Adio: Nigeria Relies on Sales to Know the Quantum of Oil Produced

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The Executive Secretary of the Nigeria Extractive Industries Initiative, Mr. Waziri Adio spoke with Chineme Okafor about the 2013 audit report on Nigeria’s mineral sector. He revealed that Nigeria still cannot account for how much oil she produces, relying on sales owing to the anomalies with the metering at production and export terminals. Excerpts:

NEITI’s 2013 audit report on Nigeria’s oil and gas industry is quite revealing, but it also reminds of the country’s laidback attitude to changing the way it runs this industry, but is there really anything different now?

It is good to acknowledge that certain things have changed positively but at the same time, other things still need to change. Certain things that have changed include that there is a significant improvement in the response of companies and other covered entities to NEITI.

We have done this audit for some time now and people are getting used to it, people are cooperating more than before and the response time is much better than it used to be.

If you also see the differences between what the companies claimed they had paid to the government and what government claimed to have received, the difference is reducing significantly, this shows that there are better record keeping by some of the covered entities.

When we started, the differences, which are unreconciled amounts used to be hundreds of millions of dollars but that has reduced significantly to a margin that is not statistically significant and that is another area of improvement.
In 2012, unreconciled amount was $46.9 million, the first audit was over $300 million but now, it has reduced to $492,000. If you compare the periods, that is a significant decrease and there is a progress on that front.

Another front where we have seen some progress is reduction in gas flaring penalties. In 2012, it was $24 million, in 2013, it was $18 million and that is a decrease of about 25 per cent based on better utilisation of gas and also less gas flaring, so there is positive news on that.
When you also look at underassessment and underpayments by companies, it has reduced by about 64 per cent between 2012 and 2013 alone. There is some progress being made and we need to acknowledge that.

But there are still disturbing trends that need to be improved on
Yes, there is a lot that has been done and still a lot that we need to look at. You said we shouldn’t look at the figures because they are out and no point overlabouring them but there are some outstanding issues.

The first is that we still do not know how much crude oil we produce, we know how much oil we sell because we know how much we export but we do not know how much we produce because we do not have meters at places they should be.
Metering is still an issue and it was flagged as a significant issue in the first audit for 1999 to 2004 and nothing has been done to address that issue but it is still a major issue.

Another significant issue is that the level of loses is increasing. From the 2013 audit alone, three JV operators reported a loss of $4.7 billion, due to vandalism and theft amongst others. This is significant because if as a business, you made $58 billion but lose $5 billion, which is close to 10 per cent and it is significant, it should be a worry to us.

We should also be worried by the fact that we have government entities that hold on to monies they shouldn’t hold on to. That is a very serious issue because it raises issues of governance, transparency and accountability.
The 2013 report indicates that NNPC and its subsidiaries held on to $3.8 billion and N358 billion for the year under review and for a group of entities owned by the government to decide to do that is not right, and when you look at their excuses, one of which is the transfer of oil assets to the NPDC, we can leave the worth of the assets to ask about the payment of the money for the assets.

You have supposedly sold the assets to NPDC which was reaping all the benefits from its production but the country was still paying cash-calls on the divested assets. You cannot eat your cake and still have it but there are serious systemic, governance and process issues which show that we cannot have enough transparency in the sector, this sector still needs as much transparency as you can imagine.

Another area that jumps at me is the NLNG dividends which the NLNG said they paid and NNPC acknowledged but held on to the money. On what ground should NNPC keep the money, there is need to have clarity on this and not just having them sit on it.
There are also some MoUs that have expired and which we should have renewed. Because we don’t have a clear fiscal regime, on account of that, there are two pricing methodology, the government prefers one which is the official price but the oil companies prefer the realisable price and when you look at this you will realise the country lost so much because people did not do their jobs.
The lessons from this report show that there is a lot of work that needs to be done. There are serious issues that need to be rectified and we need to fix these issues now.

In carrying out the audits, did you ask questions about these expired MoUs?
What I can tell you about this MoUs is that they were drawn up in 2000 with conditions about what to do when they expire and this was because of uncertainty about what should be paid.

At some point, a committee was set up and there were three issues for discussion, but we think it was not a question of setting up a committee and that before a MoU will expire you should know it would, but we allowed it to expire and nothing was done about that. Now the country has lost hugely from this.

We think that on the issue of the MoU and metering, the critical factor that has being missing is the lack of political will to do the right things. If there is a political will to show that the country get appropriate value from all these things, it is a piece of cake and not about setting up committees.

I am also aware that there is a court ruling on this between the FIRS and one of the oil companies on the mode for calculating payments and the judgement was in favour of the FIRS that the official selling price should apply, a tax tribunal took that decision and that should be enough to strengthen the hand of government to take a firm decision on the issue.

Does it then bother NEITI that parts of the critical recommendations you make to government to help it reform the oil sector are seldom taken and implemented well?
It bothers us and sometimes it can be frustrating but having said that let me also say that our works have not been in vain, the impact of our work is felt in the sense that before NEITI came on board, very few people knew or had data about what was going on in the oil sector.
It was a classic black box and nobody knew what happened there but at least, now based on our many reports, people have access on data and there is a conversation that is going on that was not happening before. These are conversations on the basis of evidence.

If you also look at reforms going on now, you see that some of the issues we have raised many times in our reports are reflected. When you recommend something, it does not mean that it will happen immediately, it will accumulate until that momentum is built.
We take a long view of this and change is something that come by increment, and except it is a revolution, I don’t know how else it will happen. There are some of our recommendations that have informed debates and the thinking of people who are looking towards reforms.

