This Selected Issues and Statistical Appendix paper presents an assessment of Nigeria’s past economic reform efforts—in particular the program supported by the 2000–01 Stand-By Arrangement (SBA). The paper also reviews weaknesses in the current fiscal management framework in Nigeria and proposes reforms to further strengthen the budget process. It describes weaknesses in the current public debt management framework and the government’s reform strategy. It highlights the reform implication and addresses further actions that will be needed to put the government’s domestic debt reform strategy on a solid foundation.


This Selected Issues and Statistical Appendix paper presents an assessment of Nigeria’s past economic reform efforts—in particular the program supported by the 2000–01 Stand-By Arrangement (SBA). The paper also reviews weaknesses in the current fiscal management framework in Nigeria and proposes reforms to further strengthen the budget process. It describes weaknesses in the current public debt management framework and the government’s reform strategy. It highlights the reform implication and addresses further actions that will be needed to put the government’s domestic debt reform strategy on a solid foundation.

V. Improving Transparency in the Oil Sector38

A. Introduction

133. Nigeria was one of the first oil-producing countries to commit to improving transparency in the oil sector under the Extractive Industries Transparency Initiative (EITI). President Obasanjo has stated that the government places high importance on the EITI for achieving the objective of a more transparent and corruption-free Nigeria. The authorities believe that greater transparency would enable a democratic debate on fiscal policy and spending priorities, establish accountability by reducing corruption and waste at all levels of government, assist in economic management and forward planning, and improve the investment climate. The authorities acknowledge that the public needed a better understanding of the sources of revenue from oil, and the institutions responsible for revenue assessment, collection, and reporting.39

134. This chapter briefly describes the EITI, and discusses the Nigerian authorities’ efforts to enhance transparency in the oil sector, and operationalize the guidelines of the initiative. It assesses the challenges the authorities are likely to encounter in making good on their commitment: the oil sector is complex, as there are many different revenue streams from a large number of companies, and information on government oil revenue which is currently produced by several different agencies and is not always consistent. Publication of inconsistent data would raise questions. However, following the authorities’ public announcements that information would be made transparent, they should move speedily to prepare for publication. In the third part, the chapter argues that making available information according to the EITI guidelines would not be sufficient to fulfill the government’s own information requirements. Reporting under the EITI guidelines would allow the public to compare payments made by oil companies with payments received by the government on a yearly basis. More detailed knowledge of the oil sector however, is needed for the Nigerian authorities to maintain effective oversight of the oil sector and make informed policy decisions. Data on payments made and received have to be verified, and reconciled with payments due on the basis of production, prices, and tax arrangements.

B. Transparency and Accountability

135. Transparency encourages public debate and facilitates the acceptability of decisions by the public. In a transparent environment, social tensions over the roles of stakeholders and the distribution of real or perceived benefits from oil and gas can be significantly reduced. At the international level, a transparent investment environment allows the lenders of financial resources to better assess country risk. By lowering uncertainty, investors lower the risk premium they expect for engaging in a country. In the same vein, the cost of capital for both governments and companies can be lowered. Therefore, governments, national oil companies (NOCs), and international oil companies (IOCs) stand to benefit from transparency.

136. Recognizing the need for greater transparency, a broad coalition of 200 nongovernmental organizations (NGOs) led by George Soros’ Open Society Foundation agreed on a common platform which calls for greater transparency in petroleum sector operations, and launched the Publish What You Pay campaign. They asked for international regulation requiring IOCs to publish payments to host governments. Such regulations could be in the form of requirements IOCs have to follow when listed in stock exchanges (e.g. the rules defined by the Securities and Exchange Commission in the United States).

137. Taking the view that host governments should take the lead in promoting transparency, the U.K. Department for International Development (DfID) embarked upon the EITI. At Evian, in France, in June 2003, the Group of Eight (G8) industrialized countries expressed support for the EITI, reaffirming their commitment “to fight corruption more effectively, including a specific initiative on extractive industries.” They encouraged governments and companies to disclose information on revenue flows and payments from the extractive industries to an agreed third party. The G8 also encouraged the IMF and the World Bank to give technical support to the governments participating in the initiative. To operationalize the EITI, a multi-stakeholder group has been formed, and several countries, among them Nigeria, pledged to participate in the initiative.

138. The multi-stakeholder group developed templates to be filled by governments and oil companies (see Table V-1). Reports are requested on all sources of government revenue from extractive industries, including the government production stream in kind and in cash, and payments to governments for profit taxes, royalties, dividends, bonuses, and fees. The group agreed that the reporting of the main revenue concepts is obligatory under the initiative, but that there may be secondary benefit streams, e.g. payments to social funds, that are reported on a voluntary basis only. Because of the multitude of companies and revenue concepts, the initiative proposes that payments be aggregated and published by an independent, trustworthy institution, “the Aggregator”. There is still some debate among stakeholders as to the aggregation, however, with some fearing that it would lead to loss of information and clarity. It should be noted that the initiative proposes that governments report on payments received, and request that companies fill out their own templates with payments made.

