is also the issue of government officials and security agents who may be stakeholders in the oil theft; oil theft also thrives because of the international complicity. Indications are that those who buy this stolen crude know that it is not from the official source.

Because the Niger Delta communities suffer from chronic social and infrastructural underdevelopment despite generating the major economic resources upon which the country depends, youths in the area have become restive and want their own share by whatever means possible.

Consequences of oil theft

Oil theft on its own has also had negative economic and environmental impact on the nation.

Pipeline vandalism by criminals who want to steal products has gone beyond the Niger Delta. In Lagos and other parts of the country, criminals from time to time break pipelines to steal refined products. Hundreds of people have lost their lives in pipeline fires.

There is also the environmental impacts because when these pipeline vandals are able to get away undetected, it sometimes takes weeks before the leak is discovered by which the product in the vandalised pipe would have contaminated the environment.

There is also of course the loss of revenue by the federal government which affects the state governments in terms of dwindling revenue allocation from the centre.

Way forward

After extensive deliberations, the interactive session agreed that if oil theft is to be effectively checked, local and international action were needed.

This is because the multinational corporations that buy the stolen crude from the oil thieves must know that they are not from the official source.

It was also agreed that all the processes in the sector, from exploration, extraction, refining, and exportation among other should be made more transparent.

The agencies of government overseeing the oil sector were also called upon to set up information desks to provide information to the public upon request in line with the FoI Act.

It was also agreed that oil theft thrives because the actors see some incentives and thus, any attempt at discouraging oil theft would have to start by making it unattractive. It agreed that oil theft and illegal refining will be reduced if not completely stopped if the incentives are eliminated through a radical change in sectorial structure, citizen’s involvement and public accountability.

Encouraging of local citizens who engage in illegal refining to effectively and legally participate in the oil industry was also identified as another way to discourage illegal oil bunkering and refining, even as it would also help such refiners to also reap the other by-products of crude oil.

It also agreed that the Civil Society Organisations and the Media needed to synergise in exposing those involved in oil theft and in exploring ways to stop them.

The need to collaborate with local oil producing communities and those hosting oil and petroleum pipelines to expose activities of illegal operators and reveal information on actual situations was also identified.

Most importantly, the session noted that attitudinal change by stakeholders – the citizens, the CSOs, the, media, the private sector, politicians and the government is needed to curb the illegal trade.

Earlier in his keynote address, Tunde Akanni, a consultant, had noted that oil theft in Nigeria had reached an alarming proportion that urgent action was needed to address it.

He said that oil theft despite the adverse affects it was having on the country’s economy, the federal government appeared not to be doing enough to tackle it and as a result, so many actors both local and international have joined the trade.

According to him the interactive session had become necessary because the civil society has observed that a process of co-optation between the CSOs and the media was necessary to expose and address oil theft and its negative effects on the nation’s environment and economy.

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