Abstract
The macroeconomic benefits resulting from better governance in Nigeria could be significant and include higher per capita GDP growth, higher revenue, and improved public investment efficiency. Given Nigeria’s fiscal and external dependence on oil revenue, reducing leakages in the petroleum sector is especially critical. Against this background, this chapter provides an overview of recent governance reforms and challenges in the oil sector. It outlines policy recommendations for better governance and corruption prevention, detection, and resolution, including through mobilizing tools to combat money laundering and the financing of terrorism.
Introduction
Chapters 1 and 2 highlighted how corruption introduces inefficiencies through its negative impact on government operations. Most tax revenues relate negatively to corruption, which undermines compliance (Baum and others 2017). Taxpayers can escape tax payments through bribes or other unofficial compensation, and companies do not join the formal economy when tax exemptions are granted as the result of a bribe (Dreher and Herzfeld 2005; IMF 2016). In countries with weak institutions, governments may use capital spending as a vehicle for rent-seeking, thus decreasing public investment efficiency (Albino-War and others 2014; Gelb and Grassman 2010; Grigoli and Mills 2014). Lower revenue mobilization and spending efficiency, in turn, shrink fiscal space and can thus lead to fiscal dominance, so that corruption correlates with higher inflation (Ben, Sami, and Sassi 2016).
Indeed, applying Nigeria-specific data to past studies shows significant macro-economic gains from reducing corruption and boosting governance in the country. Using cross-country estimates, IMF (2017) suggests that, for Nigeria, reducing corruption to the level observed in benchmark countries (for example, Malaysia, Mongolia, Morocco, or South Africa), could boost growth by ½ to 1½ percentage points annually. Results from IMF (2016) imply that Nigeria’s tax revenue-to-GDP ratio could be higher by 0.4–1.4 percentage points if corruption was to be lowered to benchmark levels. Panel regressions for sub-Saharan African countries (Barhoumi and others 2018) highlight the point that lowering Nigeria’s level of corruption to that of South Africa, as measured by the Worldwide Governance Indicators’ control of corruption score1, could increase the amount of infrastructure obtained from each publicly invested dollar by 12 percent, while the quality of infrastructure could also improve.
Realizing the significant gains from improved governance outcomes, the Nigerian government has started signaling its commitment to fight corruption in the context of its Economic Recovery and Growth Plan (ERGP) for 2018–20, in the following key ways:
The government approved the National Anti-Corruption Strategy (NACS) for 2017–20. The strategy identifies national priorities, including enhancing asset recovery and management, improving adjudication of corruption cases by the court system, strengthening the investigation and prosecution of corruption, and enhancing coordination and collaboration among competent authorities. It also makes recommendations for the anticorruption agencies and sets out an implementation plan.
The government is introducing efforts to implement requirements to disclose the beneficial owners of companies involved in the extractive sector, and is publishing a monthly financial and operational report of the Nigeria National Petroleum Corporation (NNPC).
The government’s ERGP includes a range of additional anticorruption measures, including a whistleblower program and an online portal that allows for the submission of tips and a reward for information that leads to the voluntary return of stolen or concealed public funds or assets.2
The National Bureau of Statistics is conducting surveys on corruption in conjunction with the United Nations Office on Drugs and Crime, laying out the incidence of bribery across different institutions, and has conducted at least two surveys so far (UNODC 2017; 2019), providing granular evidence on the topic.
In view of weaknesses in federal government enterprises, the central government decided to strengthen its oversight of the federal government enterprises sector. In early 2021, performance contracts were designed to ensure that revenue targets are realistic and adhered to. The review of the federal government enterprises portfolio to ensure the proper classification is ongoing. Separation of SOEs from departmental agencies, along with calls for publishing regular quarterly financial statements, have also been ongoing as of the time of this publication.