Table V-1.

EITI Government Reporting Template

A Input template for Host Government Reporting Entity

Host Country reporting on: __________________

Reporting Period: __________________

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Host Government sign offWe acknowledge our responsibility for the fair presentation of the Reporting Template in accordance with the Reporting Guidelines, with the exception of:I. __________II. __________

C. The Nigerian Transparency Initiative

139. The Nigerian authorities are taking a participatory approach to improving transparency. After declaring the government’s intention to publish oil revenue in line with the EITI guidelines in November 2003, President Obasanjo created the National Stakeholders Working Group (NSWG). The group consists of 27 members drawn from a broad cross section of the Nigerian government, civil society, and oil companies, and is coordinated by Dr. Oby Ezekwesili, Special Assistant to the President on Budget Monitoring and Price Intelligence. Nigeria is also a pilot country for a G8 partnership to promote transparency and combat corruption (Box V-1).

140. To launch the EITI, the NSWG organized a workshop in Abuja in February 2004. The workshop provided a platform to sensitize and encourage a collaborative and cooperative engagement of all stakeholders in the petroleum industry. The workshop was inaugurated by President Obasanjo and attracted more than 200 participants (see Box V-2).40

141. Following the workshop, the stakeholder group prepared terms of reference for independent audits of oil sector payments to the government, covering the private oil companies, the Nigerian National Petroleum Corporation (NNPC), the Central Bank of Nigeria (CBN), and the Office of the Accountant General (OAGF). The selection process for the audits is expected to start in the summer, and audit reports would then be available in early 2005. In the meantime, the authorities plan to publish preliminary data on oil revenue received, possibly by August 2004. The authorities have created a unit in the Ministry of Finance to help coordinate the effort. Given weaknesses in technical capacity and data availability, this reporting will most likely be limited in scope at first, but should improve over time, with capacity building and structural improvements following the audit reports.

Nigeria: G8/Nigeria Partnership

Nigeria and the members of the G8 announced on June 10, 2004, their intention to cooperate in a ‘Compact to Promote Transparency and Combat Corruption’, to counter what is seen as a threat to democratic institutions, economic development and to the integrity of the international system of trade and investment.

In the compact, the government of Nigeria commits to continuing implementation of the national anticorruption strategy, which is part of the authorities’ National Economic Empowerment and Development Strategy (NEEDS). Under the strategy, several measures have already been implemented: (i) The reform of the budget formulation process. Presentation, consultation, implementation and monitoring is being done with clear rules, roles and responsibilities, (ii) stringent guidelines for public contracting have been introduced conform to the standards of internationally competitive bidding, (iii) a standing multi-stakeholder group has been set up to implement transparency under the Extractive Industries Transparency Initiative (EITI), (iv) Core institutions to investigate, prosecute and sanction corruption have been strengthened, and (v) civil service reform aimed at improving effectiveness and accountability has started in a number of pilot ministries.

Statement of the G8 Governments

For their part, G8 countries commit to act together to fight corruption and increase transparency. More specifically, the member countries of the G8 agreed to the following: (i) become parties and call for rapid signature and completion of all necessary steps to ratify and implement the UN Convention Against Corruption, (ii) work with other members to detect, recover and return illicitly acquired proceeds of corruption, (iii) put in place new methods to coordinate G8 asset recovery actions, (iv) seek in accordance with national laws to deny safe haven to public officials guilty of corruption, (v) work with the international financial institutions (IFIs) and UN agencies to encourage anticorruption and transparency actions by developing countries, (vi) adhere rigorously to an updated peer review schedule for the OECD Anti-Bribery Convention, (vii) implement the Financial Action Task Force (FATF) revised recommendations and promote implementation of the UN Transnational Organized Crime Convention (TOC), and (viii) work towards including in G8 regional and bilateral trade agreements provisions requiring transparency in government procurement and the awarding of concessions, as well as provisions on trade facilitation.

Proposed Actions to Launch a Nigeria Transparency Compact

A number of G8 countries are prepared to work to find ways to support the efforts of Nigeria to enhance transparency, use public resources wisely and fight corruption. Representatives of the Government of Nigeria and of participating G8 countries intend to meet soon to make the compact operational.

Sources: Nigerian authorities; and

Nigeria–Extractive Industries Transparency Initiative (EITI) in Nigeria, Petroleum Revenue Management Workshop

A workshop was held in Abuja during February 19–20, 2004, to inaugurate the Nigerian efforts to enhance transparency in line with the EITI guidelines. The workshop aimed at providing a broad overview of technical and political issues in the petroleum sector. Sessions covered revenue collection, revenue management, expenditure efficiency, and a stakeholder roundtable and closing discussion.

