THE Nigeria Natural Resource Charter, NNRC, a global initiative targeted at assisting governments and societies effectively harness the opportunities created by natural resources, has called for better management of Nigeria’s oil as it becomes clear that the nation earned more than $1.0 trillion with little evidence of development in the past 63 years. In its latest report – Improving the Management of Resource Revenues for Sustainable Development – obtained by Vanguard, NNRC, stated: “With more than USD 1 trillion earned from oil revenue since inception, the country is still ranked high in major underdevelopment indicators such as poverty, infant and maternal mortality
A comparative analysis of resource-rich countries, however, indicates that development outcomes hinge not strongly on the resource endowment per se, but crucially on effective management and governance of the resource.” It stated: “This is a major conclusion of the most recent assessment1; 2017 Benchmarking Exercise Report, BER, assessing Nigeria’s oil and gas resource management strategies conducted by the NNRC.
The 12 precepts of the Natural Resource Charter2 provides insights into the revenue management strategies adopted in Nigeria using oil and gas resource revenues from 2015 to 2017. “In particular, precept 4, 7 and 8 touched on the weak fiscal regime, the linkages between revenue and development, and concerns around stabilising expenditure. This brief provides actionable policy recommendations that can enhance the better management of resource revenues for development, especially in line with the key policy gaps identified in the 2017 BER.” It stated: “The present fiscal regime for sharing revenues from joint venture arrangements between the government and oil companies is archaic, complex and opaque, thereby limiting the revenues accrued to the government. Low returns from investments minimise the level of interventions that the government can undertake to improve the lives of Nigerians. It is estimated that Nigeria has lost about USD18 billion due to obsolete oil and gas law. “One example of such law is the Deep Offshore and Production Sharing Act 1993.
A major section of the Act gives incentives for deep offshore drilling to oil companies such that those drilling beyond 1000 meters paid 0 per cent royalty until such a time as the price of crude went beyond $20. While the $20 benchmark has been crossed since 1993, the Federal Government has failed to activate this clause resulting in substantial loss of revenue. “The 2017 BER finds that the Nigerian government’s take from Production Sharing Contracts, PSCs remains the lowest in the world and deep-water oil royalties remain at zero per cent. Also, outdated contracts and expired Memorandums of Understanding, MOUs are still in force resulting in under assessments, under-payment and invariably loss of revenues to the government. The 2017 BER also found weak accountability and transparency with regard to licensing disclosures for oil facilities. “Specifically, in the 2017 Revenue Governance Index, Nigeria scored 17 out of 100 placing it 77 out of 89 countries in the assessment of licensing. Again, lack of transparency could fuel corruption and diversion of resources. Overall, government is making less revenue from oil and gas sector because of the prevailing ineffective fiscal regime and opacity which allows for corruption.” Petroleum Industry Bill It proposed immediate passage of the nation’s Petroleum Industry Fiscal Bill, which will enhance the effectiveness of oil and gas laws in responding to changing global and local dynamics.
NNRC stated: “Strengthen the role of Nigerian Extractive Industry Transparency Initiative, NEITI and by extension, civil society organisations in improving the transparency of oil licence award processes. Transparency in production and financial management has already improved with effort of NEITI and various civil society organisations. “Develop the capacity of statistical agency in the collection of data on various value chain of oil and gas sector, including licensing and making it publicly available for scrutiny.” It stated: “The NNRC suggests that revenues from resource extraction can finance growth in non-resource economy and improve standards of living.
It further suggests that if managed poorly, the government can squander revenues and subject the economy to economic shocks, leading to wasteful spending, poorer public and private sector investment choices, over-borrowing, debt crises and ultimately, poorer human development. “Therefore, the optimal way to utilise the opportunities from resource endowment is deploy the resource revenues for present needs without compromising the needs of the future generation. In addition, natural resources are non-renewable resources and saving revenue from extraction will ensure that society effectively transit to a sustainable revenue source and eventually diversify away from oil.” Excess crude account It stated: “Since 2012, less than 20 per cent of the total government expenditure has gone to capital expenditure. Also, of the USD180 billion that has accrued into the Excess Crude-oil Account, ECA, a fiscal buffer established in 2004, less than USD2 billion remains as at 2018. “The major weakness of the ECA is the lack of appropriate legal backing especially at the sub-national level.
Specifically, the structure allows for indiscriminate withdrawals subject to the whims of the beneficiaries; the federal and state governments which diminishes Nigeria’s prospects of saving for its future or for other development prospects. The Nigerian Sovereign Wealth Fund (SWF) while created on more solid legal standing is poorly capitalized. As at May, 2018, the fund had USD2billion in capital, this represents about USD10.5 per person. “Comparatively, Norway, Kuwait and Botswana have USD 185000, USD148000 and USD14400 per person in their respective sovereign wealth funds. With their robust savings, these countries are better positioned to absolve oil price shocks, develop critical infrastructure and develop their human capital.” Proposal However, it proposed that: “From the foregoing, government could better manage Nigeria’s resource revenues through implementing a more stringent rule on deposit into the Nigerian SWF, especially establishing a stronger link between funding going into ECA and capital into Nigerian SWF. State governments, especially the oil producing states, should consider establishing their respective SWF. Another mechanism to improving saving is by increasing capital spending, which invariably benefits both present and future generations.” It stated: “Nigeria can improve the effects of oil price volatility by simply learning the lessons history has taught. The NNRC’s Benchmarking Exercise Reports have shown that the oil and gas market is characterized by a boom and bust cycle.” The report which harped on other vital issues, including transparency and accountability stated: “Specifically, NNPC should invest resources in income generating activities -such as the rehabilitation and effective management of existing refineries, and should be encouraged by the government to do so, rather than financing the government’s mandate on subsidies. For proper checks and balances, if fuel subsidy is perceived as a national priority by Nigerians, it should be reflected in the national budgets to allow for proper oversight by the legislature.