Professional Documents
Culture Documents
The five strongest corruption risk areas in the oil and gas industry
Gillies (2009) cited by Donwa, Mgbame and Ogbeide (2015)[3] has also proposed that the
following five key areas are more susceptible to corrupt practices in the Nigerian oil and gas
industry:
Award of licenses: Gillies (cited above) explains that the Petroleum Act gives the
Minister of Petroleum full authority or discretion in the award of oil blocks and allocation of
licenses for the exploration, prospecting, and mining of oil. In most cases, the Ministers tend
to be the errand boy of Mr. President or the Head of State, depending on the political regime
military of civilian. The licenses given for the oil blocks, in certain cases, may hardly be
paid for in reality. In some cases, they may be awarded to a select few to secure patterns of
behaviour supportive of the ruling regime. The beneficiaries of the oil blocks, in such
contexts, may simply resort to sell them to foreign oil companies to earn enormous resources
without making any investment, at the expense of the Nigerian poor people.
Award of contracts: Primarily the oil and gas sectors involve numerous awards of
contracts to oil service companies. The process of such awards usually creates conflicts of
interests, resulting in award of contracts to companies owned by insiders, cronies, politicians,
in and out of the various arms of government.
Bureaucratic bottlenecks and inefficiencies: a typical contract award is required to
scale through three stages, depending on the size or the sums involved. Larger contracts often
require the approval of the Federal Executive Council. Gatekeepers exist at each of the
stages, with the effects of undermining the efficiency and costs of operations in the subsector.
Bunkering: Bunkering is defined as the theft of crude oil directly from pipelines,
flow stations, and export facilities (Gillies, 2009). From the works of Gillies (2009) and
Gentile (2007), the estimated quantity of crude oil theft through bunkering in Nigeria ranges
from 100,000 bpd, 180,000 bpd, 200,000 bpd (equivalent to the entire Camerouns oil
production), to 600,000 bpd. According to the International Energy Agency, the figure of the
crude oil theft in Nigeria, at a point, was estimated at US $7 billion annually (Oketola,
2013). Bunkering is perpetrated by a network of governments and oil companies. It has been
suggested that the armed militia who are involved in bunkering tend to enjoy the sponsorship
and support of top government officials, particularly at the levels of the executive and law
enforcement agencies. The specific act of bunkering through under-recording of crude oil into
export vessels can hardly take place without the complicity of government and oil companies
officials. It has also been suggested that communities tend to support the activities of those
involved in crude oil theft because they tend to derive some benefit from such activities, as
against the criminal neglect of their welfare by government.
Export of crude and importing refined products: the processes of exporting crude
oil and importing refined products are laden with corrupt practices. As Donwa, Mgbame and
Ogbeide (2015) explain, the exporting process involves the NNPC issuing lifting or export
contracts to international oil trading companies, some NNPC-affiliated companies, and a few
foreign governments. These traders buy the crude from NNPC at market price and sell to
refineries and other buyers internationally. Similarly, the importing process of petroleum
products involves the NNPC also awarding licenses to private companies to import refined
petroleum products e. g. petrol, kerosene, and diesel. Even though the Federal Government
claims to subsidise the cost of the imported products, it has been established that the process
is overwhelmingly corrupt such that what government actually subsidises is corruption eg.,
payment for products that were never imported, multiple payments for the same set of
imports, false demurrage claims, and so on.
A Few Instances Of Scandals In The Oil And Gas Sector
Unremitted $20bn:
The then CBN Governor, Mallam Sanusi Lamido Sanusi, established with documentary
evidence, the fact that the NNPC did not remit into the Federation account the sum of $20bn
between January 2012 and July 2013, alone:
In summary, it is established that of the $67 billion crude shipped by NNPC between
January 2012 and July 2013, $47 billion was remitted to the Federation Account. It is now up
to NNPC, given all the issues raised, to produce the proof that the $20billion unremitted
either did not belong to the Federation or was legally and constitutionally spent. There is no
dispute that $20 billion out of $67 billion has not been paid into any account with the CBN.
The Farouk Lawan (House of Reps) Panel implicated the NNPC in thefuel
subsidy scam of $6.5bn.
The N10b allegedly spent by the former Minister of Petroleum, Mrs Diezani AlisonMadueke on hiring private jets during her travels.
