Louis Brown Ogbeifun

By Louis Brown Ogbeifun | May 1, 2009

I thank the organizers of this workshop for finding me worthy to deliver this paper before this august gathering. Your choosing to discuss corruption in the oil and gas industry means that there are cynicism and corruption in the sector, that all is not well with the system and that there is urgent need to put processes in place to add value to hydrocarbon production for the benefit of all stakeholders and Nigerians in general. That Nigeria is the 10^th and 3^rd largest oil producer of oil in the world and Africa respectively; yet so poor goes against any rational reasoning, methodical explanation and epistemological interpretation. It is incontestable that we are where we are because we run a spoilt system. The need to shift from our past makes the topic very apt at this time.

Introduction

For more than five decades of oil and gas exploration in the Niger Delta region of Nigeria, all we have are tales of woes and the massive negative impacts amongst which are: extreme poverty, high unemployment rate, infrastructural decay and corruption. All these have led these communities; in whose land we extract oil and gas to ask the Nigerian State to come up with the best arrangement that will reverse their awful and agonizing past.

Corruption is the deviation from the norms and ideals of transparency, accountability, honesty, truth and the engagement of people in self-serving activities to actualize selfish interests at the expense of the larger group. Corruption is a non-restrictive practice, which knows no boundary, culture or society. It is found in the nooks and crannies of every nation, whether emerging or developed. It starts from the micro level of the family as a unit and extends to the broad spectrum of society.

Therefore, corruption is not just taking and giving of bribes. It could be moral, political, social, economic and religious. It is effusive, pervasive, infectious and a highly globalized phenomenon. Corruption is human. It has voice, flesh, bone and marrow. It is highly professional. Corruption cuts across classes and strata of societies. It occupies low and high places. Those at the low level engage in it to make ends meet. Those in high places engage in it to maintain the status quo, cling on to power and eat what they do not need in the present to preserve their generation unborn. The perpetrators are conscienceless and deadly. It is on this premise that one believes that the oil and gas industry cannot be insulated from corruptive tendencies. Corruption is destructive and must be seriously tackled because where corruption thrives, nothing works. Corruption may not be totally wiped out but structures can be put in place to reduce the endemic social disease to the barest minimum. I believe that it is in the contest of trying to reverse the negative trends of corruption that the African in Diaspora Initiative is seeking a pathfinder, which will enthrone transparency and accountability in the oil and Gas industry in Nigeria.

Oil is an organic matter and also usually referred to as hydrocarbon. It is formed from dead marine organisms and plants, which were buried over several million years ago. It is transformed into oil and gas by heat, pressure and bacteria. Our economy could be said to be largely monolithic and largely dependent on the oil sector, which accounts for more than 98% of export earnings, about 85% of Federal government total earnings, 30-40% of our GDP; 90%-95% of foreign exchange earnings and between 65%-70% of government budgetary revenues. It is the most efficient natural resource that could be used for the rapid economic growth and development with the highest propensity to attract abundant foreign investment. Oil and gas are strategic to our national security, development and growth. They are even more important in our environment where we have no developed ready-made alternatives like coal, solar and nuclear energy to drive our technological development.

Brief historical perspective

• 1908: Exploration work started in Lagos and Okitipupa coastal areas by the Nigerian Bitumen Company established by a German consortium.
• 1908-1956:  Various exploration, exploitation continued in various parts of the country
• 1956: Oil discovered in commercial quantity at Oloibiri by Shell D’Arcy
• 1958: Shipment of 5,100 BOPD
• 1960:  175,000 BOPD
• 1971:   Nigeria joined OPEC
• 1979:  2.3mm BOPD
• 1958: Shipment of 5,100 BOPD
• 1960:  175,000 BOPD
• 1971:   Nigeria joined OPEC
• 1979:  2.3mm BOPD
• 1983: Oil glut led to a reduction to 1.3mm BOPDv  2008: 2.4mm BOPD
• From mid 1980s-september 2003, oil prices generally stood at $25/barrel. From then on prices rose above $30/barrel.
• August 11 2005, it rose to $60/barrel
• July 2008, it peaked at $147.30

