Editorial: Timipre Sylva`s promise to sanitise the oil sector

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By re-stating the federal government’s commitment to sanitizing the oil sector, the Minister of State for Petroleum Resources, Chief Timipre Sylva, was ironically pointing at the government’s own failure at identifying what is good for Nigeria and mustering the will to promote it, during the first four years of the Buhari administration. As the most notorious symbol of public corruption, it is a trite fact that the murky oil sector, symbolized by the Nigerian National Petroleum Corporation (NNPC) is a national disgrace. That the NNPC operates like a parallel government, capitalizing on the nation’s dependence on oil to wantonly dictate the pulse of the federation, is a blunder in development that Nigerians have been saddled with for several decades. This unfortunate situation obviously cannot be in the public interest.

Speaking during a “Thank You” visit to his hometown in Okpoama, Nembe LGA in Bayelsa state, Sylva said part of his mission in the ministry is to halt massive crude oil losses and sanitize the oil industry. While bemoaning the loss of revenue to the federal government in crude oil bunkering, Sylva also announced that the government will promote vigorously an increase in oil production in the country. The former Bayelsa governor also promised to ensure the development of associated gas products in the oil industry so as to fully draw the benefits accruing therefrom to the country. He said: “First, we will need to sanitise the oil industry. I believe that we cannot condone losses in crude oil production. We must ensure zero losses. We must not lose any crude oil; we must also develop our abundance gas deposits in the sector and generally sanitise the sector.”

Sylva’s latest commitment was a mere restatement of all that Nigerians have heard before about a sector that, if properly developed and managed, can add immense economic value to the country, but over which little or nothing has been done. At the risk of stating the obvious, the repetitive expression of commitment by government, will neither sanitize nor diversify Nigeria’s mono-product economy. A number of fundamentals, including passage of the much-vaunted Petroleum Industry Bill (PIB) are vital to sanitizing the sector. And in this, as in all else, the buck will ultimately stop at the president’s desk.

It is disheartening to hear Sylva speaking bombastically about his commitment to sanitize the oil sector within the anomalous arrangement with President Buhari who re-appointed himself as the substantive Oil Minister. It is also needless to state the numerous direct and multiplier benefits of a developed and sustainable oil sector - as well, of course, as the harmful impact of the pervasive corruption that seems to have defeated every promise from previous administration to clean the Aegean stable. However, talk is cheap. It boggles the mind that there have been, for years, so much empty talk -seminars, workshops, conferences and numerous other talk-shops - but little has changed in the sector. It does not require any special skill to appreciate the enormity of the challenges in taking on the vested interests that maintain the status quo. What has been lacking is the wisdom and the political will to effect real change.

Alas, government appears to lack the sense of purpose that can drive the change needed to take on the corruption in the oil sector. In total violation of the fundamental principles of federalism and subsidiarity, the federal government has arrogated to itself the ownership of oil blocks in the federation. The 1999 Constitution puts “mines and minerals, including oil fields, oil mining, geological surveys and natural gas” under the Exclusive List granted to the Federal Government. Furthermore, the Nigerian Minerals and Mining Act, decrees that all lands in which minerals have been found in commercial quantities shall be acquired by the Federal Government in accordance with the Land Use Act.

The sad consequence of this unitary law is that oil producing states are denied direct and immediate benefits except as determined through derivation by the whims of a distant authority at the center. In specific terms, nothing indicates this faux pas better than the fiscal impropriety, irreconcilable accounting system, misappropriation and unauthorized diversion of public funds that characterizes the crude oil swap contracts. This situation defies logic and is out of tune with the way development-minded governments operate.

Over the years, there have been only token measures to holistically implement a plan that will benefit the national economy. Instead, the oil swap contracts and allocation of oil blocks has been for purposes of patronage through less than transparent procedures. Corruption in its many forms and at various levels has been a major obstacle. Politicians and well connected persons get contracts and are awarded licenses in collusion with foreign interests that carry on with scant regard for the local community. The result is environmental degradation and a severe damage to the livelihood of the people.

Some of these challenges are for the government to tackle.  In sum, to sanitize the oil sector is a task to which the new minister and other tiers of government and relevant agencies must commit themselves. The government must not allow a repeat of the bad experience when the immediate past Oil Minister of State, Dr. Ibe Kachikwu, who doubled as NNPC Group Managing Director, refused to provide specific responses to questions by lawmakers, regarding the execution of the oil swap program. Appearing before a House Committee investigating the offshore processing agreements (OPAs) and crude oil swaps between NNPC, its subsidiary, the Petroleum and Pipelines Marketing Company, (PPMC) and oil traders, Kachikwu was evasive when asked whether the companies which participated in the swaps were selected through a bidding process, and whether the program was in Nigeria’s best interest. He claimed ignorance, saying he was neither the minister nor GMD at the time the swap contracts were awarded.

