Transparency – taming the big elephant in West Africa’s energy sector
As oil prices looks to stabilize in 2017, if the positive forecasts the oil sector have seen following the OPEC agreement on November 30 last year, Sub-Saharan Africa has many issues to contend with to realise oil projections top of which is resolving transparency issues in the energy sector.
The Natural Resource Governance Institute, NRGI a transparency watchdog in the energy sector highlights why the issue is topical. While treaties, laws and other legal documents defining the relationship between governments and private companies are public, contracts between governments and oil, gas and mining companies are often shrouded in secrecy.
“They are usually unavailable to citizens in the countries where mining and drilling take place, and they often contain confidentiality clauses that explicitly limit public access,” says the organisation.
Some oil and gas companies protect the identities of their equity holders and subsidiaries .This aids misappropriation of funds. Inadequate financial statements help obfuscate corrupt deals, and deliberate misstatements prevent scrutiny. Therefore they are able to hide royalties, taxes and fees they pay and make it impossible to hold government accountable for oil incomes.
“Stolen oil and gas income has terrible consequences. It benefits an elite few. But for everyone else, it fuels conflict over resources. And it traps people in poverty they would otherwise avoid,” observes Transparency International, a global transparency watchdog.
However there is a growing international call to make the terms of industry contracts publicly available, and establish new norms for what deal information made public and disclosed. Also, civil societies groups and non-governmental organisation within countries in Sub-Saharan Africa are demanding for dismantling the command-control fiscal and regulatory regimes to make them transparent.
On December 21, the Nigerian Extractive Industries Transparency Initiative (NEITI) released their review of NNPC’s monthly financial and operations performance. NEITI called for the development of an index by which the Nigerian National Petroleum Corporation (NNPC) could continuously measure its progress in improving its transparency and public accountability.
“We observe that this index is yet to be developed. We encourage NNPC to intensify efforts in developing this index,” NEITI says.
A transparency index in the view of Alexandra Gillies, analyst at Revenue Watch Institute, an energy sector think tank, should include a publication of a national oil company’s buyer, volume, crude grade, price and date for every cargo of oil sold.
“As with other significant revenue streams, oil sale payments and receipts should be fully disclosed and reconciled under the Extractive Industries Transparency Initiative (EITI), companies should disclose annually the price, volume, grade and date of each cargo that is purchased from a wholly or partially government-owned entity.
“Governments should require commodity traders and other buyers registered or listed in their country to report on payments made to producer country governments. Along with reporting on oil sales, NOCs should disclose how much oil they receive and the amount of all financial transfers to and from the government,” states Gillies.
This will appear like a tall order to governments in Sub-Saharan Africa. The mere fact that legislations and regulatory framework has provisions demanding transparency does not often mean that the operation of oil fiscal regimes in these countries will take it into account. In Nigeria, NNPC’s enabling act mandates the publication of the audited annual report and accounts but successive administrations have ignored the provision.
“We also observe that as at November, this Annual Report is yet to be published. Again, we encourage NNPC to intensify efforts in producing this Annual report,” NEITI said.
To improve transparency, NEITI recommended that the NNPC collaborate with IOCs to carry out Value–For-Money Audit on all the Federation’s Joint Ventures with a view to business process improvement on projects execution. It also recommended for a review of existing PSCs to negotiate more favourable terms and improve revenue base to the Federation.
Waziri Adio, executive secretary of NEITI in his comments about the report said: “What NNPC has done with its monthly reports could be termed a sea-change. From being the poster-boy for opacity, NNPC is voluntarily embracing openness and providing near real-time information about the state of play of our oil and gas sector today.”
This platitude accompanied NNPC’s decision to publish its monthly operations report something that ought to be a given.
In May 2016, the Ghana Extractive Industry Transparency Initiative (GHEITI) steering committee criticized the managers of the upstream petroleum sector of not ensuring adequate transparency in the activities of the country’s nascent the sector.
It called for the publication of oil blocks contracts awarded, licensing and timelines of specific activities on the upstream sector players, as well as the revenue management.
Ghana’s oil sector which effectively came on stream in 2011 lacks a platform or means that allow the general public to access information on the activities of the sector. Hence, the committee in its 2014 report on the oil and gas sector, called for the establishment of an online repository or information website to provide adequate information to the public on the activities of the sector.
“Most importantly, government should publish all these contracts so we can all make positive contributions and remove the elements of surprise. It makes no good reading suspicions in the international media about your country’s energy deals when we can avoid them altogether by first accounting to us locally. Government should make us prouder defending them internationally by giving us the tools of non-negotiable transparency,” said Franklin Cudjoe, founding president of IMANI Ghana, a transparency group in Ghana.
The committee enjoined the oil sector administrators to ensure transparency and efficient management of the petroleum resources; the Ministry of Petroleum should introduce licensing rounds including bidding and also make available on its website details of contracts with operators.
Also NRGI criticised the recently passed Petroleum Production and Exploration law as there is no provision that provides assurance that the full contracts, as well as their amendments and annexes, will be made public, rather than a simple list of agreements. The organisation recommended that the law require public disclosure of beneficial ownership of all license holders.
Contract transparency is essential to ensuring that all parties benefit from these industries. Disclosure of terms is necessary for effective government management of natural resources and allows citizens to ensure that companies fulfill their environmental and social commitments.
Other sub-Saharan African countries will indicate their willingness to take advantage of positive oil forecasts in 2017 and fight corruption by enforcing transparency provisions in their various regulatory and fiscal frameworks.
ISAAC ANYAOGU