At the end of 2008, it slumped to $33.87 and in 2009, gradually climbed to above $50 by the end of March, 2009. Currently, more than 800,000 barrels have been shut in due to youth restiveness, militancy in the Niger Delta region and the unabated vandalism of petroleum pipelines

Upstream

The upstream focuses on mining, exploration, exploitation, production and exportation of crude oil and the most important sector to the Nigerian economy. Nigeria’s average yearly production of crude oil is 710 million barrels. Present reserve is expected to last for about 49 years if no additional reserve is added. This shows that oil is a depletable asset. Nigeria has proven natural gas reserves of 187 trillion standard cubic feet, the 7th largest gas reserve and a production capacity of 34.97 billion cubic billion metres and present average gas consumption is 700Mscf. The country currently flares less than 75% of our gas is flared (it is 42.52% (2006) and 27% (2007) of associated gas and hopefully would wish to have a zero flare target by the year 2010. In addition, it is also the desire of the country to increase the National Oil Reserve base from the present 36.22 billion barrels to 40 billion barrels with a daily production of 4.5 million barrels by the year 2010.

The Downstream sector

The downstream sector concentrates on the refining of crude oil into usable products through distillation, conversion, extraction, and other special treatments to produce petroleum products and petroleum gas. It also covers the operations of the petrochemical plants. Nigeria has four refineries; two in Port Harcourt, one in Warri and one in Kaduna with a total refining capacity of 445,000 barrels (PHRC 210,000 WRPC 125,000 and KRPC 110,000) per day. However, these refineries have been unable to meet with their refining capacities because of several mitigating factors, which include decades of neglect, lack of turnaround maintenance, obsolete policy thrusts and vandalism of petroleum pipelines.

Service sector

Provides technical, engineering and consultancy services mainly to aid the upstream in the drilling, exploration and production activities.

It is noteworthy to note that NEITI has tried to instill fiscal discipline in the oil and gas industry through financial, physical and process audits. The audits reconciled figures and coherent maps of who paid what money, to whom, how much, the amount of oil and gas produced, lifted, exported within the period under review and a critical examination of extractive processes and levels of justification of capital expenditure.The reports noted weak accounting infrastructures, inefficient interfacing between the relevant agencies, inadequate financial and infrastructure to support the operations of the agencies, poor record keeping practices and lack of independent capacity to carry out independent assessment of oil companies royalty liabilities,  Like in any other sector, corruption can take place right from the planning stages to the completion phases of projects.

Therefore, there is the need to understand and appreciate how they can occur before we can begin to proffer solutions to corruption issues in the Nigerian oil and gas industry.  Our policies and laws guiding the operations of the oil and gas are so obsolete that they skew in favor of the contractors and give vent to corruption. Technical incompetence and lack of adequate manpower further compounds the inability of government to optimize the revenues accruable to the government in oil and gas business in Nigeria. It is in realization of this that the Oil and Gas Reforms Implementation Committee (OGIC) was constituted by the Federal government. The bill to support the legal framework is presently before the National Assembly.

Tender process

The beginning of any oil and gas business starts from the tendering and bidding processes. Often times, what transpired here will be the determinant of how much corruption can be perpetrated in the life of a particular project.Contractors usually seek those that can assist them with in-house benchmarks or even get the scope drawn by the internal collaborator for a fee.

This was proven in the Wilbros case in which $6million was said to have been used to secure a contract through various agegovernment. With an accomplice and a “godfather” at the top, the contractor either stays on the benchmark or a little lower. Once the job has been secured, he pushes for variation costs, which can be as high as 200-500% of the original cost.

More worrisome is that the supervising arm of government may not have recommended the companies that finally get the job, courtesy of “orders from above”From recent revelations, it has been found that winning contracts in the oil and gas industry is laced with huge corruptive tendencies. On this, Isakpa revealed “Steph, two other unnamed Wilbros executives and two employees of a multinational construction firm, were alleged in the indictment to have planned to spend $6 million to secure lucrative contracts with the construction of Eastern Gas Gathering System. The bribes were hidden as consultancy fees”. Continuing, Isakpa said “At some point US, French, Swiss and British authorities investigated allegations that Kellogg, Brown and Root (KBR), the Halliburton subsidiary, was involved in the operation of a slush fund when they secured the award of contracts worth $10 billion for the construction of the Nigerian Liquefied Natural Gas plant at Bonny in the late 1990s and early 2000s”. 