Governance in Nigeria’s oil sector deserves special attention, given the criticality of oil for Nigeria’s macroeconomy. Oil remains Nigeria’s dominant source of financial inflows. It accounts for about two-fifths of total government revenue and more than 90 percent of export earnings. Reducing leakages in the sector is therefore key to fiscal sustainability and external stability. Given the prominent role of the oil industry within the Nigerian economy, the analysis offered in this chapter will thus place special emphasis on governance within the oil sector. After a short discussion of general challenges in the SOE sector in 2019, the chapter highlights concrete steps to improve the governance of the oil sector, focusing on its importance for government operations (fiscal transparency and sustainability). It also highlights the unique potential, in and beyond the oil sector, of tools for AML/CFT.
Governance Considerations in the State-Owned Enterprise Sector
The current ownership arrangements for federal government enterprises follow a dual, decentralized model, with the Ministry of Finance and the relevant line ministry each discharging similar oversight and ownership responsibilities. In each case, the state, through the relevant line ministry, is the provider, the regulator, and the supervisor of the product or service performance delivered by the federal government enterprise, resulting in an inherent potential conflict with the Ministry of Finance. The absence of transparent arrangements increases the chances that enterprise assets will be misused for narrowly political or personal purposes.
Quantifying the fiscal risks stemming from the SOE portfolio is challenging for several reasons. The definition of a federal government enterprise is not consistent across several legislative acts. There is no standard reporting policy and no aggregated annual report on the financial performance of the overall federal government enterprises sector. A lack of standardized accounting policies complicates quantifying the operating surplus of each federal government enterprise. Obtaining a true picture of the federal government enterprises’ performance or financial situation, which would enable the authorities to react on time and to be selective in their intervention, is therefore difficult.
In strengthening the oversight of federal government enterprises, one key priority—in line with international practices—is to gradually centralize existing fiscal oversight arrangements and streamline ownership arrangements. Efforts to improve financial and fiscal discipline—as planned by the authorities—should be integrated with a broader public financial management reform agenda. A cohesive ownership vision would redesign and streamline the division of regulatory, oversight, policy, and ownership roles and responsibilities. Best-practice examples suggest a central role for the Ministry of Finance in monitoring SOE performance.
Governance of the Petroleum Sector
The dual-model institutional setup is also present in the petroleum industry. The institutional fragmentation and overlap of government entities in roles of oversight, ownership, and policy highlight the need to strengthen operational efficiencies, management, and accountability. This has a direct impact on the operations of NNPC, which remains the largest source of income for the federal government.
Several agencies are tasked with overseeing the petroleum industry in Nigeria. At the ministerial level, the Ministry of Petroleum Resources (MPR) is responsible for overseeing the overall sector and for policymaking, while the Ministry of Finance retains a marginal role in the management and oversight of the sector, and of NNPC in particular. The minister of Petroleum Resources has a combined role, serving as both the overseer of the ministry and the chairman of the NNPC. At the agencies level, the regulator for extractives is the Department of Petroleum Resources (DPR), which exercises regulatory powers as well as licensing and monitoring powers for oil, gas, and downstream petroleum products. DPR does not have its own constituting act but instead is legally founded in the act that established NNPC, legislation that also calls for the corporation to house an inspectorate DPR within its organizational structure. Finally, the auditor-general does not have a direct mandate to audit NNPC, and there is no central oversight role for the Ministry of Finance in the current setup. Oversight roles and executive responsibilities thus run the risk of interfering in NNPC’s decision making processes and create conflicts of interest. To be more efficient, NNPC is attempting to become a de facto corporate group by creating autonomous business units, and it is aiming to move from a compliance-based to a risk-based approach to its control and audit functions.