Revenue collection. Speakers discussed the Nigerian fiscal regime and petroleum production costs. Nigerian fiscal terms for crude oil are relatively stringent, with a petroleum profits tax rate of 85 percent. In contrast, work to develop regulation for natural gas needs to be finalized with some urgency. There were calls for strengthening cost control procedures in the National Petroleum Investment Management Services (NAPIMS). Similarly, a participant pointed out that petroleum tax calculations were needlessly complicated and that the technical competencies of the Federal Inland Revenue Service (FIRS) needed to be strengthened in order to effectively monitor tax payments.

Revenue management. The Nigerian strategy for macroeconomic stabilization aims at generating savings and smoothing expenditure. The sessions highlighted the importance of prudent oil price projections and the fiscal responsibility pact between the federal, state, and local governments. In order to improve expenditure effectiveness, Professor Soludo, then Chief Economic Adviser to the President and now Governor of the Central Bank, called for improved budget processes, including the involvement of stakeholders in the identification of priorities. Another participant demonstrated that countries had succeeded in maximizing the benefits from oil revenue using clear fiscal rules for delinking spending from oil revenue.

Expenditure efficiency. Better budgeting would require the adoption of an oil-price based fiscal rule, setting aggregate spending limits and sub-limits for major expenditure heads, while respecting financing constraints and sustainability of expenditure. Over the medium term, Bode Agusto, Director General of the Budget Office, called for spending on payroll and overheads to be reduced in order to allow for an increase in the capital budget. Speakers admitted that living conditions remained precarious despite increased government spending because of its low efficiency.

During panel discussions and interventions from the audience, the need for greater transparency was generally accepted. In this regard, the recent publication in the media of revenue allocations to state and local governments was lauded as an important step to improve accountability. However, the discussions highlighted the tensions that exist between the federal government and some regions, and frustration over widespread poverty. The international oil companies were criticized repeatedly for not doing enough to minimize environmental damage and increase local content, and for alleged nontransparent behavior and involvement in corrupt practices.

D. Oil Revenue Reporting Issues

142. The data currently produced by various government agencies and the NNPC are not always internally consistent and cannot be easily interpreted. The oil industry is complex, and the Nigerian oil sector is no exception (see Table V-2 for an overview of fiscal regimes in selected oil-exporting countries). Government revenue derives from many companies that pay several different taxes. The EITI templates are not designed, at this stage at least, to reflect these complexities. This section presents some of the issues that will need to be addressed in order to enable the government to provide timely and credible oil revenue reports.

Table V-2.

Nigeria and Selected Oil Exporting Countries: Fiscal Regimes

(in percent)

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Source: Baunsgaard (2001).


143. More than 90 percent of Nigerian oil is produced by joint venture companies. The government participates in these joint ventures with a 55–60 percent share managed by the National Petroleum Investment Management Service (NAPIMS), a subsidiary of the NNPC.41 The Nigerian government receives oil revenue from the joint ventures through (i) royalties calculated as a percentage of gross production, (ii) petroleum profit tax (PPT), and (iii) dividends (equity oil) for its equity participation in the oil fields, as specified in a 2000 memorandum of understanding (MoU) amending the standard licensing and operating agreement of 1992. In principle, NAPIMS functions as an oil company, i.e. it incurs costs, and pays royalties, PPT, and dividends. In practice, however, gross export proceeds from the NAPIMS share of production are paid to the OAGF, which in turn allocates funds to NAPIMS for its contribution to operating and investment costs (cash calls) in the oil fields.42,43

144. In addition to the joint ventures, oil is produced by “indigenous producers”,44 under production sharing contracts (PSCs), and under “carried interest”. The production under PSCs is projected to increase during 2004-05 as new fields come on stream. These are located in offshore areas, where greater incentives and easier cost recovery schemes were deemed necessary to attract the large upfront investment needed to develop the resources. Under PSCs, international oil companies initially pay only royalties until production offsets initial investment outlays; after cost recovery, production value of costs and royalties is shared between the IOC and the government. Cost recovery is expected to take three to four years under the current high oil prices. Royalty rates depend on water depth; for fields in water deeper than 1000m, no royalties are payable, which means some of the new developments will pay no government revenue until initial costs have been recovered.

145. Due to funding constraints, Nigeria has developed some fields under joint venture arrangements, but with carried interest. This implies that the IOC partners in the field finance NAPIMS’ share of the cost. The IOCs are repaid out of the government’s equity share of production (see Box V-3).

