Reports on the losses Nigeria suffered in 2015 through dubious oil swap deals remind us anew of just how much despicable things have remained the same under a government that promised, but has failed, to deliver change. Though an audit by a statutory watchdog exposing the loss of $723 million pre-dated the Muhammadu Buhari administration, his failure to reform the Nigerian National Petroleum Corporation entrenches its ingrained corporate culture of impunity. He is doing Nigerians a great disservice by allowing the NNPC to carry on business as usual.
A report released recently by the Nigerian Extractive Industries Transparency Initiative was familiar and depressing fare. Through the controversial crude oil swap deals, the country, NEITI said, lost $723 million (N221.5 billion) in opaque, fraud-prone arrangements to foreign and local firms. Specifically, the report said the losses occurred through the Offshore Processing Arrangement that involved the allocation of crude oil to select oil firms and traders, under swap contract terms in exchange for those firms to supply refined petroleum products for local consumption. OPA was part of an infuriating template that has gone on for too long: the government allocates 445,000 barrels of crude per day on favourable terms to the NNPC to refine what it can locally, then deploy the rest in “swap” deals by allocating volumes to traders who would refine them offshore for the national oil company. The 445,000 bpd quantity corresponds to the combined installed capacity of the NNPC’s four moribund refineries in Port Harcourt, Warri and Kaduna. NEITI alleged that the latest loss was the shortfall on the value of crude supplied; it identified outstanding liabilities of $498 million in other operations from under-delivery of products, and another $90 million lost through the NNPC’s dubious practice of using lower or revised pricing at the point of payment, instead of the higher price at the point of purchase.
The more Nigerians clamour for change, the more things remain the same. In 2013, a Switzerland-based non-profit, Berne Declaration, had raised the alarm that the NNPC officials, in connivance with some Swiss oil traders, had defrauded Nigeria of about $6.8 billion through false subsidy claims between 2009 and 2011, using “letter box companies” – fictitious corporations that had only addresses but no offices. In 2014, NEITI had reported similar issues in the NNPC transactions amid reports that the country was losing billions through poor accounting. In both cases, nothing was done to identify the companies and officials involved and bring them to justice or to verify the allegations and recover the sums lost.
But Berne Declaration says, “Every year, the Nigerian state coffers lose billions of dollars as large volumes of oil are exported for well below the market price, and the subsidy scheme for imports of refined crude oil products is systematically defrauded.” A series of reports, audits, including those from the Auditor-General of the Federation, the Central Bank of Nigeria, as well as parliamentary inquiries have exposed a level of financial rascality unseen anywhere else; yet, the response of successive Nigerian governments has ranged from tepid to hypocritical posturing and outright indifference. The NNPC, on its part, routinely denies the allegations.
Reform efforts made early at the take-off of this administration have tapered off and the NNPC appears to be back in reset mode after Buhari stripped Ibe Kachikwu, the Minister of State for Petroleum Resources, of the post of the Group Managing Director and replaced him with an insider. Kachikwu had in November 2015 dropped the OPA for a new, Direct Sale-Direct Purchase arrangement “to enthrone transparency and eliminate the activities of middlemen in the crude oil exchange matrix.” This stabilised supply for a while, but observers await new reports to gauge how it is faring now.
While Nigeria has failed to punish offenders, in January 2017, a Chinese court slammed a 15-year jail sentence on a former vice-chairman of state-owned PetroChina for corruption as part of its long-running, wide-ranging assault on corruption that has seen former top officials and generals sacked, prosecuted and jailed or executed. In 2014, Ahmad al-Wahaibi, a former CEO of state-owned Oman Oil Company bagged a 23-year jail term in Muscat for corruption involving $8 million, a small sum compared to the billions of dollars allegedly stolen through the NNPC over the years.
Buhari owes Nigerians a duty to order forensic audit and criminal investigation into the NNPC; review the various past audits; reform the corporation, rid it of the bad eggs and fulfil his campaign promise of breaking it up.
Oil swaps are not only fraud-prone, they represent a national disgrace since the system exists only because a country producing 2.3 million barrels of crude per day relies almost entirely on imports for refined products.
Those who continue to argue for the imperative of a mega national oil company should be reminded of the unmitigated failure of state-owned enterprises here. Across the world, reform is the new focus. According to a report prepared for the World Bank, “…analyses point to the existence of efficiency gaps between NOCs and privately-owned companies. In general, NOCs exhibit lower labour and capital efficiency, generate lower revenue, are less profitable, and produce a significantly lower annual percentage of their upstream reserves than POCs.”
We repeat: privatise the four refineries immediately and liberalise the downstream sector to attract new investors and scrap the oil swaps today. Those who have used it to defraud the country should be identified and prosecuted and all their ill-gotten gain recovered.
