CSIS forum: Nigerian oil reform appears possible, but difficult

Depressed crude oil prices, coupled with the election of a reform-minded administration, gives Nigeria an opportunity to change its state-owned petroleum operations, two speakers suggested at a Center for Strategic and International Studies event. But they also warned that it will be a major challenge because corruption is pervasive and Nigerian National Petroleum Corp. is very opaque.

“There have been a few positive signs,” said Alexandra Gillies, who directs governance programs at the Natural Resource Governance Institute (NRGI). “The new petroleum minister not only committed to reforms, but actually put out a report with up-to-date financial figures, which had never been included. He also canceled many problem deals. The ministry also has indicated it will reduce the number of trading companies it works with from 43 to 16. There’s reason for some optimism.”

Aaron Sayne, a principal at 104 Consulting, said, “This is a unique, auspicious moment for changing some very bad practices. For the first time, you have people from [Pres. Muhammadu Buhari] on down who are willing to point the finger of blame instead of insisting everything is fine. Beyond the government, you have unprecedented engagement and involvement in the media and public in attacking corruption.”

Sayne said, “If something is going to happen, there has to be more cooperation. It has to be all hands on deck when it comes to combating corruption. Different parts of Nigeria’s and other governments may need to find new ways of talking to each other and sharing resources. The same is true of the [non-government organization] community and general public. People need to overcome their prejudices and start talking to each other.”

In “Inside NNPC Oil Sales: A Case for Reform in Nigeria,” an Aug. 4 NRGI report the pair wrote with Christina Katsouris, an Africa correspondent for Energy Intelligence Group, Gillies and Sayne recommended that the Buhari government, in the near term, should eliminate Nigeria's Domestic Crude Allocation, halt the discretionary retention of revenues by NNPC and its subsidiaries, fix the oil-for-product swap agreements, rid oil sales of unnecessary middlemen, and improve NNPC’s transparency and corporate governance.

Attack underlying problems

They also said that a second reform track in the medium term should tackle NNPC’s underlying problems, which must be solved before the company can begin serving the public interest.

“There are some very important governance reforms that need to take root,” Sayne told his audience at CSIS on Oct. 29. “NNPC has hired several very talented consultants to develop better management practices which were never used. The government could constitute a nonpolitical board for the organizations, which the petroleum minister would not chair. It will need to be ready to order an audit when a scandal materializes, as well as regular audits, which NNPC has committed to doing, and commitments to use the results.”

Gillies said, “Nigeria, compared to a lot of other countries, is very opaque. There’s a lot of information out there, but it can be hard to make sense from it. There absolutely are major transparency gaps around contracts and beneficiaries. But it’s necessary to motivate decision-makers in the government national assembly to ask the right questions.”

Sayne said, “NNPC does not have a settled legislative model for how it finances its operation. It doesn’t get adequate funding from the government to run its affairs. The problem is not that at the end of the line, NNPC is not depositing money into the treasury. A lot of entities which already receive money are joint NNPC-government accounts. Until there are clear rules about what NNPC is supposed to remit versus what it can keep, I don’t think there will be much progress.”

Asked if there is enough political will to complete actual reforms, he said a number of smaller Nigerian government institutions could help, but they have not been given authority to ask hard questions about NNPC by past governments. “One productive thing the new government can do is to say to these lesser organizations that it’s okay to ask questions and assure them they will survive,” Sayne said.

Gillies noted, “Talking with the Swiss trading companies is important. They’ve been left out in the past despite their doing a lot of business around the world and having large financial footprints in countries like Angola and Nigeria. They grew accustomed to being under the radar, but I hope we’re making slow and steady progress in encouraging them to be more transparent and forthcoming.”

Contact Nick Snow at nicks@pennwell.com.

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