Recent efforts by the Nigerian National Petroleum Corporation (NNPC) to increase transparency are marred by non-publication of its group financial accounts and refusal to disclose contracts signed with oil companies.
In June, the NNPC published its subsidiaries’ accounts but withheld the critical Group account. The NNPC business operations are managed through Strategic Business and Corporate Services Units (SBUs/CSUs) in diverse locations across Nigeria, and its group accounts present a complete picture of its financial affairs.
“It is expedient that its accounts are published such that the general citizenry in whose interests the NNPC manages these resources are apprised of its dealings,” Ayodele Oni, energy lawyer and partner at Lagos-based Bloomfield law firm, says.
At a time when countries are keen at attracting investments into their energy sectors, and the NNPC is involved in many joint ventures and other shared production arrangements with local and international oil companies, analysts say Nigeria should know these details.
“It is auspicious that in line with international best practices, the NNPC needs to be positioned as the channel for Final Investment Decision by publishing it and adopting other best corporate governance practices,” Oni states.
The NNPC is also not making the public contracts Nigeria signed with oil companies five years into the administration of President Muhammadu Buhari, who came to power vowing to end corruption.
Petroleum contracts set out the legal framework for oil and gas projects. When they are published, it allows for public scrutiny but previous governments have balked at disclosing them, claiming it could expose company secrets, give undue advantage to competition and violate contract terms.
But an analysis of 23 upstream and downstream contracts in Nigeria, including 10 model contracts, by Rob Pitman and Anne Chinweze, analysts at the Natural Resource Governance Institute (NRGI), an extractive sector transparency non-profit, reveals that contracts in Nigeria contain several terms for which a strong public interest case can be made for disclosure.
The duo say fiscal terms contained within contracts can have an enormous impact on public finances. In the upstream sector, exploration and production contracts and associated agreements contain clauses that dictate the amount of money the country receives in taxes and royalties and how much companies must share with the government.
“Downstream, sales and swap agreements determine how much the country receives for the oil it sells. In 2015, for example, petroleum revenue from taxes, royalties, oil trading and other payments accounted for 53 percent of total government revenue. Of these revenue streams, oil sales made by NNPC alone accounted for 39 percent,” note NRGI analysts in a briefing published on its website.
Though Section 5 of the Petroleum Profits Tax Act, prohibits the public disclosures of documents, information, returns or assessment lists or copies of such lists relating to tax or petroleum operations or the amount and value of chargeable oil won by any company, without the minister’s authorisation commits a crime. But as agency that manages these contracts on behalf the government, the NNPC is not pushing for making them public.
The Petroleum Act 1969 empowers the minister of petroleum resources to award oil companies licences for exploration, prospecting and production rights of crude oil in Nigeria. Successful companies are required to pay statutory fees – application and renewal fees, rents and royalties. Oil mining leases (OMLS) attract additional non-statutory fees including, bidding fees, data inspection fees, and signature bonus and reserve value fees. Nigerians often do not know what their government is getting from these deals.
The Federal Government has also failed to honour commitments it made to open up these deals. In 2015, Ibe Kachikwu, the then minister of state for petroleum resources, and then group managing director of NNPC, announced that contracts would be made open to the public.
One year later, Nigeria released a statement at the Anti-Corruption Summit held in London that it was “working towards full implementation of the principles of the Open Contracting Data Standard focusing on major projects as an early priority.”
In 2017, Nigeria formally joined the Open Government Partnership—a multilateral initiative to strengthen governance. In the country’s first National Action Plan, Commitment 3 on fiscal transparency contains language committing to “disclose oil, gas and mining contracts in the area of exploration and production, exports, off taking and swap on a publicly access portal in both human and machine readable formats.”
Prodded by the World Bank, Nigeria began a framework for disclosing public private partnership projects on the Infrastructure Concession Regulatory Commission (ICRC) website to be accessed by the public. It contains information about project title, type, government agency responsible, name of private concessionaire, contract sum and progress reports, but petroleum contracts Nigeria relies upon for fiscal planning was not included.
Contract disclosure is now global best practice. African countries including Liberia and Ghana have opened up their contracts allowing citizens, lawmakers, and oversight actors to monitor and analyse the public benefit from contract deals.
Some legal experts argue that confidentiality and commercially sensitive information in these contracts do not favour disclosures. The NRGI says these are myths.
“Even when the parties do not agree to make any information public, confidentiality clauses in extractive industries contracts almost always include an exception for disclosures that are required by law. Thus, governments can require contract transparency by law,” the NRGI states in a briefing note.
In oil contracts information, including financial terms, work obligation commitments, and environmental protection and mitigation measures to be undertaken often subsumed under commercially sensitive are already well known in the industry and highly sensitive details can always be redacted, the transparency group says.
