Buhari anti-corruption crusade to lead to transparent NNPC

Corruption has been the bane of the oil and gas sector, particularly state oil company, the Nigerian National Petroleum Corporation (NNPC).

The Buhari administration will have the arduous task of nipping in the bud of corrupt practices. Since emerging winner of the just concluded presidential elections, the president-elect has said that his administration will not tolerate corruption.

“Buhari could potentially significantly reduce corruption in NNPC which will lead to the demystification of NNPC, thus enhancing the prompt payment of Nigerian Petroleum Development Company (NPDC) debt owed to producing companies; and hence freeing up cash flows to increase production,” said Renaissance capital on its recent note on the implication of a Buhari’s win on the oil and gas sector.

“This is positive for Seplat. In addition, the management of the oil and gas revenue by the government will be more transparent,” the report adds.

With weaker oil prices and Nigeria’s minimal fiscal savings to date, important challenges will confront the new government as Nigeria remains an oil dependent economy.

Oil and gas account for more than 90 per cent of export revenues and the Nigerian government relies on oil for 70 percent of its fiscal revenues. These have roughly halved in the past six to eight months. The 45 percent fall in the price of Brent Crude since last June has wreaked havoc on Nigeria’s financial health.

Buhari owes his March 28 victory against incumbent Goodluck Jonathan partly to a perception that Jonathan allowed corruption to get out of control — especially in the oil sector.

“We need to address the structural issues and leave the fiscal for now,” Senator Bukola Saraki, in an interview with Reuters.

“A more transparent NNPC (Nigeria National Petroleum Corporation) is needed with reasonable accounting,” he adds.

NNPC missing $20 billion

In late 2013, Nigeria’s then central bank governor Lamido Sanusi, who is now the emir of Kano wrote to the president, Goodluck Jonathan claiming that the NNPC had failed to remit tens of billions of oil revenues it owed the state.

Nigeria’s oil industry accounts for around 95 percent of the country’s foreign exchange earnings. If Nigeria continued to leak cash at the rate described in his letter to the president, Sanusi said at the time, the consequences for the economy would be disastrous.

Specifically, the failure of state-owned Nigerian National Petroleum Corporation “to remit foreign exchange to the Federation Account in a period of rising oil prices has made our management of exchange rates and price stability … extremely difficult,” he wrote.

“The central bank of Nigeria is always blamed for high rates of interest,” but “given these leakages, the alternative is a devalued currency … and financial instability.

That is exactly what has happened. As oil prices have plummeted since half their level at the beginning of 2014, Sanusi’s successor Godwin Emefiele has devalued the naira twice.

Passage of the PIB

The Petroleum Industry Bill (PIB) will be one of the major and necessary tools to tackle headlong graft in the oil and gas sector, which accounts for about 70 per cent of budget revenue and 90 per cent of export revenue.

The PIB, lying in the National Assembly, was first sent to the hallowed chamber in 2009. The bill seeks to, among others, enhance transparency as well as attract investments and create more jobs in the oil and gas sector.

It has, however, been stuck in the legislature because of the inability to resolve the controversy over fiscal terms and certain socio-economic issues.

Uncertainty over the fiscal terms of the bill have been holding back billions of dollars of investment, especially into capital-intensive deepwater offshore, leading some to propose the bill be broken up into several pieces debated separately.

If not passed before the end of this administration as promised by the National Assembly, Nigeria will continue to be denied inflow of investments – put at $109 billion – to the sector.

The president-elect’s manifesto states that he will speedily pass the much-delayed PIB and ensure that local content issues are fully addressed.

According to Analysts, this will favour indigenous companies like Seplat, Lekoil, Oando and Mart Resources as the bill will focus on local content.

Pipeline vandalism

Pipeline vandalism has been a perennial issue and through which thousands of barrels of crude are lost daily, translating to the loss of substantial amount of revenue that would have accrued to the treasury.

Between January this year and the first week of March, vandalism cost the economy N8 billion while from 1999 to 2009, N174.57 billion in product losses and repairs of product pipelines were recorded.

Rencap stated in its report that “with the Buhari crusade for anti-corruption and discipline, we believe in the medium term he should be able to tackle the vandalism of pipeline.”

JOSEPHINE OKOJIE