Obsolete legislation and the challenges of national development: Nigeria's petroleum industry experience

14 Sep 2018
Kingsley Moghalu


How is it that a country that relies on crude oil for 90% of its foreign exchange earnings, passes up opportunity after opportunity to reform its oil sector and attract investment?

Presidential Candidate and former Deputy Governor, Central Bank of Nigeria, Kingsley Moghalu

This being the keynote speech recently delivered by Kingsley Moghalu at the 2018 Law Students Conference of the Ahmadu Bello University, Zaria. Prof. Moghalu, a former Deputy Governor of the Central Bank of Nigeria, is the Presidential Candidate of the Young Progressive Party (YPP).

Yesterday, I spoke to the Students Representative Council of this great university, and one of the ways I suggested we rethink our future is by scrapping the NNPC, as part of broader and deeper reforms in the petroleum sector. I will go a bit in-depth on the issues of the sector in the coming minutes.

Our petroleum industry has been crying out for reforms for years. The current Petroleum Act was passed in 1969 - almost 50 years ago - at a time which was very different from today. Back then, Nigeria was the dominant oil producer in Africa. But now, over two dozen countries on our continent are oil-producing. The US has also become an exporter of crude, after many decades of being just an importer. The laws have not been updated to fit this reality. Take for example that Nigeria has the largest gas reserves in Africa and the 9th largest reserves in the world, but only ranks 24th in terms of actual gas production. The oil sector only makes up 9% of our GDP, the lowest among the OPEC countries.

We are punching well below our weight, and our outdated laws are the primary reason. The 2017 Resource Governance Index ranks Nigeria 55th out of 89 countries, with a score of 42 out of 100, indicating ‘poor governance’ in our oil and gas sector.

There are several aspects to this poor governance. For 6 decades, Nigeria has been addicted to oil. I use the word ‘addiction’ deliberately because an addict only thinks about where the next hit or score will come from. That’s all that matters. Just like an addict, Nigeria has failed to address the issues of the oil sector and is only content with sharing what the NNPC remits to the Federation Account.

These remittances are very problematic. One of the most important news stories in Nigeria recently was the tension between the NNPC and the Federal Accounts Allocation Committee (FAAC) which gives monthly allocations to states. The NNPC basically remits what it likes into the account, and for the past two months, the governors have rejected those sums, calling for an end to NNPC expenditure that is not approved by the Presidency or Federal Executive Council.

All this happens, and yet no action is ever taken to bring the NNPC to heel. It has been used as an imprest account by successive presidencies, and that has not ended in the last few years. What drives a lot of this behaviour is the absence of laws reforming the sector.

Oil sector reform has been on the table in Nigeria for the entirety of our 4th Republic. In 2000, President Obasanjo inaugurated the Oil and Gas Implementation Committee (OGIC), led by the late Rilwanu Lukman, to look into the challenges of the sector. This produced the Draft National Oil and Gas Policy in 2004, a whole four years later. It took another three years for that policy to be approved, and OGIC report was completed in 2008, long after the person who appointed them had left office.

The Petroleum Industry Bill (PIB) was introduced in 2008, but little progress was made. This lead the current Minister of State for Petroleum, Ibe Kachikwu, to split the bill into four parts to accelerate passage: The Petroleum Industry Governance Bill (PIGB), the Petroleum Industry Administration Bill (PIAB), the Petroleum Industry Fiscal Bill (PIFB) and the Petroleum Host and Impacted Communities Bill (PHICB).

The PIGB will solve one of the major problems that have bedeviled our oil industry. It means that the president - who currently doubles as minister of petroleum - will no longer have powers to grant key authorizations like discretionary award of oil and gas licenses and permits.

For decades, this power has been used to reward cronies, facilitating a lot of the corruption in our political class. Transferring this power to a commission will introduce much needed transparency in that aspect and reduce the influence vested in one person.