Agreements/types of agreements

The agreements drawn could give teeth to the corruption traps set during the bidding stages.

Joint Venture

The Joint Venture arrangement in which two or more oil companies enter into an agreement for joint development of jointly held oil prospecting licences (OPLs) or oil mining licences (OMLs) and facilities. Each partner in the joint venture contributes the operating costs and shares the benefits or losses of the operations in the venture.

Drawbacks

• Delayed cash calls and projects because all crude oil sales are paid into the Federation account therefore subjecting it to the whims of government bureaucracy
• The Joint Operating Agreement (JOA) which regulates the Joint Venture deal does not have review clause which makes the contract to be in favour of the operators.
• Personnel recruitment and expatriate quota are grossly abused. For instance, at this time and age of our development, some companies still have expatriates as community liaison officers.
• Perpetration of corruption through a community liaison officers. 

 PSC and Cost verification

It is because of the drawbacks of the JOA that PSCs emerged. The prospecting licences and mining leases granted in the deep water fields of the Nigerian coast have been on this term. The PSCs enable a sharing formula to be implemented which allows the operators to pay statutory tax and royalty and keeps the larger part of the profit.The contract period is usually for 30 years (inclusive of 10 years exploration and 20 years OML period and governed by the PSC agreement).

Cost Verification

It is that portion of the amortized cost for the period recovered through crude lifting. The components for consideration are capital and recurrent expenditure. The capital expenditure is amortized through a period of five years i.e. 1/5 of the total recovery while the recurrent expenditure is recovered within the year. These are the total expenditure that will be available for recovery.According to the Deep Offshore and Inland Basin Production Sharing Contracts (Amendment) Decree No. 26 of 1999 PSC “means any agreement or any arrangements made between the Corporation or the Holders and any other petroleum exploration and production company or companies for the purpose of exploration and production of oil in the Deep Offshore and Inland Basins.

Origin of PSC

According to Johnston (1994:39-40), the first PSC was signed by IIAPCO an Indonesian National Oil Company at that time (now Pertamina) in August 1996 with Permina. The concept is now used in more than thirty (30) developing countries including, Malaysia, Oman, Angola, Peru, Ivory Coast, Egypt, Libya, Gabon, Thailand, China, Nigeria, etc.The essential characteristic of PSC is that of state ownership of the resources. The Contractor receives a share of production for services performed after payment of Royalty, recovering of operating costs, and payment of tax oil. The remainder is shared as profit oil in an agreed ratio.

Emuchay in Egwuenu (2000) in a public lecture  postulated that “PSC emerged as one of the fiscal regimes in the Nigerian Oil and Gas sector as a concerted attempt to improve on the traditional Joint Venture agreement to the advantage of the government which lacks adequate technical base and sufficient financial resources”.

Johnston (1994: 242-243) posits that the 1993 PSC in Nigeria has cost recovery limit of 40%. He also defined PSC as “a contractual agreement between a contractor and a host government whereby the Contractor bears all exploration costs and risks and development and production costs in return for a stipulated share of the production resulting from this effort”.

Akomolafe in Kupolokun (2004) posits that “it is anticipated that the PSC arrangement would attract up to $10 billion in foreign investments to the upstream over the next five years. However, effective and consistent monitoring and control of costs by NNPC as well as the general supervision of the operations on a continuous basis is a necessity”.

From the above, Production Sharing Contract (PSC) could be defined as is a contractual agreement between a contractor and the host government or it’s agency. The Contractor bears all the risks, incurs all the costs for exploration, development and production. In this arrangement, a contractor is engaged to carry out operations in Government wholly held acreage. Initial exploration and risks are borne by the Contractor and recovers his costs as oil is produced, the Contractor receives shares for its services after the payment of Royalty, recovery of operating costs (cost oil), payment of tax oil and share profit in an agreed ratio.

There is usually a clause in the agreement, which states, “the operator and its auditors shall have the right to inspect and audit the books and accounts relating to the contract for any year and if such inspection and auditing have not been so carried out within two (2) years following the end of the year in question, the books and accounts relating to such year shall be deemed to be acceptable by the parties as satisfactory”.

