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Analysis – Nigerian bill ducks transparency

29 Jul 2011, 7.13 pm GMT

Analysis – Nigerian bill ducks transparency

Johannesburg, 29 July (Argus) — Nigeria's long-delayed petroleum industry bill will do little to tackle transparency concerns over state-owned oil firm NNPC's discretionary awards of oil sales contracts.

The bill, which is before the National Assembly, would increase the government's financial take from its upstream joint ventures with foreign firms and bolster its power to revoke upstream licences. But NNPC's often opaque negotiations for contracts to export crude and import gasoline and diesel will remain murky, even if the bill is passed.

“In a major oversight, no petroleum industry bill draft guards against manipulation of such award processes,” anti-corruption group Revenue Watch Institute (RWI) says. “Each year elite-controlled briefcase companies snatch up discounted licences to lift government crude.”

A total of 45 firms have been awarded contracts to lift about 1.5mn b/d of NNPC equity crude for the 12 months to May 2012. Well-connected companies without substantial crude marketing operations increased their share of the crude granted. Little-known entities without significant trading operations or that have not been active in the Nigerian crude market previously have contracts to lift over 600,000 b/d of crude. These sales are worth over $40bn/yr, about 70pc of government revenue.

Goodluck with subsidies
The ailing state of the country's oil refineries means that Nigeria remains heavily dependent on refined product imports, especially gasoline. Gasoline imports are running at about 200,000 b/d. Nigeria's former president Umaru Yar'Adua described the country's fuel import business as “the greatest institutional corruption in the history of the nation”. The government makes subsidy payments to fuel importers and retailers that cost Abuja over $6bn/yr. The government of Yar'Adua's successor, President Goodluck Jonathan, is yet to remove price subsidies on gasoline, a move that trade unions have opposed.

The petroleum industry bill is unlikely to succeed in improving the way that NNPC accounts for its earnings. “NNPC calculates its crude sale revenues with little oversight and keeps a share without clear rules,” RWI says. Nigeria Extractive Industries Transparency Initiative reviews of NNPC's operations have highlighted contradictions in how the company calculates its earnings and how it prices its equity crude.

But the bill should usher in improvements to future upstream licensing rounds. Irregularities, legal disputes and non-payment of signature bonuses have marred previous rounds. The bill states that “no discretionary awards shall be given under any circumstances” so that licences and contracts only go to companies showing adequate technical and financial ability. Leading foreign partners, including Shell and ExxonMobil, have been absent from recent licensing rounds and have resorted to court action to protect licences.

The bill could improve transparency at NNPC because it calls for annual audits of the company based on international accounting standards. It requires that NNPC's budgets with its main joint-venture partners Shell, ExxonMobil, Chevron, Total and Italy's Eni be published, and recommends that crude production and export data are made available.

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