The more the Muhammadu Buhari Government trumpets change, the more evidence emerges that Nigeria is stuck in the rut. Fresh proof of this was provided last Tuesday by the news that the treasury lost up to $60 billion in revenues due to the failure of successive governments to review the Production Sharing Contracts with the oil producing companies. Shettima Abba-Gana, acting Chairman of the Revenue Mobilisation and Fiscal Allocation Commission, was unambiguous in declaring that the “lost” revenue “has been going to personal pockets.” So much for “change” and the flailing anti-corruption war!
For a country faced with a fiscal crisis featuring massive borrowing by the federal and state governments, deficits and inability to pay workers’ salaries and pensions, the negligence is treasonous! According to Abba-Gana, who is also a Presidential Senior Special Assistant on Policy Development and Analysis, the PSCs, signed in 1993, ought to have been reviewed in line with their terms and current developments. This failure is in addition to current annual losses of $14 billion to the Joint Venture Contracts between the international oil companies and the Nigerian National Petroleum Corporation that holds the country’s interest of 55-60 per cent in them. This follows a sharp drop in daily oil production by between 700,000 barrels and 900,000 barrels.
Successive Nigerian governments are simply irresponsible. How else can anyone explain that the PSCs that contribute 15 per cent to the Federation Account are left unattended? The agreement clearly stipulated a review after 15 years – meaning 2008 for those signed in 1993 – or when oil prices rose above $20 per barrel of oil. Ibe Kachikwu, Minister of State for Petroleum Resources, had in 2015 highlighted this loophole, saying the government lost $21 billion over a 20-year period to the IOCs as a result of this deliberate negligence to review the PSCs and other regulations. In 2017, Kachikwu was given presidential approval to commence renegotiation of the contracts. Oil prices averaged $20.29 pb in 1996, fell below this in the next three years, but rose to $27.6 pb in 2000, when Nigeria should have reviewed it. Since then, prices have never dropped below the $20 pb mark.
This is not the way to run public finances. Just how unserious the Nigerian government can be is underscored by the fact that it took a Supreme Court judgement last October ordering it to recover all the revenues lost to the IOCs due to the failure to update the PSCs to finally move it to action. The judgement arose from a suit filed by three oil-bearing states – Rivers, Bayelsa and Akwa Ibom – which claimed that the Federation Account was short-changed to the tune of $1.14 trillion in the 12 years to 2015 when the PSCs were not re-adjusted to reflect a new revenue sharing formula. Even then, it was not until January this year that the government issued a 14-day ultimatum to the IOCs to pay the outstanding revenues as ordered by the Supreme Court. Since the ultimatum elapsed, the government has not acted to public knowledge.
Only irresponsible governments behave so recklessly. It is bad enough that Buhari, like his negligent predecessors, did not act decisively, but also failed to move after resolving to do so in 2017 and after many reports by local and international agencies highlighting how Nigeria was being fleeced by oil companies and corrupt officials.
At the heart of all this is corruption. Real change can, however, still start with Buhari. The government should stop ignoring reports of revenue leakages.
Last month, the Nigeria Natural Resources Charter said the country lost N995.2 billion annually to oil theft, including pipeline vandalism, illegal bunkering and over-lifting. According to Chatham House, a British non-profit, an additional $182 billion was lost through illicit financial flows between 2005 and 2014, apart from the $400 billion stolen from the country by corrupt officials between 1960 and 2004. In line with its previous reports, the Nigeria Extractive Industries Transparency Initiative said in June 2017 that the NNPC had yet to remit $21.7 billion to the Federation Account, while $15.8 billion in dividends from the Nigerian Liquefied Natural Gas Limited was similarly yet to be remitted. Also last month, the United Nations Office for West Africa and the Sahel put losses in Nigeria due to oil-related crimes at $2.8 billion in 2018.
Yet, of this year’s proposed N8.82 trillion budget, debt servicing is to gulp N2.26 trillion and total debts have risen to $72.23 billion, with external debt accounting for $21.6 billion as of September 2018, according to the Debt Management Office.
Nigeria’s federal and state governments have for so long relied on oil revenues that they have lost all incentives to innovate, seek alternative sources or block obvious leakages. In 2015, Charles Soludo, a former Governor of the Central Bank of Nigeria, challenged the government to plug leakages through which he estimated could bring in N30 trillion to the treasury. Rather than move to stem the haemorrhage, the government of Goodluck Jonathan lashed out angrily at the economist. But elsewhere, more intelligent responses follow: Brazil for instance is stepping up reforms to remake its oil and gas industry after scandals rocked the country with its new president, Jair Bolsonaro, pledging to continue policies begun by his predecessor to boost investment and production, as well as halt graft, Russia launched a series of reforms of its oil and gas sector after the turmoil that accompanied privatisation in the 1990s and is currently implementing a major tax overhaul that among others, will free the government of $16 billion in annual subsidies to domestic refiners.
Buhari and Kachikwu should move today to review the PSCs and other rules. Their obduracy in getting the state out of the downstream sector is costing Nigerians dearly; they should stop compounding our woes by continuing to sustain the fraud in the upstream sector. Money accruing to the Federation Account belongs to all tiers, therefore, states should follow the lead of the three states to seek judicial backing when government fails to act.