This means that cost verification is time barred e.g. 2008 verification must be carried out from January 2009-December 2010. To ensure that the deadlines are not met, the companies dilly-dally over reconciliation meetings with the appropriate government agencies and seek ways of ensuring that the cost verification is not done with the stipulated period.Cost verification is an important tool in PSC agreement as it relates to our country because the verified and certified cost constitutes a background with which the operator puts on record its performance bond and above all recover costs through cost oil (crude entitlement).  Once a cost verification has been duly carried out and certified crude is allocated under PSC arrangement after cost has been verified and certified. Where this is delayed or not done, crude will be allocated on the contractor’s reported cost, which usually will be higher than verified cost. It has been opined by several interest groups that PSCs are increasing in number without commensurate capacity to cope.

According to Akomolafe (2007:18) ‘Timely preparation of cost verification exercises of PSC companies by skilled personnel will bring about quality verified costs devoid of misstatements and errors for cost recovery purpose of the operator.” Olamide (2008:29) posits that the delay or lack of constant cost verification gives the PSCs especially the leeway to file for unmerited costs”. This is one situation that favours the producing PSCs are very comfortable with, but a serious means of leakages to the government. Even where these costs are recovered at a later date, money loses value with time. Corruption here if detected could run into multi billions of $. If for instance a government agent had to verify and certify costs of a company and the government agency found $35 million unmerited costs.

The company in bid to keep all the profits can offer such government agent(s) $10 million while the company keeps $25. For an officer that does not earn up to $2.500 per month, your guess as to what might happen is as good as mine.

Features of PSC

• Signature Bonus $0.5-$1.0 Million per block.
• Bid Bonus $10-$30  Million per block
• Royalty Oil up to 16.67% depending on water depth
• Cost Recovery- 100% after royalty.

The Fiscal arrangement for Gas and Downstream Investment have five years tax holiday, exemptions from import duties/VAT

Petroleum Profit tax

During the NEITI audit, it was discovered that some companies were in arrears of 3-4 years. This encourages corruption and short-changing of accountability and transparency processes.

Royalty

• Paid based on volume and decrease as there is increase in water depth
• On Shore                      20% 
• Off Shore  0-100 M      18.5%
• 100-200M               16.67%
• 201-500M               12.00%
• 501-800M                 8.00%
• 801-1000M               4.00%
• Above 1000M           0.00%  

Draw backs of PSC include

• Agreement stresses cost recovery rather than paymentv  Loaded costs
• Possible underpayment of royalty, due partly to the lack of a clearly defined point of assessment of royalty.
• Possible underpayment of PPT, due to a practice of self-assessment that has not been adequately validated by FIRS 

Risk service Contract (RSC)

The RSC is a minor variant of PSC and rarely used. The contractor carries out exploration activities on behalf of the government or its agency for a fee either in cash or kind. The main features of a Service Contract are: The contractor has no title to the crude oil, but the right to be repaid the investment plus an agreed mark up if and when oil is discovered in commercial quantities and produced, each Service Contract relates to a single block unlike PSC, which may cover more than one block. The continuation of the contract is subject to the contractor meeting an agreed level of work programme each year. The major incentive for the risks undertaken is that the contractor has first option to purchase the fixed quantities of crude oil produced from that contract area.In Kuwait- the constitution forbids foreign ownership of mineral resources but government allows foreign investments in the upstream oil development in their own terms. She pays the agreed term per barrel rather than Production sharing arrangements.

Concession

This is a contractual agreement that guarantees the exclusive rights of a company to explore, produce, market and transport oil and gas in return for paying specified costs and taxes. This is contained in the Petroleum act of 1969. It is usually for 20 years.

