Ob­so­lete leg­is­la­tion and the chal­lenges of na­tional de­vel­op­ment: Nige­ria’s petroleum in­dus­try ex­pe­ri­ence

How is it that a coun­try that re­lies on crude oil for 90% of its for­eign ex­change earn­ings, passes up op­por­tu­nity af­ter op­por­tu­nity to re­form its oil sec­tor and at­tract in­vest­ment?

Financial Nigeria Magazine - - Contents -

This be­ing the key­note speech re­cently de­liv­ered by Kings­ley Moghalu at the 2018 Law Stu­dents Con­fer­ence of the Ah­madu Bello Univer­sity, Zaria. Prof. Moghalu, a for­mer Deputy Gov­er­nor of the Cen­tral Bank of Nige­ria, is a Pres­i­den­tial As­pi­rant of the Young Pro­gres­sive Party (YPP).

Yes­ter­day, I spoke to the Stu­dents Rep­re­sen­ta­tive Coun­cil of this great univer­sity, and one of the ways I sug­gested we re­think our fu­ture is by scrap­ping the NNPC, as part of broader and deeper re­forms in the petroleum sec­tor. I will go a bit in-depth on the is­sues of the sec­tor in the com­ing min­utes.

Our petroleum in­dus­try has been cry­ing out for re­forms for years. The cur­rent Petroleum Act was passed in 1969 - al­most 50 years ago - at a time which was very dif­fer­ent from to­day. Back then, Nige­ria was the dom­i­nant oil pro­ducer in Africa. But now, over two dozen coun­tries on our con­ti­nent are oil-pro­duc­ing. The US has also be­come an ex­porter of crude, af­ter many decades of be­ing just an im­porter. The laws have not been up­dated to fit this re­al­ity. Take for ex­am­ple that Nige­ria has the largest gas re­serves in Africa and the 9th largest re­serves in the world, but only

ranks 24th in terms of ac­tual gas pro­duc­tion. The oil sec­tor only makes up 9% of our GDP, the low­est among the OPEC coun­tries.

We are punch­ing well below our weight, and our out­dated laws are the pri­mary rea­son. The 2017 Re­source Gov­er­nance In­dex ranks Nige­ria 55th out of 89 coun­tries, with a score of 42 out of 100, in­di­cat­ing ‘poor gov­er­nance’ in our oil and gas sec­tor.

There are sev­eral as­pects to this poor gov­er­nance. For 6 decades, Nige­ria has been ad­dicted to oil. I use the word ‘ad­dic­tion’ de­lib­er­ately be­cause an ad­dict only thinks about where the next hit or score will come from. That’s all that mat­ters. Just like an ad­dict, Nige­ria has failed to ad­dress the is­sues of the oil sec­tor and is only con­tent with sharing what the NNPC re­mits to the Fed­er­a­tion Ac­count.

These re­mit­tances are very prob­lem­atic. One of the most im­por­tant news sto­ries in Nige­ria re­cently was the ten­sion be­tween the NNPC and the Fed­eral Ac­counts Al­lo­ca­tion Com­mit­tee (FAAC) which gives monthly al­lo­ca­tions to states. The NNPC ba­si­cally re­mits what it likes into the ac­count, and for the past two months, the gover­nors have re­jected those sums, call­ing for an end to NNPC ex­pen­di­ture that is not ap­proved by the Pres­i­dency or Fed­eral Ex­ec­u­tive Coun­cil.

All this hap­pens, and yet no ac­tion is ever taken to bring the NNPC to heel. It has been used as an im­prest ac­count by suc­ces­sive pres­i­den­cies, and that has not ended in the last few years. What drives a lot of this be­hav­iour is the ab­sence of laws re­form­ing the sec­tor.

Oil sec­tor re­form has been on the ta­ble in Nige­ria for the en­tirety of our 4th Re­pub­lic. In 2000, Pres­i­dent Obasanjo in­au­gu­rated the Oil and Gas Im­ple­men­ta­tion Com­mit­tee (OGIC), led by the late Ril­wanu Luk­man, to look into the chal­lenges of the sec­tor. This pro­duced the Draft Na­tional Oil and Gas Pol­icy in 2004, a whole four years later. It took an­other three years for that pol­icy to be ap­proved, and OGIC re­port was com­pleted in 2008, long af­ter the per­son who ap­pointed them had left of­fice.

