Nigeria is a major oil producer, and wants the real owners of assets in the crucial industry to be known. Why does this matter?
Nigeria’s oil and gas sector commands attention due to its major role in the economy of the country – Africa’s most populous.
The relentless spotlight on its reserves and earnings also falls on issues such as oil spills and pollution, pipeline vandalism and fuel subsidies.
But despite always being in the news, little is known about the individuals who own oil blocks and personally benefit from crude oil sales. Steps to change this continue to gather pace. According to media reports, in January 2022 Nigeria will reveal the beneficial owners of oil and gas assets – people who enjoy the benefits of ownership even though the title may be in someone else’s name.
To do this, the Nigeria Extractive Industries Transparency Initiative will work with the Corporate Affairs Commission to publish a national register. The extractive industries initiative works to promote transparency in the management of Nigeria’s oil, gas and mining revenues. The hope is that publicising beneficial owners will lead to more accountability and encourage investment.
We look at five questions about transparency in Nigeria’s oil industry.
1. How much oil is held by individuals?
According to the Organization of the Petroleum Exporting Countries (OPEC), Nigeria has 36.9 billion barrels of crude oil reserves. These are held in oil blocks owned by both companies and individuals.
Former defence minister Theophilus Danjuma and business moguls like Folorunsho Alakija and Mike Adenuga are some of those publicly known to own oil blocks. But little is known about other individuals with stakes in the country’s oil and gas assets.
Exploration and crude export activities in these oil blocks sometimes use a joint venture, an agreement between two or more parties to contribute assets, execute a project and share profits or losses.
According to the Nigerian Upstream Petroleum Regulatory Commission, 61 oil prospecting leases and 113 oil mining leases had been allocated as of December 2018. Another 214 were open. Nigeria’s proven oil reserves are the eighth largest among OPEC’S 13 members.
In 2020, crude oil sales accounted for 86% of the country’s total export revenue and about 10% of gross domestic product. Between January and November 2021, official data shows the country earned U$2.3 billion from crude oil sales, accounting for 17.6% of total government revenue and 7.7% of total government spending.
2. What do current laws say about ownership?
There are no laws specially enacted to protect the identities of beneficial owners, according to Tope Fasua, an economist and the chief executive of Global Analytics Consulting, a public financial management firm.
“However, when you register your company with the Corporate Affairs Commission, it is assumed that unless it is required by law, your name will not be published as the owner of that company,” Fasua told Africa Check.
“Whether the transparency initiative agreement is seen as such is another consideration. During my research, I saw that this is not the first time that it has been announced that a list of beneficial owners in the oil and gas sector would be published.”
In December 2019, the Nigeria transparency initiative launched a portal to publish the details of beneficial owners. In reaction, analysts said this was a strong step but more work on properly identifying owners was needed.
Explaining oil licences in Nigeria
Two types of licences are commonly awarded to oil producers in Nigeria. An oil prospecting licence gives the holder exclusive rights to search for crude oil within an area usually not larger than 2,590 square kilometres. Inland prospecting licences are valid for three years, while `deepwater prospecting licences have a 10-year validity split into two five-year terms.
An oil mining lease is granted to the holder of a prospecting licence if a commercial quantity of crude oil is found in an area. The holder has the right to get, store and export crude oil from the area. The licence is valid for 20 years and is renewable. The petroleum act gives the minister of petroleum resources the power to award or revoke licences. But these powers have led to abuses of office. In 1998 a licence was awarded to a company found to be co-owned by the petroleum minister. Resource watchdogs have also documented instances of bribery.
In 2007, Nigeria joined the Extractive Industries Transparency Initiative (EITI), becoming one of 56 member countries. Each member is expected to uphold certain standards, which cover the allocation of licences, exploration and production, revenue collection and use, and social and economic spending.
Nigeria has been rated as having made satisfactory progress based on the latest data submitted to EITI, for 2018. A new law enacted in August 2021 makes significant changes such as making the awarding of licences and leases by the minister a transparent and competitive bidding process.
Will the new law, which was two decades in the making, transform the sector? “It’s indeed a million-dollar question,” said Oyinkepreye Orodu, professor of petroleum engineering at Covenant University in Ogun state, southwestern Nigeria.
“The success of the petroleum industry act is subject to its implementation and the government’s political will.”
3. Where does secrecy remain?
There has always been a shroud of secrecy over the ownership and contracting of oil and gas assets in the country. This is according to Oyinkepreye Orodu, a professor of petroleum engineering at Covenant University in Ogun state, southwestern Nigeria. This was evident in recent marginal oilfield bid rounds, Orodu said.
“There are media reports that claim that the recently concluded marginal oilfield bid round was not transparent. Experts made these comments months before the conclusion of the bidding process,” he said.
Marginal oil fields are smaller than conventional oil blocks. They are typically awarded to local companies for development. The most recent bids were concluded in 2021.
4. What steps has the government taken?
Some companies in the sector mounted roadblocks to avoid being transparent, finance minister Zainab Ahmed said in November 2021 at the launch of a five year plan on beneficial ownership. Nigeria is one of the pilot countries for this.
The minister detailed the bumpy years-long journey towards increasing transparency, including during an oil and gas audit as far back as 2012 to disclose real owners.
“As expected, we were confronted with numerous challenges placed by some of the companies,” Ahmed said. Some delayed their responses, while others failed to complete audit templates, she added.
Some key dates in the road to transparency
2007: Nigeria joins the Extractive Industries Transparency Initiative (EITI).
2012: The Nigeria Extractive Industries Transparency Initiative (NEITI) conducts an oil and gas audit as an implementing country of EITI’s open extractives programme.
2013: NEITI develops the first templates to gather information on the real owners of mining assets.
2019: NEITI launches a portal to publish the details of beneficial owners.
2021: Three international organisations partner to launch an opening extractives pilot in nine countries including Nigeria to unveil beneficial owners.
2022: NEITI and the Corporate Affairs Commission to publish a national register. Details of the register remain scanty despite Africa Check’s attempts to glean more.
5. Why does transparency matter?
The Global Analytics Consulting’s Fasua said that due to the secrecy in awarding oil and gas assets, crime and corruption has thrived. “This means that the Nigerian citizen who is supposed to be the beneficiary of the proceeds from these assets and its final products gets little value.”
In a 2018 paper making a case for the publishing of petroleum contracts, the Natural Resource Governance Institute said secrecy does not allow citizens to understand the laws that guide the sector.
The institute is a nonprofit organization that works with countries to improve the governance of their natural resources.
“In Nigeria, the rules governing petroleum projects are contained in a range of official documents including the constitution, legislation, regulations, and contracts,” the paper says.
“But while the constitution and laws are publicly available, petroleum contracts and some regulations are not.” And without access to these documents, “relevant stakeholders cannot determine whether the government or a company is acting in compliance with their obligations”, the institute says.
“Notably, many government officials and legislators are unable to access contracts, and this may prevent them from understanding rules that are relevant to their responsibilities.”
Sun is the best disinfectant
Publishing a list of owners would also answer some political questions, Fasua said. “There have been claims by the Senate that over 80% of Nigeria’s oil blocs are owned by one ethnic group. It is good for such a list to be published so that people can confirm if this is true,” he said.
“If it is false, the list will ease tension. And if it is true, Nigerians can ask questions about the process of allocating these oil and gas assets.” Added Fasua: “As they say, the best disinfectant in the world is the sun. The more transparency we can get in that sector, the better.”
By Oluseyi Awojulugbe
Africa Check Online
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