Fiscal Discipline of NNPC
Limited fiscal oversight and a fragmented institutional setup impede revenue collection. NNPC engages in fiscal arrangements in the oil sector on behalf of the federal government of Nigeria. These arrangements mainly consist of joint ventures and production sharing contracts.3 According to the Nigerian Extractive Industries Transparency Initiative (NEITI), the country’s chapter of EITI,4 revenues are often lost or undercollected due to arbitrary decision-making in the awarding of oil blocks, unpaid signature bonuses and royalties, or crude oil theft. For example, NEITI estimates that in 2015 NNPC owed $9.8 billion to the federal government, mainly due to deductions from gross oil revenues and opacity in the new joint venture cash call arrangements. There is also a conflict between the constitution and the NNPC Act concerning revenue withholdings, generating uncertainties regarding company transfers. The constitution requires that all NNPC revenue proceeds be paid to the federation account, but the NNPC Act states that the NNPC shall maintain a fund from which it can defray expenses, with no need for recourse to appropriation by the National Assembly. The Fiscal Responsibility Act 2007 mandates that the NNPC remit one-fifth of its operating surplus to the consolidated revenue fund of the federal government, but it neither defines “operating surplus” nor provides a limit to deductions.5 Reports from NEITI and the auditor-general have consistently highlighted concerns of transparency and accountability as deductions have increased over the years. Government stakeholders (the Ministry of Finance and the accountant general) should be granted full oversight responsibilities over cash flows. Making revenues more transparent requires significant revisions to the legal framework, including establishing a clear mandate to fund NNPC operations (defining the operating surplus, the possibility to make deductions, and limits to defray operating costs) and reconciling provisions of the NNPC Act concerning revenue withholdings in light of constitutional requirements.
The new funding mechanism for cash calls has helped reduce arrears accumulation, but publication of contracts is necessary to reduce fiscal risks. Before 2017 gross proceeds were transferred immediately to the federation account, and monthly cash calls were paid to Joint Venture partners through a budget appropriation process. This setup allowed the federal government to better oversee revenue distribution. However, discrepancies between NNPC–approved amounts and federal government budget allocations, coupled with budgetary process delays, have contributed to the accumulation of significant arrears. In 2017 the corporation had begun to retain revenue from its operations to meet all its expenses, including cash call obligations. After paying its cash call obligations, the corporation then remitted net revenues to the federation account. This new mechanism helped to decrease accumulations of cash call arrears, but it raised concerns about the transparency of the corporation’s cash call deductions as stated in the annual reports of the Office of the Auditor-General.
Petroleum contracts are kept fully confidential, although they have a significant impact on public finances.6 The publication of these contracts with attention to the confidentiality of commercially sensitive data is necessary to reduce fiscal risks.
Budget allocation and the actual expenditures of NNPC differ significantly, and the corporation’s participation in the appropriation process seems so far to be limited. As part of the appropriation bill process, NNPC is required to submit its revenue and expenditure estimates to the Budget Office, which submits them to the National Assembly for approval. However, amounts submitted by the corporation often do not match federal government budget allocations. The Ministry of Finance is in charge of revenue forecasting and scenario modeling, but it is constrained by the limited expertise of its staff and by restricted access to data. The corporation’s budget is not published, nor is it identified in the federal government budget. There is no information on the operational surplus of the corporation, and nonappropriated spending was increasing at the time this chapter was written, mostly due to the corporation’s deductions from oil revenues. These issues, coupled with the lack of verifiable financial data, suggest that significant changes are needed in terms of information sharing, disclosure of fiscal risks, and full integration of NNPC’s revenues and expenditures into the budget process.
Transparency of NNPC
The legal framework for fiscal transparency has been significantly enhanced with the enactment of the Fiscal Responsibility Act 2007 and the EITI Act. The Fiscal Responsibility Act requires that fiscal and financial affairs be conducted in a transparent manner and that SOEs (including NNPC) provide full and timely disclosure and wide publication of all transactions and decisions involving public revenues and expenditures and the implications for the enterprises’ finances. Nigeria is one of the few countries to have legislated the EITI, via the 2007 EITI Act. The act gives NEITI a mandate to develop a framework for transparency and accountability in the reporting and disclosure of all extractive industry companies’ revenue due to or paid to the federal government. It also enables NEITI to conduct audits of Nigeria’s oil and gas industry. In February 2019 the board of EITI agreed that Nigeria had made “satisfactory” progress in implementing the EITI standards (EITI 2019).