The Petroleum In­dus­try Bill (PIB) was in­tro­duced in 2008, but lit­tle progress was made. This lead the cur­rent Min­is­ter of State for Petroleum, Ibe Kachikwu, to split the bill into four parts to ac­cel­er­ate pas­sage: The Petroleum In­dus­try Gov­er­nance Bill (PIGB), the Petroleum In­dus­try Ad­min­is­tra­tion Bill (PIAB), the Petroleum In­dus­try Fis­cal Bill (PIFB) and the Petroleum Host and Im­pacted Com­mu­ni­ties Bill (PHICB).

The PIGB will solve one of the ma­jor prob­lems that have be­dev­iled our oil in­dus­try. It means that the pres­i­dent - who cur­rently dou­bles as min­is­ter of petroleum - will no longer have pow­ers to grant key au­tho­riza­tions like dis­cre­tionary award of oil and gas li­censes and per­mits.

For decades, this power has been used to re­ward cronies, fa­cil­i­tat­ing a lot of the cor­rup­tion in our po­lit­i­cal class. Trans­fer­ring this power to a com­mis­sion will in­tro­duce much needed trans­parency in that as­pect and re­duce the in­flu­ence vested in one per­son.

The PIGB was fi­nally passed by the Na­tional Assem­bly and for­warded to the Pres­i­dent for as­sent in April, but that as­sent has not been given. This means that 10 years af­ter the PIB was in­tro­duced, we still do not have a set of laws to guide the gov­er­nance of the oil in­dus­try at all lev­els, and pro­vide the clar­ity and cer­tainty that is nec­es­sary to at­tract for­eign and do­mes­tic in­vest­ment to grow the sec­tor, as well as en­shrine good gov­er­nance and global best

In one of its au­dit re­ports on the oil in­dus­try, the Nige­rian Ex­trac­tive In­dus­tries Trans­parency Ini­tia­tive (NEITI) es­ti­mated that Nige­ria lost N1.74 tril­lion in 2013 alone due to non­pas­sage of laws to re­form the oil in­dus­try.

prac­tices. Nige­ria is not the only oil­pro­duc­ing coun­try, and other in­vestors have moved else­where to en­gage with more se­ri­ous na­tions.

Ghana for ex­am­ple, passed its Petroleum Ex­plo­ration and Pro­duc­tion Act in 2016, Tan­za­nia passed its Petroleum Act in 2015, Mozam­bique passed its Petroleum Law in 2014, while Uganda passed its own re­forms in 2013.

All these coun­tries are at­tract­ing greater in­vest­ment in that sec­tor than Nige­ria, in­vest­ment that we would have been favourites for. There is a clear cost to our in­ac­tion. In one of its au­dit re­ports on the oil in­dus­try, the Nige­rian Ex­trac­tive In­dus­tries Trans­parency Ini­tia­tive (NEITI) es­ti­mated that Nige­ria lost N1.74 tril­lion in 2013 alone due to non-pas­sage of laws to re­form the oil in­dus­try.

In a 2016 re­port, NEITI said this in­ac­tion has cost Nige­ria $200 bil­lion, a fig­ure which in­cludes es­ti­mates of loss of in­vest­ment, pos­si­ble re­turns on in­vest­ment, losses due to un­clear fis­cal terms and non-res­o­lu­tion of host com­mu­nity is­sues.

How is it that a coun­try that re­lies on crude oil for 90% of its for­eign ex­change earn­ings, passes up op­por­tu­nity af­ter op­por­tu­nity to re­form its oil sec­tor and at­tract in­vest­ment? That is be­cause all our elites are con­cerned with the here and now, giv­ing no thought to the fu­ture. You can see this at­ti­tude repli­cated across all sec­tors of the so­ci­ety. We do not plan for the fu­ture and as such we leave lit­tle is­sues un­til they be­come big ones. There is no lead­er­ship and no con­sen­sus about what should be done next.