The PIGB was finally passed by the National Assembly and forwarded to the President for assent in April, but that assent has not been given. This means that 10 years after the PIB was introduced, we still do not have a set of laws to guide the governance of the oil industry at all levels, and provide the clarity and certainty that is necessary to attract foreign and domestic investment to grow the sector, as well as enshrine good governance and global best practices. Nigeria is not the only oil-producing country, and other investors have moved elsewhere to engage with more serious nations.

Ghana for example, passed its Petroleum Exploration and Production Act in 2016, Tanzania passed its Petroleum Act in 2015, Mozambique passed its Petroleum Law in 2014, while Uganda passed its own reforms in 2013.

All these countries are attracting greater investment in that sector than Nigeria, investment that we would have been favourites for. There is a clear cost to our inaction. In one of its audit reports on the oil industry, the Nigerian Extractive Industries Transparency Initiative (NEITI) estimated that Nigeria lost N1.74 trillion in 2013 alone due to non-passage of laws to reform the oil industry.

In a 2016 report, NEITI said this inaction has cost Nigeria $200 billion, a figure which includes estimates of loss of investment, possible returns on investment, losses due to unclear fiscal terms and non-resolution of host community issues.

How is it that a country that relies on crude oil for 90% of its foreign exchange earnings, passes up opportunity after opportunity to reform its oil sector and attract investment? That is because all our elites are concerned with the here and now, giving no thought to the future. You can see this attitude replicated across all sectors of the society. We do not plan for the future and as such we leave little issues until they become big ones. There is no leadership and no consensus about what should be done next.

The space is closing for Nigeria to maximise the potential of its oil sector, as a result of the stated objectives of developed nations to move from fossil fuels to gas and renewables, due to climate change concerns. Countries like France and the UK have committed to phasing out cars that use fossil fuels by 2040, and since transportation is a major use of fossil fuels, we have to understand what this means for us as a nation. A growing number of Western countries are also getting more of their electricity production from renewables, in order to meet agreed upon emissions targets to slow down climate change. The Saudis, the world’s biggest oil producer, have an ambitious post-oil plan being driven by Prince Mohammad Bin Salman, with a public listing for its state oil company, Aramco at the centre of that plan.

Speaking of the Saudis, it was a former Saudi oil minister who said: ‘the stone age did not end for lack of stones and the oil age will end long before the world runs out of oil’. This is a message the current Saudi leadership has taken on board, but what is Nigeria’s plan? What is Nigeria’s vision to maximize what is left of its oil resources for the benefit of Nigerians, before the oil age comes to a close?

The set of reforms contained in the PIGB, PIAB, PIFB and PHICB provide a clear path to this, but every single day we waste before those laws are passed and begin to take effect, are days Nigeria can never get back.

We urgently need a leadership that prioritises the strategic interests of Nigeria, rather than spend time cross-carpeting in an endless political transfer window for two failed teams. The failure to update the laws guiding our petroleum industry falls squarely on both major parties, with none of our presidents in this 4th Republic exempt from blame. Between them, they represent a paradigm that is wholly inadequate for our country, one we must move beyond if we are to truly deliver a better life for many.

The travails of our oil industry since that first discovery in Oloibiri, is but a perfect microcosm of the travails of our nation as a whole. We have been given precious gifts, but have wasted them over and over due to greed and a lack of vision. Rather than enrich us, we have allowed our natural endowments to benefit only a few at the expense of the many, destroying our land, water and air due to gas flaring and oil spills, making our people sick and depriving them of their livelihoods.

Rather than prosperity, our natural endowments have become instead the source of strife, leading to uncountable deaths in the quest for the control of these resources. It is in our power to change this. It is in our power to write a new chapter in our history, one that draws a line under our current system marked by our addiction to oil, replacing it instead with a system of laws designed to ensure the greatest good for the greatest number of Nigerians in the extraction and sale of that oil, and indeed all our natural resources.

It is my hope that as lawyers in the making, your every action will be geared toward building a nation where peace and justice shall reign.

Thank you for your attention.