In January, when representatives of oil-producing communities converged at the National Assembly for a public hearing on the controversial Petroleum Industry Bill (PIB), they turned the venue into a wrestling ring. The visitors from Niger Delta were in Abuja to clarify their interests in the bill and protest perceived injustice by the federal government and oil companies. Among their demands was a 10% equity shareholding in the oil companies operating in their communities. This was against the provision of the bill, which provides for the creation of Petroleum Host Communities Fund (PHCF) to grant the victimized people 2.5% of the oil companies’ actual operating expenditure for the preceding year.
Even though there’s already the vastly under-utilized and misappropriated 13% Derivation Fund, a subsisting law that addresses community funding, I’m more curious about the provision in PIB that tasks oil-producing communities with first-line protection of oil facilities. This is a responsibility in which the military, the Police and the Civil Defence have failed, and yet with no state official hounded for paving way for the volatility of the oil-rich region. This, again, is the government admitting to lacking the monopoly on violence in a bill designed to strengthen institutions that govern Nigeria’s oil and gas sector.
The bill also presents a series of paradoxes that merely reflect the familiar Nigerian dysfunction. The agitation for 10% equity shares in mostly foreign-owned oil companies that already pay tax to Nigeria, although an unrealistic expectation, is an outcome of our perennial mismanagement of the trust and fund of these host communities. So, the proposed community funding, although a fair demand, is a telling indictment of the managers of the 13% Derivation Fund designed to salvage the Niger Delta. The probe of NDDC MD, Daniel Pondei, on the mismanagement of N40 billion gave us an idea of what has happened to the region, as also underlined by the large-scale corruption of their leaders, including former Governors James Ibori and Diepreye Alamieyeseigha, of Delta and Bayelsa States respectively.
What the framers of the bill don’t seem to have acknowledged is the critical role of the disasters called Nigerian politicians in building strong institutions in Nigeria. With the same cast of politicians in charge of affairs, this proposed disbanding of existing oil-administering bodies is akin to a mere change of acronyms. The problem of Nigeria’s oil and gas industry, aside from the technical aspects of it being utterly inaccessible by the public, is the persistent political interference and quality of the citizenry. The citizens don’t get to ask tough questions to understand and oppose the grand corruption that drives the industry. For instance, in its 43 years of operation, Nigerian National Petroleum Corporation (NNPC) only got to publish its first-ever audited financial accounts last year. This is a frightening realization.
The PIB, officially titled “A Bill for an Act to Provide Legal, Governance, Regulatory and Fiscal Framework for the Nigerian Petroleum Industry, the Development of Host Community and for Related Matters”, proposes to also disband the existing governing institutions, especially NNPC and Department of Petroleum Resources (DPR). These two entities aren’t the same and have functioned separately in the pre-PIB oil sector. DPR is the main regulator of Nigeria’s oil and gas industry, and tasked with licensing and permits, while NNPC mostly represents the country’s commercial interests in the oil market along with limited regulatory functions.
But this restructuring of the oil and gas governing institutions undermines the intelligence of Nigerians in a way. One, PIB proposes two regulators, the Nigerian Upstream Regulatory Commission (the Commission) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (the Authority) to take over the functions previously performed by DPR. This is ironic in a sense, for DPR, as simply explained by my good friend and oil industry insider, Suraj Oyewale, “does to oil and gas industry, what CBN does to banks – oversight.” Despite the size and sophistication of Nigeria’s financial sector, he explained in our conversation around PIB, the Central Bank of Nigeria hasn’t been disintegrated into different organizations to focus on the operations of commercial banks, micro-finance banks and the fast-expanding FinTech separately. This has always been the trouble with Nigeria, the mindset of always rushing to create a committee and duplicate or redundant agency to address a social or bureaucratic dysfunction even though the problem has been the frailty of existing institutions all along.
Secondly, the so-called commercialization of the NNPC shouldn’t excite the public. The privatization template proposed in the current version of the bill, with the loss-accruing corporation assuming a commercial status, isn’t privatization in the sense most understood by Nigerians. The proposed incorporation of NNPC as a limited liability company under the Company and Allied Matter Act does not imply that the shares are available for the public or private enterprises as hastily assumed by those who’ve compared the new firm to the massively successful Saudi Aramco or even the Nigerian Liquefied Natural Gas (NLNG) Limited.
The concern about this commercialization of the NNPC is the uncertainty of its shareholding structure, especially because the corporation has existed as a cash cow of the government and yet there’s no feasible alternative to Nigeria’s monthly revenue inflow. Even if entirely owned by the government, NNPC limited, like any company, shall be based on dividends, which aren’t a monthly business. So, where does a country that’s relied almost entirely on the proceeds of oil intend to source money while it awaits dividends? Perhaps there’s something the politicians aren’t saying. Only 49% of NLNG, for instance, is owned by Nigeria (NNPC), with the other shares belonging to Shell (25.6%), Total (15%) and Eni (10.4%).
The workability of the reforms proposed in the PIB is one that Nigeria must pay attention to, and it’s embarrassing that there are these many unanswered questions around the bill after 20 years of frustrating attempts to adopt it. Reorganizing the industry, which is largely a mere change of acronyms in some areas, is the easiest part of the process. How has Nigeria managed the previous governing institutions and are we importing a new cast of politicians and experts to run the new organizations or mind their business and allow the industry to optimize its functions this time around?
PIB is, no doubt, a desirable quest for transparency and efficiency in the Oil and Gas sector, but we can’t build a mansion on the bank of an island without a solution to declared flooding of the areas. The bill can’t redeem the conditions of the oil-producing communities that have been governed by corrupt politicians who misappropriated funds earmarked for their redemption. Unless the institutions are strengthened to resist political interferences, scrapping the existing regulatory bodies is just a ceremonial or futile exercise. The problem isn’t the size of the oversights before the regulators, it’s the corruption of the political class and the undermining of these governing agencies. But, ultimately, the heightened interest of Nigerians in the operations of this industry and the components of PIB itself is highly required.
Mr Kakanda is an Abuja-based public policy analyst and columnist.