The space is clos­ing for Nige­ria to max­imise the po­ten­tial of its oil sec­tor, as a re­sult of the stated ob­jec­tives of de­vel­oped na­tions to move from fos­sil fu­els to gas and re­new­ables, due to cli­mate change con­cerns. Coun­tries like France and the UK have com­mit­ted to phas­ing out cars that use fos­sil fu­els by 2040, and since trans­porta­tion is a ma­jor use of fos­sil fu­els, we have to un­der­stand what this means for us as a na­tion. A grow­ing num­ber of Western coun­tries are also get­ting more of their elec­tric­ity pro­duc­tion from re­new­ables, in or­der to meet agreed upon emis­sions tar­gets to slow down cli­mate change. The Saudis, the world’s big­gest oil pro­ducer, have an am­bi­tious post-oil plan be­ing driven by Prince Mo­ham­mad Bin Sal­man, with a pub­lic list­ing for its state oil com­pany, Aramco at the cen­tre of that plan.

Speak­ing of the Saudis, it was a for­mer Saudi oil min­is­ter who said: ‘the stone age did not end for lack of stones and the oil age will end long be­fore the world runs out of oil’. This is a mes­sage the cur­rent Saudi lead­er­ship has taken on board, but what is Nige­ria’s plan? What is Nige­ria’s vi­sion to max­i­mize what is left of its oil re­sources for the ben­e­fit of Nige­ri­ans, be­fore the oil age comes to a close?

The set of re­forms con­tained in the PIGB, PIAB, PIFB and PHICB pro­vide a clear path to this, but every sin­gle day we waste be­fore those laws are passed and be­gin to take ef­fect, are days Nige­ria can never get back.

We ur­gently need a lead­er­ship that pri­ori­tises the strate­gic in­ter­ests of Nige­ria, rather than spend time cross-car­pet­ing in an end­less po­lit­i­cal trans­fer win­dow for two failed teams. The fail­ure to up­date the laws guid­ing our petroleum in­dus­try falls squarely on both ma­jor par­ties, with none of our pres­i­dents in this 4th Re­pub­lic ex­empt from blame. Be­tween them, they rep­re­sent a par­a­digm that is wholly in­ad­e­quate for our coun­try, one we must move be­yond if we are to truly de­liver a bet­ter life for many.

The tra­vails of our oil in­dus­try since that first dis­cov­ery in Oloibiri, is but a per­fect mi­cro­cosm of the tra­vails of our na­tion as a whole. We have been given pre­cious gifts, but have wasted them over and over due to greed and a lack of vi­sion. Rather than en­rich us, we have al­lowed our nat­u­ral en­dow­ments to ben­e­fit only a few at the ex­pense of the many, de­stroy­ing our land, wa­ter and air due to gas flar­ing and oil spills, mak­ing our peo­ple sick and de­priv­ing them of their liveli­hoods.

Rather than pros­per­ity, our nat­u­ral en­dow­ments have be­come in­stead the source of strife, lead­ing to un­count­able deaths in the quest for the con­trol of these re­sources. It is in our power to change this. It is in our power to write a new chap­ter in our his­tory, one that draws a line un­der our cur­rent sys­tem marked by our ad­dic­tion to oil, re­plac­ing it in­stead with a sys­tem of laws de­signed to en­sure the great­est good for the great­est num­ber of Nige­ri­ans in the ex­trac­tion and sale of that oil, and in­deed all our nat­u­ral re­sources.

It is my hope that as lawyers in the mak­ing, your every ac­tion will be geared to­ward build­ing a na­tion where peace and jus­tice shall reign.

Thank you for your at­ten­tion.

It was a for­mer Saudi oil min­is­ter who said: ‘the stone age did not end for lack of stones and the oil age will end long be­fore the world runs out of oil’.

Pres­i­den­tial As­pi­rant and for­mer Deputy Gov­er­nor, Cen­tral Bank of Nige­ria, Kings­ley Moghalu

Kings­ley Moghalu de­liv­er­ing the lec­ture at Ah­madu Bello Univer­sity, Zaria

Law stu­dents of Ah­madu Bello Univer­sity in a selfie with Kings­ley Moghalu af­ter his key­note lec­ture

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