THE HALLIBURTON SCANDAL
In the Halliburton scandal, a US oil service company pleaded guilty to paying over
US$180million in bribes to many top Nigerian public officers to secure four contracts, worth
over US$6billion. The beneficiaries and the amount involved are as stated below:
THE HALLIBURTON SCANDAL[4]
S/N Periods
Beneficiaries ( company / Individual)
1.
1994 1995
General Sanni Abacha (former Nigeria
Military Dictator)
2.
1996 1998
Dan Etete (former Minister of Petroleum
under Abacha)
3.
1996 1998
M. D. Yusuf (Former Inspector General of
Police and Chairman of
LNG)
4.
1998
General Sanni Abachas brother, Abdulkadir
Abacha
Amount involved
$40 Million
$2.5 Million
$75,000
$1.887milion
5.
1999 2000
6.
2001 2002
7.
2001 2002
8.
2001 2002
9.
2001 2002
10.
March, 1999
11.
1999 - 2000
$195,000
12.
March, 1999
Edith Edeghoughou
$290,000
13.
March, 1999
$600,000
14.
March/June,1998
$1.12Million
15.
$2.4 million
c.
d.
statements
e.
f.
g.
h.
NNPC
i.
j.
Lost imports
Claims on non-associated gas
NB: It is important to note, however, that the discrepancies, according to NEITI, were limited
to only the potential losses that the auditors could readily quantify and estimate.
The Reports highlighted a large number of additional problems and challenges in the oil
sector, many of which were likely to have caused losses in revenue for the government but
were impossible to estimate.
2.
Domestic Crude Value Reconciliation and indebtedness by the NNPC: NEITI
explains that ordinarily, subsidy payments should normally be made from the CBN through
the Petroleum Support Fund on the approval of the Accountant General of the Federation
(AGF) based on claims approved by the Petroleum Products Pricing Regulatory Agency
(PPPRA). However, the reconcilers observed that NNPC deducts the subsidy claims directly
from the domestic crude proceeds before remitting to the Federation Account. This practice
appears to have been partially continued as recent publications on the website of the
NNPC show that total receipts for crude oil and gas exports between January and September
2015 were $3.69bn. Out of the receipts, $610m was remitted to the Federation account while
$3.09bn was used to fund Joint Venture cash calls during the same period.
3. The actual amount of oil produced in Nigeria is not known. NEITI explains that oil is measured
at terminals but not at well heads of flow stations. For this reason, oil theft takes place between these
points, resulting in lost revenue for the government.
4. Unclear tax legislation which has led to beneficial interpretations of tax liabilities by oil companies
resulting in reduced revenue for government both from PPT and Royalty payments. NEITI also
points out that the tax regime of the sector is one characterised by unregulated self-assessment,
which encourages tax evasion and tax under assessment. NEITI further found for example that Tax
assessments submitted by two companies do not match their own internal audited financial
statements.
5. Application of legal incentives: NEITI found that there are interpretation differences between
NNPC and PSC contractors regarding how the PSC agreements and legal incentives should be
applied.
6. Overstatement of costs in tax assessments: According to NEITI, this implied that companies might
be abusing capital allowances in an attempt to reduce their tax liabilities.
7. Information Technology: NEITI found that I.T. systems in government are not
sophisticated enough to deal with financial information flows from the sector.
8. Conflict of interests: NEITI found that the NNPC was both the buyer and seller of oil, thus creating
a conflict of interests and resulting in lost revenue for the Government.
Establish and/or verify the quantity of barrels of crude being produced. Metering
infrastructure to determine the quantity of crude oil being produced on a daily basis ought to
be installed.
Prosecute all those who had been arrested in connection with incidences of oil theft.
iii.
Establish or disclose the true actual cost of producing one barrel of crude oil so that the
true actual profit margin per barrel can be determined. Without establishing these figures,
those who are in control of the sector would continue to short-change the rest of the society. It
has been established that in the course of 2006, the average price of a barrel of crude oil on
international markets was in the range of $65-$75, while costs per barrel ranged from $4-$5
(in the Middle East), $12 (in the Gulf of Mexico), to $15 in the North Sea (Obioma, 2012).
This meant that the profit margins ranged between $50 to over $70 per barrel.
iv.