However, improving data reconciliation and auditing is essential for proper monitoring of NNPC’s financial situation. The corporation is self-reporting—its figures cannot be verified or challenged by other government bodies. There is also room for enhancing the level of disclosure, for example, by clarifying what the corporation ultimately considers as net revenue. NEITI noted that its auditors have not independently verified the information and data from NNPC’s monthly reports, and there are data discrepancies between the company, the auditor-general, the CBN, and the accountant general. The Fiscal Responsibility Act 2007 requires NNPC to prepare and publish audited accounts. While as of 2019 there had been no published audit report, the company has published audited financial statements for 2018 and 2019 on its website more recently.7
Strengthening transparency is crucial if Nigeria is to receive maximum benefits from the oil and gas sector. The IMF’s Fiscal Transparency Code requires that resource corporations report on project-level fiscal payments to and from the government, reconciled with government receipts in line with international standards, with no major unexplained reconciliation errors. In line with good practices, it is important for the NNPC to disclose all revenue transfers and remittances to the federation account by providing complete and timely information that ensures the accountability of its receipts and expenditures. The corporation could also consider enhancing and integrating its transparency practices by reporting on environmental, social, and governance considerations. The Sustainability Disclosure Guidelines established by the Nigeria Stock Exchange could provide useful guidance in this regard. The guidelines are intended primarily to provide the value proposition for sustainability in the Nigerian context. They articulate a step-by-step approach to integrating sustainability into organizations, indicators that should be considered when providing annual disclosures, as well as timelines for such disclosures.
Oversight of NNPC
The role of the auditor-general can be strengthened. The constitution does not give the auditor-general a direct mandate to audit NNPC. It establishes the appointment of the auditor-general to audit public accounts and offices of the federation but explicitly excludes the accounts of government statutory corporations from the mandate.8 However, it grants the auditor-general power (undefined) to conduct periodic checks aimed at verifying that spending is in accordance with the Ministry of Finance’s instructions and at investigating expenditure patterns of the government, including payments by NNPC to the federation account. The Office of the Auditor-General is resource constrained and requires greater financial and operational independence, and this impacts the timeliness of the information provided to the National Assembly. The relationship between the Office of the Auditor-General and the oversight committees of the National Assembly should be enhanced to ensure that, to the extent possible, current financial, fiscal, and governance challenges related to SOEs are being analyzed and discussed. In addition, these steps could be combined with examinations of audit reports by parliamentary committees, allowing public hearings during the review process, and submission of a report to Parliament on the issues arising from the audit reports.
The fiscal oversight role of the Ministry of Finance should be enhanced. The Finance (Control and Management) Act gives the minister of finance powers to supervise and control the expenditure and finances of the federation and all matters related to the financial affairs of the federation that are not by law assigned to any other minister. However, the ministry’s fiscal oversight function over NNPC should be strengthened. The Petroleum Unit, which was established in the Ministry of Finance with a mandate to provide sector revenue forecasting and support to the Federal Inland Revenue Service’s audit functions, needs to be enhanced, both through additional training on the sector and greater resources. The oversight unit should be responsible for oversight of, among other things, planning and budgeting arrangements, reporting requirements, dividend policy, and financial assistance from the government, including guarantees and quasi-fiscal activities.
An effective sanctions and enforcement regime would also help. This might include giving to the auditor-general and the Ministry of Finance the legal powers to impose sanctions on individuals and institutions for the nonremittance of revenues to the federation account, failure to disclose information required by the law, and noncompliance with requirements related to process, expenditure, and mismanagement of public assets.
The Petroleum Industry Governance Bill Act
Recognizing these challenges, the government has pushed for the approval of the Petroleum Industry Bill (PIB)—a key element of its ERGP—to address institutional weaknesses (Box 4.1). The PIB aims at redesigning the overall institutional architecture of the oil industry in a bill consisting of four acts. The first act—the Petroleum Industry Governance Bill—aims at (1) clarifying separation of ownership, policymaking, and regulatory responsibilities among the agencies; (2) establishing a commercially oriented focus for petroleum entities; (3) promoting transparency of and accountability for the petroleum resources; and (4) creating a conducive business environment.