DrawbackIt has the lowest returns in form of royalty or income tax

Bidding for oil blocks

This is an area that has been grossly abused because of obsolete laws, the spoilt system and military/government interventions in the running of the oil and gas sector. In the Petroleum Act of 1969, the Minister of Petroleum reserves discretionary powers to allocate oil blocks. To support this assertion, the Sun quoted Ofurhie (2008) as saying that “between 2001and 2006, there was no open bidding for oil blocks, but only selective bidding authourized by the Presidency”

During this period and contrary to the rules, monies for signature bonuses have been paid in naira instead of in hard currencies and monies paid were not receipted for more than five years.The House Committee noted that some signature bonuses were paid in naira contrary to the provision of the guidelines, adding that from the records available to them, there was a short fall in the payment of signature bonus of $1.6bn. according to the Committee, the records of the signature bonuses in 2005 showed a total of over $2bn but only the sum of $1.6bn was paid while some payments were made in local currency the Director of DPR admitted that some payments were made in local currency but that he was directed by the Minister of state for Petroleum to do so. “I received signature bonus in naira because of instructions from above. It was also discovered that the wired payment for $2.5 million paid for OPL. 257 in June 2003 by Vintage Oil spent five years before it was receipted on July, 8 2008”. Even with the open bidding system, which is supposed to be a more transparent system, many companies came to the panel of the House Committee investigating the oil and gas sector  accusing government of unfair treatment in the allocation of blocks while Starcrest investment Ltd said to have been represented by its Secretary Emefor Etudo, alleged that about 10 powerful individuals connived and cornered $35 million stated before that blocks were awarded after the bid rounds based on the instruction of the Minister (http://www.guardiannewsngr.com/news/….ocks%20missing); sensitive documents relating to block allocations were said to have been missing.

This was confirmed by the acting director of DPR, Alhaji Mohammed Aliyu Sabo before the Committee said “we can only give out what we have and cannot give what we don’t. We can’t find some of the documents”. More disturbing is even the reallocation of the oil block belonging to the Nigerian Petroleum Development Company (NPDC); a supposedly government’s agent, which is the exploration arm of the Nigerian National Petroleum Corporation (NNPC) to a Chinese company, the China National Oil Development Corporation (CNODC).  An oil block which NPDC has operated since 1989 as Oil Mining Licence (OML) 65 since 1989 was put in for sale as Oil Prospecting Licence (OPL) 289. The committee found that OML 65 was transformed to OPL 289 without first being first revoked therefore going against due process.

The Former Group Managing Director (GMD) of NNPC, Funso Kupolokun was said to have expressed shock when he found out that the two oil blocks were one and the same. He told the committee that he was deceived by DPR into approving the oil block which was already in the possession of NPDC for sale to CNODC. The question is, are there no ways of verifying assets before putting them on sale?.

Blocks have been found to have been allocated, withdrawn and given to another company at a lesser amount. The committee also discovered that Shell paid $210 million in December 2003 as signature bonus, but only the sum of $1 million was reflected in the records, while Statoil also made a payment in 2003 but the receipt was issued in 2004. In the case of the controversial OPL 245 won by Malabo Oil, it was discovered that while $210 million was paid, it was later withdrawn and awarded to Shell which, paid $1 million as commitment fee before Malabo went to court).

Torulagha (2006) posits that “the oil blocks is almost given freely to those who are highly connected to those in power. These individuals then sell the blocks to International Oil Companies and earn substantial income. It operates like a government-subsidized welfare program for the selected few. Translated politically, Nigerian leaders use oil blocks as a form of reward and punishment to compel or elicit certain behaviour from certain individuals”. 

From this standpoint, it can be summarily adduced that when a particular leader wants support for a particular policy or self effusing agenda, he identifies the zone where opposition will be massive and settles them with oil blocks as a pre-emptive way of eliciting their support to buy into the agenda. On the other hand, an agreement on any block so freely given can be revoked at the whim of either the President or the Minister of Petroleum as a punishment for not supporting an agenda of government. This type of system if allowed to continue perpetuates corruption and where there is corruption, nothing works.

Seismic Activities

This is the beginning of acquiring data whether in the swamp, onshore or offshore. Here, the money spent on community activities and hiring of equipment can be veritable source of overload and corruptive tendencies. Another area in which searchlights should be beamed is in the area of equipment lease agreements, which could be hyper inflated. All these increase overhead costs, make money into private pockets with slimmer margins to government. 

Lifting

The main important components under watch here should be records and metering. NEITI auditors opine that “The amounts listed may not for various legitimate reasons not correspond to the entitlements inferred in the hydrocarbon balance like the lack of standard definitions and measurement points.

