Nigerian oil in turmoil

The removal of fuel subsidies in Nigeria has hit the poorest sections of society hardest. Amid huge protests, the government has used corruption and smuggling in the oil industry to justify its actions. There are other ways to tackle oil industry corruption that do not have such unfortunate side effects.

2012 kicked off with the largest protests in Nigerian history, as the government decided to cut off all oil subsidies starting from the 1st of January. Petrol prices doubled in one night, surging from 65 naira per litre to 150 naira (USD 0.93). According to the National Bureau of Statistics, 61 percent of Nigerians lived on less than a dollar a day in 2010 compared to 51 percent in 2004. The reality might be even bleaker, as some estimate that the percentage is far over 70. Since prices of food and water skyrocketed along with the price of oil, the higher petrol prices hit ordinary people hardest. On top of the protests, major trade unions called out a national strike that threatened to paralyse the country. After eight days of protests and strikes the government agreed to partially restore the subsidy and reduce petrol prices by 30 percent, to 60 cents per liter.

Although order returned to the streets by the end of February, public anger and discontent remain, not only because of the fuel subsidy, but also due to wasteful and corrupt governance.

Billions disappear every year

The Nigerian government has woken up to the problem that rots the foundations of the state. The removal of subsidies was justified by stating that subsidies end up in the hands of smugglers:  A parliamentary report released in April reveals that the government lost $6.8bn to corruption in the fuel-subsidy scheme between 2009 and 2011. In a wider scope of things, Global Financial Integrity estimates that a yearly average of more than 15 billion dollars, 2 percent of the country’s GDP, has been lost in the last decade to corruption in Nigeria.

Given that Nigeria ranks 11th in oil production in the world, it seems absurd that the country has to import most of the fuel it consumes. The problem lies in Nigeria’s lack of capacity to refine the crude oil it produces; it has to be refined elsewhere.

Corruption has crept into the oil industry over time, and importers of oil have found ways to inflate their receipts and pocket the subsidies that the Nigerian government supplies to keep prices low. Between January and October 2011, the government claims to have spent 1.3 trillion naira (USD 8 billion) on subsidies, instead of the budgeted 248 billion naira. Although the government has admitted the existence of a cartel, they have not done enough to expose and deal with it. Rather, they ended up eliminating the only chance for poor people to scratch a simple living. As a refund, the government has promised to use the estimated savings from the end of the fuel subsidies to invest in much needed road and public projects.

However, much remains to be done. After more than 50 years of oil production, Nigeria has consistently failed to produce enough electricity for its 150 million citizens. The majority of the population is still reliant on petrol-run Chinese generators only to keep the lights on.

Enthusiasm for transparent policies

Saving  the money lost to corruption in the oil sector is possible, despite excuses in public discourse. Since fraud and corruption are easily carried out behind closed doors, enhancing transparency in governance should be the first measure taken. Until now the regulatory bodies that rule over the oil industry provide no information to the public. The 2011 Report on Oil and Gas Companies by Transparency International and Revenue Watch Institute reveals that Nigerian National Petroleum Company (NNPC) keeps almost all of its operations and files hidden from the public. Even multinational oil companies operating in Nigeria fail to be transparent.

There are prospects of change in sight. Nigeria has shown enthusiasm for oil sector transparency programs. The Nigerian Extractive Industries Transparency Initiative (NEITI) sets an early “gold standard” for the global EITI movement with its comprehensive reports. However, NEITI has been critisized of submitting audits and publishing its reports with years of delay.

President Jonathan Goodluck has further advanced transparency by signing the Freedom of Information Act (FOI) last July. The act gives people the legal right to access information on public institutions. The FOI Act also requires public institutions to keep a record of their activities and operations. However many exemptions remain in the name of sensitivity and security.

The idling bill could make a change

Foster (Facility for Oil Sector Transparency in Nigeria) states that neither NEITI nor the FOI Act replace the need for regular disclosures by oil sector participants. Foster is lobbying for the Petroleum Industry Bill (PIB), which would open more documents and data to public scrutiny. Allowing this, PIB would improve incentives for better performance, attract investment and financing, and protect against illicit practices.

PIB would restructure the Nigerian Petroleum Industry (NPI). For example, it would require annual reporting from NNPC, clarity on revenue flows, annual financial audits, defined processes of selling shares of joint ventures and transparency in awarding licences. Until now, elite-controlled “briefcase companies” snatched up discounted licenses to lift government crude.

Despite its potential, the bill has been left idling in parliament for years. Trade unions and other non-governmental players have put a lot of pressure on the government to finally enact PIB after years of postponement. In midst of the recent turbulence, President Goodluck Jonathan has made the passing of the PIB a key priority this year. Nevertheless, the need to re-submit the legislation to the National Assembly means progress is likely to remain slow.

The Nigerian oil industry should undergo a transformation, if not soon, then by 2015 at the latest.