Combating Corruption in the Soe Sector and Beyond
Several reforms discussed in the following sections would have a direct impact on promoting and ensuring good governance in the oil sector. Greater visibility into the beneficial ownership of legal entities and arrangements, along with the strengthened implementation of measures to enhance scrutiny of the finances of politically exposed persons (PEPs)—whether via transaction monitoring or asset declaration—would advance the authorities’ efforts to uncover acts of corruption, including those involving SOEs and the NNPC. The key is to track the associated proceeds and prevent those proceeds from being laundered and spent.
Transparency of Beneficial Ownership
Ensuring the transparency of ultimate (or beneficial) ownership is critical to prevent, detect, and investigate corruption, including via the abuse of corporate vehicles. Corrupt officials may form or use legal persons (for example, companies) to obscure their part in a bribery or kickback scheme; strike advantageous deals with themselves, their family, or their associates; or launder the associated proceeds. Regular and large expenses to procure equipment or obtain services and expertise from local and foreign contractors expose the SOE sector to heightened risks.
Selected Challenges in the Petroleum Industry Governance Bill1
Implementation of the Petroleum Industry Governance Bill would represent a clear break from past practices by restructuring institutional arrangements and calling for greater transparency. Its effectiveness will be strengthened by ensuring that the following challenges are addressed:
Coordination: The Petroleum Industry Governance Bill gives responsibility for rents and royalties to the Nigerian Petroleum Regulatory Commission, for profit-sharing contracts (PSCs) to the Nigeria Petroleum Assets Management Company (NAPAMC), and of other contracts held by NNPC to the National Petroleum Company (NPC). Coordinating and streamlining the work conducted by these different parts of the new fiscal regime is critical. It may require adequate information flows among these institutions, assistance in audit processes, and sharing expertise.
Monitoring and oversight: Additional safeguards are required to subject new institutions to effective government oversight, while permitting them to continue to operate independently of political interference. The Petroleum Industry Governance Bill’s objective is to improve the clarity of the roles and responsibilities of sector agencies, with the NPC and Petroleum Asset Management Company to be subject to the Companies and Allied Matters Act (CAMA) and the Securities and Exchange Commission’s Codes of Corporate Governance. However, there is no single oversight unit that can monitor these entities.
The role of the Ministry of Finance: The ministry’s role in monitoring key financial information in relation to NPC and the Petroleum Asset Management Company, and in assessing fiscal risks arising from their activities, is not provided under the Petroleum Industry Governance Bill. This is particularly important given that NPC would be entitled to retain revenue from its operations to cover its expenses, debt liabilities, and cash call obligations in the Joint Ventures. The Petroleum Industry Governance Bill also excludes NPC from the provisions of the Fiscal Responsibility Act 2007 and the Public Procurement Act 2007, creating additional fiscal risks as NPC is excluded from budgetary planning, borrowing limitations, conditions for guarantees by the FG, public procurement provisions, and fiscal transparency requirements.
Formalization of appointment, remuneration, and evaluation policies: The Petroleum Industry Governance Bill remains silent on transparency and formalization of the process for appointment, evaluation, and remuneration of the members of the commission and of the board of directors of NNPC and NAPAMC.
1 Petroleum Industry Governance Bill, 2018.The passage of amendments to the CAMA (Repeal and Re-enactment) Bill of 2018 represented a critical step forward. In view of the relevant Financial Action Task Force (FATF) recommendations—and Nigeria’s commitments made under the EITI and at the London Anti-Corruption Summit of 2016—the government crafted amendments to the CAMA that would mandate the disclosure of beneficial interests in a company’s shares and task the Corporate Affairs Commission to compile and maintain the resultant information in the public domain. The Amendment (“Repeal and Re-enactment”) Bill was passed by the Senate on May 18, 2018, and by the House of Representatives on January 17, 2019; it was signed into law by the president in August 2020.
The lack of reliable beneficial ownership information is a significant impediment to detecting and investigating corruption cases that involve legal persons. Among the tools that are less potent in the absence of such information are the Nigerian Financial Intelligence Unit’s (NFIU) analysis of suspicious transaction reports (STR) involving corporate entities and law enforcement’s efforts to conduct financial investigations (“follow the money”) in certain corruption cases.