Downstream

On July 20, 1999 former President Olusegun Obasanjo in his speech on the occasion of the inauguration of the National Council on Privatization at the Presidential Villa on in his speech noted that the refineries were built on quicksand and went ahead to put succinctly some of the challenges facing the refineries and listed them as:

• Defective Capital Structurev  Excessive Bureaucratic Control or intervention.
• Inappropriate Technology.
• Gross incompetence and Mismanagement.
• Blatant Corruption and;
• Crippling Complacency

What he however, refused to tell Nigerians in addition to the above is that the past leaders, the political heavyweights, proxies of those in power and the Nigerian factor led the refineries to their death knell.

The Nigerian National Petroleum Corporation (NNPC) would have been at the hob of turning around the downstream sector but the criminal crippling complacency of government in its refusal to allow the refineries run like a truly commercial venture since inception led to the coma of the refineries. The NNPC Act of 1977, which established NNPC as a statutory corporation did not provide it with the power to borrow beyond nominal sums by bank overdraft arrangement. Section 8 of the NNPC Act provides that the approval of the National Council (now the President under the present constitutional dispensation) must be sought before any substantial borrowings.

Furthermore, under general legislation affecting the borrowing of statutory corporations, the Ministry of Finance is designated as the appropriate arm of government to administer such transactions.This Act negates the core foundation principles of commercialization. For instance full commercialization means that enterprises so designated will be expected to operate profitably on a commercial basis and be able to raise funds from the capital market without government guarantee. Such enterprises are expected to use private sector procedures in the running of their businesses. Partial commercialization on the other hand means that such enterprises so designated will be expected to generate enough revenue to cover their operating expenditures. The government may consider giving them capital grants to finance their capital projects. In both full and partial commercialization no divestment of the Federal Government shareholding is involved; and subject to the general regulatory powers of the Federal Government the enterprises shall:

1. Fix rate, prices and charges for goods produced and services rendered;
2. Capitalize assets; and
3. Sue and be sued in their corporate names (Guidelines on Privatization & Commercialization, p 55).

Previous administrations paid lip service to the strengthening of the downstream sector. What they put into it with the right hand they took back with the left. The refineries were rendered ineffective through policy inconsistencies. The main share holder (government) changes the leadership at will and in less than a decade, NNPC had about 5 Group Managing Directors. With these changes, the Managing Directors of the subsidiaries also change to the effect that some of these refineries have had more than 10 Managing Directors in less than two decades. The Turnaround Maintenance, which should be done biennially was left undone for decades and where it was done, the shareholder through back hand business determines which companies should do the TAM irrespective of having the technical competence or not. Those managing the refineries were never truly empowered to effectively manage the plants. The Managing Directors had a financial authourity of N5 million ($34,000) when Managers of lesser and newer plants have signing authorities of $1-2 million. Seeking approvals for capital projects, refurbishment of spares could take more than one year in some cases. When the NNPC was still running Eleme Petrochemical Company, the officer in charge of its Materials’ Management unit had a signing authourity of N30,000 ($200). From 1999-2007, almost all the approvals for capital projects ended with the Presidency. This meant that projects were bogged down by bureaucracy and the Management was unable to react to critical emergencies. 

To turn the bad dreams into depressing nightmares, restiveness and militancy took its roots in the Niger Delta region. The chanomi Creek trunk line, which supplies crude to the Warri and Kaduna refineries have been blown up twice between 2004 and 2006. The contractors were unable to mobilize to site until they settled issues with the communities. The repairs took about one year and six months each. This meant that WRPC and KRPC were unable to perform their roles as they could not possible produce petroleum products from water. Whereas the enabling statutes setting up Petronas and Petrobras from inception made them truly commercial enterprises, the Act that set up NNPC programmed it as a merely regulatory body thereby being made to be unable to compete with any National Oil from inception.