Regular publication of revenue flows (the sources, the rates, the amount, etc) on a daily
and/or weekly basis so as to make it difficult for manipulation of figures, provided that the
remuneration of the political chief executives is brought within limits, reflective of the
economic realities of Nigeria and the living standards of workers in the industry.
v.
vi.
vii.
viii.
ix.
x.
xi.
xii.
xiii.
xiv.
xv.
last few weeks, Port Harcourt, for example, has come out of the albatross and is producing
right now at about 67 per cent capacity. Our target is to grow Port Harcourt to about 70 t0 75
per cent capacity by the end of the year. Warri is beginning to signal that there is a likelihood
that it will come on stream. If any refinery produces below 60 per cent, then it is not
production because the performance capacities of refineries worldwide are in the 90 per cent
and above categories, and that is when you begin to make yields. That is when it can be said
to be a profitable refinery. (see http://www.nairaland.com/2708689/nnpc-loses-120bntwo-month accessed on 9/11/15). But a few days ago, the same Kachikwu lamented thatthe
country needs $500m to fix the nations crude oil refineries, which have all shut down
(See Sunday Punch, 8 November 2015:8). According to media reports, he further stated that
he has not dropped the idea of conducting forensic audit on its account books. One
would have expected that the first step a new GMD would embark upon is to conduct an
audit in order to understand the real issues as the man behind the wheel.
Elected Democratic bodies, including trade union and labour movement representatives,
to be set up for the award of licences for exploration, prospecting, and mining of oil, rather
than leaving such to the discretion of the Minister or Mr. Presidents directives.
Execution of projects, primarily, through direct labour in the NNPC and/or collaboration
with governments, nationally and internationally, through Public-Public-Partnerships as
opposed to contractocracy and Private-Private-Partnerships.
Establishing of clear and open criteria for the award of contracts to service companies where
such cannot be carried out in-house through direct labour on account of lack of skills or
appropriate technology required.
Establish mandatory timelines for the award and completion of contracts. Indeed, a
policy may be established, in appropriate situations, such that failure of public officials to
perform their duties within the stipulated timeline means consent, provided that any public
official that makes government to incur losses through deliberate inept attitudes would be
made to personally suffer the consequences, in terms of being responsible to assume such
losses on behalf of government and being made to go through prosecution processes.
Massive investment in training and retraining so that workers and staff in the industry
acquire the necessary skill to operate and monitor various categories of activities in the
industry.
Establish more refineries and carry out repairs of the existing ones. Ensure the refineries
acquire the capacity to refine the crude for both domestic consumption and export. Those
who have diverted the investments meant to carry out Turn Around Maintenance (TAM) over
the decades should be brought to justice. Where this is done, there would be no need for
subsidy on domestic consumption of petroleum products. Rather, the sector would generate
surplus for investment in public enterprises for public good. Resist the privatisation of the
refineries. Rather, government should take the fight against corruption to the oil and gas
subsector.
The fight against corruption should not be discriminatory. All those involved in the ruin
of the oil and gas sector, including the refineries, should be brought to justice. What they
have looted in money and physical assets should be traced, wherever they may be,
internationally, seized, forfeited and recovered and they should be allowed to cool their legs
in prison for the rest of their lives.
Urgent review of tax legislation to clear ambiguities and provide against self-tax assessment
by oil companies.
Carry out urgent review of incentives regime in order to remove any ambiguities in their
application to any agreements.
Penalise falsification of tax assessments or non-disclosure of relevant facts to enable
proper tax assessment.
xvi.
xvii.
[1] Being Paper delivered at the NUPENG 2015 Annual Education Seminar on the theme
Global Oil Politics, Investments and Employment Relations in the Nigeria Oil And Gas
Industry held on 11th - 13th September 2014 at Immaculate Royal (Intl) Hotel, Port Harcourt
Road, Opposite Imo State House of Assembly, Owerri, Imo State.
[2] See http://iiste.org/Journals/index.php/JAAS/article/viewFile/26422/27065 on 9/11/15.
[3] See http://iiste.org/Journals/index.php/JAAS/article/viewFile/26422/27065 on 9/11/15.
[4] See Usman, S. O. (2011). The opacity and conduit of corruption in the Nigeria oil sector: Beyond
the rhetoric of the anti-corruption crusade. Journal of Sustainable Development in Africa. 13(2), 294308.
[5] See M. Sunmonu (2013) Powerful Nigerians Behind oil Theft Shell in The Punch, Thursday,
February 21, 2013, Lagos, p. 30.
[6] See Akpatason peter (2013) Blame Crude Theft on Security Agencies - Akpatason in Vanguard, May 7,
Lagos, p.21.