Politically Exposed Persons
In line with the FATF recommendations, Article 18 of the 2013 CBN regulations established relevant requirements for financial institutions (FI), but in practice, FIs struggle to identify those of their clients who are (or are associated with) PEPs. These requirements include, for example, obtaining senior management approval before establishing (or continuing) business relationships with PEPs and conducting enhanced ongoing monitoring of those business relationships. The Chartered Institute of Bankers of Nigeria (CIBN), Nigeria’s banking association, is taking the welcome step of working with consultants to develop a proprietary account and transaction monitoring tool.
Asset Declaration by Public Officers
All public officers must declare their assets, but the completed forms are not available to the public. The Code of Conduct Bureau (CCB) is responsible for receiving and analyzing completed asset declaration forms, but must currently do so on a confidential basis, limiting the potential for civil society organizations and members of the general public to identify, and bring the CCB’s attention to, inconsistencies in asset declarations. In practice, only a small fraction of the required declarations are ever submitted, and the current forms do not capture certain highly relevant information, such as sources of income, beneficially owned assets, or personal property above a certain value. The framework is not being implemented effectively and enforcement has been very weak, partly due to the CCB’s need for additional resources and capacity building.
AML/CFT Supervision
The CBN supervises FIs and exchange bureaus for compliance with their obligations related to AML/CFT, which include the identification of their clients who are PEPs, the mitigation of the risks associated with those clients, and the submission of STRs, as and when appropriate. The CBN’s AML/CFT (Administrative Sanctions) Regulations of 2018 addressed an important gap in its supervisory framework, but limited resources remain a challenge. The regulations provide the CBN with an adequate legal basis on which to impose administrative sanctions and penalties for noncompliance with obligations related to AML/CFT, and include a detailed schedule laying out the specific sanctions and penalties to be imposed in response to identified violations. The CBN reports that it has begun to issue sanctions in accordance with the new regulations, but that the schedule will likely have to be updated on an ongoing basis to ensure that the applicable penalties remain sufficiently dissuasive in the context of normal inflation.
The pending commencement of a pilot program for risk-based supervision represents a substantial step toward increasing effectiveness. The risk-based approach entails the classification of supervised entities by money laundering and terrorist financing (ML/TF) risk and the subsequent adaptation of the frequency, scope, and intensity of inspections in accordance with that classification. As such, it should enable the CBN to focus its limited resources more sharply. The CBN already incorporates components related to AML/CFT into its annual prudential inspections, but the limited number of inspectors dedicated to AML/CFT precludes targeted inspections focused on this subject of those banks, or of a sufficient sample of exchange bureaus.
Effectiveness of the Nigerian Financial Intelligence Unit
A critical component of every country’s AML/CFT framework is its FIU. It receives, analyzes, and disseminates STRs related to ML, T F, and the related, underlying (or “predicate”) offenses, such as fraud, bribery, the diversion of public funds, and other forms of corruption. The private sector is on the front lines of the fight against corruption, with FIs functioning as the primary conduit for attempts to transfer, store, or launder ill-gotten gains.
The passage of the NFIU Act in 2018 was a milestone. The act assured the NFIU’s operational independence in line with the FATF recommendations, and so enabled its reconnection to the secure information-sharing platform linking more than 160 FIUs all around the world. The act empowered the NFIU to conduct inspections of FIs and designated nonfinancial businesses and professions (DNFBP), putting it in a position to help ensure that they would submit—and maintain the confidentiality of—STRs in all cases of suspected corruption. The Economic and Financial Crimes Commission (EFCC) and the closely related Independent Corrupt Practices and Other Related Offenses Commission (ICPC) are confident that the NFIU can be relied upon to provide timely and accurate information, whether held by the NFIU itself or by a foreign partner—and that working with the NFIU to obtain information is generally more efficient than pursuing the same via mutual legal assistance channels. Still, to the extent that this collaboration is based at least partly on good faith or interpersonal connections, it will be important to formalize it to make it more sustainable over the long term.