Under the above circumstances, only magic and miracle would have brought NNPC to a world class standard of our dreams. It is in this direction that the Oil and Gas Reform Implementation Committee (OGIC) was put in place. If implemented as conceptualized, it will be a welcome development. The essence of the exercise is to put the organization in the same position as the Petrobras of Brazil, Petronas of Malaysia, and Statoil of Norway, which were established at the same time with the NNPC. These companies managed their countries’ petroleum resources and have also ventured into exploration and production of oil in countries other than theirs and they are making remarkable progress in this regards, Petrobras is investing on Oil Prospecting Lease (OPL) 216 and 246 and Statoil have invested in Oil Prospecting Lease (OPL) 217 and 218 in Nigeria.

While the Petrobras, Petronas and Statoil are busy investing in other lands, NNPC has been crippled and weighed down largely by the overbearing influence of its shareholder and unending bureaucracy. Efforts to invest in the past had been inhibited by government bureaucracy. This was corroborated by some previous Group managing Directors of NNPC. Dalhatu Bayero, a former GMD of NNPC, remarked, “I hope the government will allow NNPC to carry out successfully its process of transformation”. Another former GMD, Chambers Oyibo once said: “It was not that the NNPC never made attempt in the past to invest outside Nigeria, but it was never supported by past governments”. 

Turn Around Maintenance (TAM) Issues

Pre-90s, staff of the refineries with a very few external experts were responsible for doing TAM and on the dot of ninety days, those plants were back running. However, as soon as the military government introduced third party contractors’ arrangement that they can foist on the system, the plants went comatose. The third party arrangement was put in place as a deliberate attempt to make money for the military leaders at the detriment of effective running of the refineries. In October 1994, the government enacted the Petroleum Special Trust Fund (PTF) Decree. All proceeds from the petroleum product sales in the domestic market except for fuel oil and special products were transferred from NNPC to PTF. NNPC was then paid N1.7 per litre ($0.02) to transport crude oil to refinery, refine the crude oil and distribute the products nationwide. Consequently, they were denied access to internally generated revenue. The World Bank’s Report on its 1994 Public Expenditure Review opined that the allowed margin of N1.7 per litre was just 54 per cent of refining cost. This implies by rough estimate that refining cost should have been above N3 per litre as at 1994 by World Bank Standard. This arrangement made NNPC to go cap in hand to beg for money to run her operatoins.

On TAM, Ereyukomhen in Ola says “that the Turnaround Maintenance (TAM) of the Port-Harcourt Refinery was awarded to an Oil Services company in 1998 and was partially completed in 2001. The Oil Service Company was unable to handle the Fluid Catalytic Cracking Unit. As a result, the capacity utilization level after TAM remained below 60 per cent. The Turnaround Maintenance of Warri refinery was awarded to another French Company. Despite the completion of Tam, the company could not operate beyond a maximum of 70 percent. The TAM of Kaduna was awarded to an oil marketing company in 1997 but the bulk of the work did not start until 1999. After the TAM, the plan could not operate above 45 per cent capacity utilization”.

If indeed our past leaders were sincere about their commitments towards the effective running of the refineries and the provision of petroleum products for Nigeria’s use, all the companies that took part in the sham TAM would have been called to question. The refineries were terribly raped but the rapists are out there in absolute freedom enjoying their loot. This is against the principles of due process, accountability, transparency and the rule of law. 

Challenges

• Decayed infrastructure.
• Corruption.
• Lack of political will of government to turn around the oil and gas sector.
• Improper record keeping.
• Lack of adequate institutional infrastructural support.
• Attitudinal problems.
• Complacency by government towards genuine oil and gas reforms.
•  Manipulation of oil and gas industry to give rewards to loyalists of the government in power.

Conclusion

All said however, I want to conclude by saying that for there to be accountability and transparency in the oil and gas sector; we must all be committed to the values of honesty, transparency, patriotism and loyalty. The government should sincerely and genuinely follow through the OGIC reforms it has put in place. Anti corruption drive must be sustained at all levels. The government must find ways of shielding whistle blowers and anti corruption agents in the industry from victimization. Society should also stop eulogizing corruption made heroes and heroines. Celebrating and associating with corruption made individuals calls to question the definition of corruption and the moral principles of our leaders who wine and dine with these questionable characters in the cover of darkness. This attitude has brought to bare the kind of polarized contradictions in our society where we attempt to fight corruption but on the other hand accept it as a norm.Thank you. 

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