The new Tug-of-War Over Oil Sector Reform

For months, a coalition of civil society groups has been urging passage of Nigeria’s Petroleum Industry Bill (PIB).  Early drafts of the legislation promised to increase transparency, for example by expanding compliance with “Publish What You Pay.”  CSOs are now concerned that if the bill is not passed before the new National Assembly is sworn in at the end of May, a critical opportunity for oil sector reform could be lost.  The Africa Network for Environment and Economic Justice, for example, explains in a statement that “existing laws in the sector were shrouded in secrecy due to confidentiality clauses that have over time undermined transparency and accountability in the oil and gas sector.”  Activist actions are planned for the coming weeks to keep the pressure on the Assembly.

The Senate version of the bill, which is likely to pass, contains some notable differences according to an analysis by Aaron Sayne of the Transnational Crisis Project.  This draft:

• greatly limits the role of the Petroleum Minister by reassigning most of his/her key powers and functions to the Board of a new National Petroleum Commission;
• rejects the plan to incorporate government’s six existing joint ventures;
• waters down provisions on contract confidentiality clauses and other measures that would increase transparency;
• cancels plans to create a Petroleum Research Center separate from NNPC;
• strips the Petroleum Products Regulatory Authority of its powers to regulate fuel prices, pricing methodologies and supply, or to set distribution, marketing, and retail tariffs;
• rejects proposals to measure production volumes at the wellhead, rather than at the export terminal, which could make it easier for oil to disappear in between;
• creates a very confusing “10 percent equity” program for communities (see paragraphs 168f of the bill for details)

The bill also deletes provisions relating to “fiscalized crude,” a gas pricing framework based on fair market mechanisms, and most of the language relating to marginal fields, replacing them with much weaker work requirements.  The activist group Social Action, which obtained the bill, has a copy on its website.

Lobbying Behind the Scenes?

During my visit to Edo state in March, Niger Delta activists told me that Shell and other oil companies have been lobbying against the bill behind closed doors.  Above all, the companies are concerned about a potential increase in the Petroleum Profit Tax from 30 to 40 percent.  The revised legislation instead introduces numerous deductions and production allowances which could actually reduce the effective tax rate for the oil companies.  Recent changes to the bill could thus lower government revenues, according to the Transnational Crisis Project analysis.  The oil companies are apparently also concerned that some of the new bureaucracies would splinter the NNPC – and possibly stimulate local competition by creating new competition from local start-ups.

Some activists are also worried about leaving the NNPC dependent on the National Assembly for its annual budget, which affects its ability to borrow and invest under the Fiscal Responsibility Act (2006) and Public Procurement Acts (2007).  However in my view, half a century of vertical fiscal federalism in Nigeria has offered little evidence that automatic funding for agencies outside of the annual budget actually improves accountability.  If anything, it can remove a valuable institutional check on the process.  Absent a tradition of ombudsmen and other robust internal checks, insulating government bureaucracies from the broader political process can undermine the very goal in mind.

Democracy is finally producing some dividends in Nigeria’s impoverished oil-producing state.  In Rivers State, 1 billion Naira is automatically set aside every month for future use and largely insulated from political meddling; other Niger Delta states are seeking to emulate this reform, which civil society claims as a victory.  Which way now for the oil states, and for Nigeria’s national honey pot?