Vigorous Prosecution and Timely Conclusion of Corruption-Related Cases
The timely and effective administration of criminal justice, particularly in high-profile cases, is key to deterring corruption. Strengthening the detection and investigation of corruption will be in vain as long as the criminal justice system fosters the perception of impunity by failing to convict and sanction offenders in a timely manner, if ever.
The 2018 budget increase for the EFCC was nevertheless a welcome step, as it allowed the commission to hire 1,200 additional staff that year while also opening three new “zonal offices.” By contrast, the ICPC had conducted its last recruitment in 2012. Both agencies, which have partially overlapping mandates, indicate that they conduct parallel financial investigations in corruption and other cases involving the generation of illicit proceeds and that many of their prosecutions stretch on for years. Those rare corruption cases that manage to advance without undue (procedural) disruption tend to advance slowly, including because judges record the proceedings in longhand and motions are filed manually.
Moving toward a more efficient court system in Nigeria will, among other things, require vigorously enforcing the Administration of Criminal Justice Act (2015) and making far greater use of information technology.
Conclusion
This chapter highlighted the large macroeconomic gains to be made from addressing governance and corruption challenges in Nigeria, in particular in the oil sector. The Nigerian authorities must accelerate their anticorruption efforts to maintain momentum against both entrenched challenges and evolving threats. The high-level commitment of the government and the devotion of many public servants working in the SOE sector, as well as in the country’s institutions dedicated to countering corruption and combating money laundering and the financing of terrorism are the foundation for reform. To make a durable dent in the incentive structures that underpin corruption in Nigeria, however, the government will need to accelerate and intensify its reforms in this area—as stated in its ERGP. The Nigerian authorities’ efforts to enhance transparency in the oil sector should include full disclosure of NNPC’s JV arrangements and establishing clear institutional responsibilities for revenue assessment, collection, and reporting. This chapter has examined issues in two key components of the anticorruption effort—SOE governance, especially in the petroleum sector, and AML/CFT.
Achieving critical improvements to governance will require a combination of legislative action, institutional reform, and additional resources:
Legislative action: The authorities should prioritize the implementation of the Petroleum Industry Governance Bill and the CAMA (Repeal and Re-enactment) Bill and enacting legislation for an overall ownership policy for SOEs. They should focus as well on improving fiscal and financial discipline, with a broader effort to reform public finance management; enhancing the transparency of public revenue flows; and establishing coordination among collecting institutions.
Institutional reform: The Ministry of Finance should regain a central role in the oversight of fiscal risks, while the auditor-general should have a legal basis to operate effectively; the CBN will need to fully implement the risk-based approach with respect to its supervision of efforts to combat money laundering and the financing of terrorism; and the judiciary will need to embrace both legal requirements and best practices related to its management of individual cases and the system-wide caseload.
Additional resources: Prioritizing the allocation of any new or newly available resources to the Oversight and Oil and Gas Departments within the Ministry of Finance, the auditor-general’s staffing and operational and training budgets, the CCB, the ICPC, and the judiciary will be critical.
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Worldwide Governance Indicators are available here: https://info.worldbank.org/governance/wgi/.
NNPC participates in joint venture (JV) arrangements with international and domestic oil companies for upstream operations in which the Nigerian government is a majority-share equity investor. This usually entitles the corporation to receive a production share equal to its ownership stake (petroleum revenue). In return, the corporation pays cash liabilities that are its share of the operating and capital expenses associated with its JV activities (cash call payments).
NEITI was incorporated as a government agency in 2007. It has played a crucial role in legislating the principles of EITI and in improving financial disclosure standards in the Nigerian oil industry.
These include sales contacts, service contracts, PSCs, and JVs.
See https://www.nnpcgroup.com/NNPC-Business/Business-Information/Pages/Monthly-Performance-Data.aspx.
The constitutional framework does not adequately protect the independence of the auditor-general and the office of the auditor-general. While the constitution states that the auditor-general shall not be subject to the direction or control of any other authority or person in the exercise of his functions, he or she may be removed from office by the president on grounds of an inability to discharge the functions of his office or for misconduct. Also, there are no provisions regarding the power to access information or effective follow-up mechanisms for audit recommendations.