Nigeria is the most populous black nation on earth with the highest GDP in Africa. Its influence stretches across sub Saharan Africa, with its economy and economic policies affecting not just itself but its allies, especially those in Western Africa, some which rely on her for their existence. At the heart of its economy is its most important natural resource oil. Oil has consistently generated over 80% of its revenue in the last few years and the NNPC was set up with the sole purpose of managing this resource.
Formed Thirty Eight years ago the Nigerian National Petroleum Corporation was set up to regulate and manage the government’s interests in the country’s petroleum industry. It has earned more revenue for the government than any other public agency and currently the revenue it generates is the largest stream that accrues to the government from one source. However mismanagement, corruption and gross ineptitude have led to mind boggling losses of revenue for the nation.
In the late 2013, the then Governor of the Central Bank of Nigeria and the now Emir of the ancient city of Kano Sanusi Lamido Sanusi, alleged that $20bn of oil revenue could not be accounted for, a few months later he was ignominiously suspended. Months later, PwC a leading consulting firm released a damning audit report stating that NNPC over paid itself over $2bn from oil revenue. What Nigerian’s failed to realize was that this was only a fraction of the sums mismanaged or that could not be accounted for.
Between 2011 and 2014 the average price for Nigeria’s crude was $110 per barrel, however the earnings paid into her treasury reduced drastically during this same period. Successive administrations have turned a blind eye to sleaze and unimaginable filth in the oil industry. Reports such as the government commissioned NEITI Report (199-2012), the Petroleum Revenue Special Task Force Report (2012), the PwC Report (2015), have led many to ask questions about the ability of the NNPC to manage Nigeria’s petroleum resources.
The recently released report ‘Inside NNPC Oil Sales: A Case for Reform in Nigeria’ by the Natural Resource Governance Institute, identified five pressing issues which need to tackled urgently. They relate to Domestic Crude Allocation, Revenue retention by NNPC and its subsidiaries, Oil-for-product-swap agreements, the abundance of middlemen in NNPC oil sales and Corporate Governance, over sight and transparency in NNPC.
According to the NRGI report, 445,000 barrels of crude oil are supposed to be routed to our local refineries daily to provide the nation with petroleum products she needs. However, these old and decrypt refineries have on the average in the last ten years performed at below 30%. The NNPC exports two-thirds of the crude allocated for domestic use. The revenue generated from these sales is spent as the NNPC wishes. The Government treasury received only 58% of the oil sales $16.8bn value for 2013 as NNPC’s discretionary spending from revenue from Domestic Crude Allocation reached $6bn for 2011-2013.
The NNPC claims these spending are used to fund petroleum product subsidies, however a ‘Final Report on the Process and Forensic Review of the NNPC’ by KPMG found that in three years the NNPC had paid itself around $6.5 billion to fund subsidy on 15.6 billion litres of petroleum products that were not available. Records indicate that the NNPC retained revenue to the tune of $12.3 billion that accrued from the sale of 110 million barrels of oil from one block controlled by its subsidiary NPDC. Off budget spending by the NNPC between 2009 and 2012 was a total of $4.2 billion. Neither the NNPC nor its subsidiaries disclose how much they earn or how they spend what they earn.
Luckily, over the weekend the Federal Government announced that there will be a Treasury Single Account into which all government agencies will remit revenue earned. This will help to account for monies made by the NNPC and its subsidiaries.
Nigeria is the only stable, major oil producer that sells oil to middle men rather than to the end users. Over 90% of the oil NNPC allocated in 2014 went to middle men. Major oil producers sell their oil directly to refineries and countries; however, the NNPC sells its oil through middle men to end users. Most of these middle men are cronies of politicians or companies fronting for highly placed individuals in society. The spread that these middle men earn is lost revenue to NNPC.
NNPCs internal records keeping systems and processes are disorganized and secretive. The reporting of its earnings to other government agencies and the public on oil sales are unverifiable claims as there are no checks and balances, weak audit boards and an almost non existence corporate governance structure in place.
Muhammadu Buhari was sworn in as the 5th elected President of the Federal Republic of Nigeria. The retired Army General is known to have a no-nonsense stance against corruption. Already there are stories of officials and friends of the past administration who have started making overtures to return stolen funds. Even though he has earned the nickname ‘Baba Go Slow’ for the pace at which his government has made appointments, a certain methodology can be gleaned from dismissals and appointments of persons into key positions. The general consensus is that these individuals were appointed based on merit. This is a departure from the past governments that made appointments based on political sentiments.
Last week President Buhari appointed Dr. Ibe Kachikwu, a First class graduate of Law from the University of Nigeria and the Nigerian Law School with a postgraduate degree from Harvard University as the new Group Managing Director of the NNPC. Dr. Ibe Kachikwu has numerous years of experience in the Nigerian Oil and Gas sector. He also has the unenviable task of reforming the NNPC, however he can be assured of the support of the Number One citizen of the nation as tries to reform the ailing NNPC.
Mr Kachikwu will need to restructure the internal workings of the NNPC, commercialise the operations of the NNPC and tackle crude oil theft. He will also need to oversee the sale of NNPC’s down-stream operations, as a National Oil Corporation has no business being a player in the down-stream sector. He will need to increase remuneration for NNPC employee’s to reduce the temptation to steal and scrap the Oil-for-products swap deal that has caused the loss of revenue for Nigeria. Most importantly, he needs to oversee the creation of corporate governance structures to increase transparency, create checks and balances and put in place proper audit procedures. Nigeria cannot afford to continue to pay for subsidizing petroleum products; he will need to oversee the elimination of fuel subsidy. He will also need to review the Domestic Crude Allocation in the light of the increase in the production capabilities of the refineries and he will also need to eliminate the use of middle men in NNPC oil sales.
Due to lowering oil prices and a reduced demand for her crude, Nigeria cannot continue to leave NNPC and her cronies to their whims and caprices. She has lost Billions of dollars and would continue to do so if reforms are not implemented immediately.
The inability to pass different versions of the Petroleum Industry Bill and the blind eye that successive administrations have turned to the sleaze in NNPC shows how deep the rot in NNPC runs. Past administrations used the oil revenue to settle cronies, build political bridges, fund elections, fund personal projects and unjustly enrich themselves. Luckily, power has changed hands in Aso Rock and in the NNPC.
A Buhari presidency is the best chance Nigeria has to overhaul and reform the NNPC, her subsidiaries, her structures and bring sanity to the petroleum sector.
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