Kachikwu had promised that when Nigeria starts operating its new Direct-Sale-Direct-Purchase (DSDP) crude oil arrangement next month, it will be able to net up to $1 billion through cost cutting measures. In a statement through NNPC spokesman, Kachikwu explained that the DSDP model was adopted to replace the crude oil swaps and OPAs, as well as introduce and embed transparency in the crude oil-for-product transactions by NNPC in line with standard practices. Kachikwu said under the old order, crude oil was exchanged for petroleum products through third party traders at a pre-determined yield pattern. He however noted that the DSDP option eliminates all the cost elements of middlemen and reduces gaps in the OPAs and the losses the NNPC incurred from it. The DSDP, he noted, would give other government agencies such as the Bureau of Public Procurement (BPP) and Nigeria Extractive Industry and Transparency Initiative (NEITI) the opportunity to be a part of the bid process for transparency.

What Kachikwu did not tell lawmakers was that the NNPC has launched a new kind of short-term swap contract, offering staggered allocations of crude to oil companies in return for immediate deliveries of refined products. Only now, the swaps involve oil majors, notably ExxonMobil, Total and BP. These oil majors have large quantities of gasoline and diesel unsold in Europe because of falling demand from the glut in oil prices. As a result, they prefer to dump it in Nigeria instead of paying for storage to stock it.

Beyond talk-shops and woolly statements, a more fruitful solution is for Sylva to put a fitting end to this national shame. Just for the records, the OPA deals pre-date the Jonathan administration. Like many other transactions in the oil sector, the OPA is a multi-billion dollar racket involving corruption that includes market fraud, price manipulation, and suboptimal returns on the part of NNPC officials and their collaborators have, in proportion, gone beyond the unconscionable to the outrageous. The swap regime is not just one of the terrible features of the corruption in Nigeria’s oil industry but also one that makes Nigeria and its people look stupid. But most Nigerians are not to blame; indeed they are, in terms of the economic and social costs, victims of a parasitic and deeply unpatriotic ruling elite determined to conduct public business only for self-interest. The new swap with the oil majors is the same sad, old story of mind-searing plundering perpetrated by scavengers, who in concert with International Oil Companies control NNPC  activities by proxy, and turn the corporation into a honey-pot through which Nigeria is milked dry.

An audit by the Nigeria Extractive Industries Transparency Initiative (NEITI) stated that, from 2009-2012, the nation lost $8 billion owing to incompatibility in the value of domestic crude allocation (DCA) swapped and the refined product delivered. It is worth-recalling that the joint Senate committee investigating the fuel subsidy regime also indicted the NNPC of operating an illegal account in the United States, where it kept proceeds from the sale of crude oil before transferring same to the Federation Account. These reports corroborate findings by Pricewaterhouse Cooper, which identified structural irregularities bordering on outright fraud in its audit of the NNPC. Irregularities include double payment on petrol and kerosene subsidies, undervaluing of crude oil lifted, computation errors, subsidy over-claims, amongst others.

The implementation of the OPA has always been dubious. All right-thinking Nigerians wonder just why, unlike every other oil-producing country under the sun, Nigeria cannot, or chooses not to process and add value to the raw product in order to maximize its earnings. If Sylva is serious about sanitizing the oil sector, the logical point of departure is to end the oil swap contracts regime. The onus of proving doubters and cynics wrong lies on Sylva. Nigerians want to see transparency in the oil and gas sector. And this transparency comes with a two-fold burden: one of ensuring professional best practices and due diligence in dealing with IOCs; and the other of allegiance and patriotism toward the national cause.

In this regard, local content, in the true sense of the term, must be deepened. Certainly, the economic and social costs of oil sector corruption are holding Nigeria down. If Nigeria must extricate itself from the strangulation of the exploitative cabals that have held the country prostrate, Sylva must help Mr. President end this crude for refined product deals between the NNPC and selected trading companies. There will never be transparency in the oil sector and no prosperity for Nigeria until these corruption networks are dismantled to remove the anti-Nigerian, counter-productive primordial patronages. Then, and only then, will the oil sector serve Nigeria and its citizens.