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Powerful blocks to reform in Nigeria’s oil sector

Oilfield Technology,

Following the fuel subsidy crisis in Nigeria in January, the government is set on convincing its people, politicians and investors that it intends to improve transparency and governance in its oil sector. But making cosmetic changes to the staff of its state-owned oil company, as well as launching yet another set of audits into oil companies, will do little to change the culture of corruption embedded in the Nigerian National Petroleum Corporation (NNPC), named as the most corrupt oil firm in the world by Transparency International. The latest draft of Nigeria’s Petroleum Industry Bill (PIB) may have offered a glimmer of hope, but in fact it heavily dilutes the government’s promised reform of the oil and gas sector.

In international circles, President Jonathan’s administration is riding high on its national reform programme, promising an overhaul of its state power sector and a revamp of the oil industry. When one takes a closer look, it seems that Nigeria’s reformers do in fact exist, but they are blocked by powerful vested interests in the executive, the oil ministry and the national assembly. Central Bank Governor, Lamido Sanusi, for example, seems to be trying to break the mould. At a recent National Assembly hearing, he questioned the statistical projections in successive Nigerian budgets on oil revenue, suggesting that the poor data-gathering capacities of the NNPC mean that there is actually no reliable auditing of crude production in Nigeria (officially set at 2.7 billion bpd), and still less of how sales are spent. In another bleak assessment, Sanusi also estimated that over 10% of Nigeria’s GDP is siphoned off. The government’s arithmetic seems to be under attack, posing major questions on the actual sovereign health of the state’s purse.

Rather than progressive structural changes, President Jonathan’s idea of reform seems to be to selectively replace the top brass of highly criticised institutions. Recent reshuffles of the leadership of the NNPC – replacing Group Managing Director Austen Oniwon with Andrew Yakubu – are actually said by industry insiders to consolidate the power of the president’s close ally, Oil Minister Diezani Alison-Madueke, and cement her hold over the NNPC and the reform plans. The newly proposed PIB worryingly attempts to cement the power of NNPC by essentially giving it wide regulatory powers, as well as maintaining its own commercial interest in oil blocks. This latest draft has been signed off by both the president and Alison-Madueke, but is currently experiencing resistance from political and industry players.

Another trick seems to be to subject the companies and quasi-state institutions to financial audits. In August oil companies operating in the country were summoned to submit documents relating to oil production and taxes paid to the government between 2009 and 2011. There is no doubt that there are serious irregularities here, but from past probes, little evidence suggests that this is effective as a systematic anti-corruption tool. The parliamentary probe earlier this year alleged NNPC to have committed fraud worth US$ 6.8 billion regarding fuel subsidies. But the most complicit, and by extension most powerful, fuel trading companies are still fighting hard to discredit the report by creating a saga in the National Assembly and throwing claims of bribery at Farouk Lawan, who chaired the House of Representatives’ probe.

The reality is that the various forms of revenue produced by the oil sector – subsidies being just one example - are a source of major political patronage in Nigeria, and have been for years. The political costs of truly reforming the oil sector may be too high for President Jonathan’s administration, and perhaps for successive administrations in years to come.

Author: Hannah Waddilove, Sub-Saharan Africa, Intelligence Analyst, AKE Ltd.

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