You are right that we come up with recommendations after recommendations and the percentage of uptake of these recommendations is very low and that is where I have said that what is missing is the political will. These things are desirable but they’ve not been done because vested interests are there.
But we believe that we have a new government that has a political will to fight corruption and reform the sector. It is a good time to do this type of job, but apart from that we also want to create a demand that is beyond just recommending, we are also able to engage critically with policy makers.

We want to engage more, we want to step up our advocacy with decision makers, civil societies and the citizens so that the space for the conversations will be expanded beyond just the people in the extractive sectors but also all citizens.

Your basic product – the audits, come once a year, are they enough engagement tools to drive the sort of change NEITI wants in minerals extractive operations?
The only thing we do most of the time is audits and they come once a year, what that means is that invariably we have just one product to engage our stakeholders and which also limit the opportunity for engagement.

We want to create additional products, we have reports that are bulky that many people do not have the time to go through them. We want to be doing single-issue reports just like the policy brief we did that focused on beneficial ownership.
We want to do more of that, focusing on specific issues with platform to engage stakeholders. We want to play more in the policy space to be able to get to the mind of the policy makers. We want to do that with these additional products.
We are going to be doing policy briefs; holding policy dialogues; and doing specific memos on issues to strengthen how we engage and not just do reports, launch them and drop them off.

We will engage at two levels of supply and demand to drive the change we are looking for. The supply side actors are the policy makers who can take decisions and so we need to engage them with specific issues. Then we will engage with other people at a level they understand because Nigerians have got to a stage where those figures don’t shock them anymore. We now want to break it down and communicate to them in a way they will understand and link the figures to things that matter to them.
People have a voice and come to the table on a position of knowledge for us to have informed debates about the options open to us and we don’t have to assume that people will do that, we have to break it down, empower and mobilise them.

How about outstanding remediation issues from past audit reports, what is their status now?

In terms of remediation, the major platform we use to do that is the Inter Ministerial task Team (IMTT) which we chair and on which you have the major stakeholders responsible for different things. We meet with them and listen to their responses on issues.
What we have been trying to do is to use the power of moral suasion to work things through. If you ask me, remediation is the weakest link in our activities. We do our audits well and also disseminate but in helping to fix those gaps, that is has become our Achilles heel. We have asked why it is not working and realised it is because the people we are engaging with do not have the incentive to change and we do not have power over them.

It is just like you convene people, they oblige you and send whoever they want to send but at the end they do not do what you want them to do. However, we are not going to jettison the IMTT, the board has decided on how to strengthen it and we are lucky that this time we have a minister as our chairman, who is also the chair of the IMTT.

We also have the permanent secretary in the ministry of finance as our board member; we have decided that he will be a member of the IMTT. We are now going to push for the political will from the government to remedy all these issues. We want to also realign our activities with the priorities of the government because our job allows us to fit well into that.
We also believe that when the president pays more attention to our work, he can achieve his objectives.
So, we are not happy with where we are but there is a good opportunity for us to achieve more, and so we will be working more with the parliamentarians and some of the other government’s anti-corruption agencies because some of our discoveries bother on economic sabotage.

NEITI had in the past asked for more power to enable it rein in on defaulters of its mandate, do you subscribe to this?

I will say that the response we get from the operators has improved because when we started, it was entirely new to people and they were finding it difficult to accept as you know that any new thing you introduce has its costs.
Overtime, they are getting used to us and because they are also part of the entire EITI coalition, it has gotten better over these periods, but does that mean that some people still don’t respond on time, yes, or that companies or government agencies still don’t withhold funds, no.
It is a work in progress and there is need for more. It is up to us to identify the constraints and see how to work through them. I accept that some people have said our Act penalises or criminalises certain behaviours and you might want to ask why people have not been penalised or charged over the periods, the Act is silent on who should prosecute and did not give us power to prosecute.

So, if you have the power to prosecute, that will give us more muscles and people will take us more seriously, that is also why we need to think about how to amend the Act. We are going to strengthen our relationship with the National Assembly and there is a process of amending the Act, we will only put that back on the table.
But before we get that reviewed, we shouldn’t stop working or limit our abilities. That is why we will be working more with the ministry of justice and Economic and Financial Crimes Commission (EFCC) so that of we find economic infractions in our reports, we will pass that to me. The fact remains that because we cannot prosecute, it does not stop other people from prosecuting.
We also have the soft power to name and shame, and I don’t want it to appear like we are totally helpless and cannot do things because we are limited by our own imagination.

NEITI in the past also audited government’s fiscal allocations and statutory remittances but then seemed to hang that exercise up, what happened, is that now rested?

In an ideal world where we have all the money to do all that we want to do, we would but we don’t live in an ideal world. We are requested not just to do the audits but also about how the money is spent. A particular aspect of our Act specifies that.
This is something we take very seriously but we don’t get all the money we need and it is a function of resources. Once we get the resources, we will do that because it is a very significant report. It is a revolutionary kind of report that we must continue because it tells citizens how the monies their government earn are spent.
That one was actually a pilot and it is something we should be doing for the whole country and in fact, our report should be two parts: the audit and how the monies are spent. If we tell citizens that our work include letting government know how much it is supposed to get and then letting them know how the government spends the monies, it appeals more to them and that is the frontiers of our work.
We also want to go beyond revenue transparency and it is very important because want to know who owns what and whether people are befitting from what they should not befit from through improper relationships with government officials.
We also want to know how these revenues are used, whether they are used for trafficking or terrorists’ funding. We will push to ensure contract transparency as well.