146. The projected increase in production under PSCs in 2004 would be offset by a decline in production by “indigenous producers”. The government’s equity share is therefore projected to reach 52 percent of total production in 2004.45

Nigeria: Carried Interest Arrangements for Oil Projects

To implement projects in the oil sector that are not funded by the government budget, the NNPC entered into carried interest arrangements with foreign oil companies. These arrangements are not uncommon in the oil industry. They allow governments to participate directly in oil project revenue without an initial capital investment. Such arrangements are often used in countries where government equity participation is mandated by law, and production sharing arrangements, or production under license with taxation of profits, are illegal.

In the Nigerian arrangements, IOCs cover initial investment outlays, and ongoing operating and capital costs for a specific project over the life of the project. The equity shares in the project are 60 percent for the government, and 40 percent for the IOC. The total revenue stream from the project is divided according to the equity shares. The IOC pays its share of costs, royalties, and PPT on taxable income (gross revenue minus costs and royalties).

In addition, the arrangement contains profit sharing clauses. The IOC pays the NNPC’s share of costs and is reimbursed by the NNPC. The NNPC’s share of costs is therefore deducted from NNPC’s gross revenue and paid to the IOC (cost oil). The NNPC’s net revenue (profit oil) is then shared between the NNPC and the IOC, with the latter receiving 40 percent. This profit sharing represents remuneration for the IOC for the initial capital investment. The IOC pays PPT on the profit oil it receives from the NNPC.

Revenue flows

147. The collection of government revenues from the oil sector involves various agencies. All government funds pass through central bank accounts. Figure V-1 shows the flow of revenues from an oil production license owned by several joint venture companies in which each sells its share of crude oil production; NAPIMS’ share is 55–60 percent, depending on the joint venture. Gross proceeds from exports of the NAPIMS share go to an oil proceeds account at the CBN, and from this account the OAGF pays cash calls for operating and maintenance costs, and for investment. Net proceeds are paid into the Federation Account in the CBN, from which distributions to the federal and state and local governments are made.

Figure V-1.
Figure V-1.

Nigeria—Flow of Funds from the Oil Sector

Citation: IMF Staff Country Reports 2004, 242; 10.5089/9781451828948.002.A005

148. The IOC joint venture partners pay royalties to the OAGF, through the accounts of the Department of Petroleum Resources (DPR). They also pay PPT to the Federal Inland Revenue Service (FIRS) based on their share of costs and the MoU formula.

149. The NNPC buys crude oil from the government’s equity share for domestic refining. The domestic allocation (DA) is fixed at 445,000 barrels per day and was, until October 2003, sold at a price substantially below the international market price.46 The volume of crude oil from the government’s equity share in the joint ventures available for export was therefore reduced, and the government received a more limited amount of revenue for the DA from the NNPC instead. Since October 2003, the NNPC pays market price for the DA, and the DA has no impact on government revenue anymore.

Reported oil revenue

150. Data on oil revenue are collected by the NNPC, the CBN, and the OAGF. The NNPC provides data on equity crude oil exports and the DA in U.S. dollars. The CBN reports both U.S. dollar and naira amounts for equity crude proceeds, PPT, and royalties. The OAGF reports all receipts in naira. Discrepancies routinely emerge between revenue as reported by these three sources, which may, in some months, be significant. Such discrepancies are mostly due to time lags in registering payments, exchange rate movements, and difficulties in reconciling differences in definition. Discrepancies, however, may also persist over longer periods.

151. For illustration purposes, Figure V-2 shows proceeds from the sales of government equity crude between January 2001 and March 2004 in millions of U.S. dollars as reported by the three institutions. The series have been adjusted for the one-month time lag between NNPC revenue reporting and the payments recorded by CBN and OAGF.47 Despite this adjustment, significant discrepancies between the three series exist, and they become much more pronounced after July 2002. The cumulative discrepancies between the series are significant: the OAGF reported revenue of US$20.5 billion, whereas the CBN recorded US$22.3 billion and NNPC US$21.9 billion for the three-year period.

Figure V-2.
Figure V-2.

Nigeria - Revenue from Sales of Government Equity Crude, 2001-03

Citation: IMF Staff Country Reports 2004, 242; 10.5089/9781451828948.002.A005

152. Since PPT depends on costs of production that are known only at the end of the period, payments during the year are posted according to estimates made towards the end of the preceding year. FIRS is charged with monitoring the parameters that determine PPT payments, and revising estimates accordingly during the year. The joint venture partners are required to submit final cost accounts at the end of the current year by May of the following year. FIRS then makes an assessment of under- or overpayment, and in case of the former, the companies are given 60 days to make a final payment. As shown in Figure V-3, the CBN and the OAGF are relatively consistent during much of the period shown, with a few exceptional months that are not easily explained. The NNPC numbers are less consistent, and they are not available for the whole period.48 Surprisingly, the OAGF reported higher receipts than the CBN, namely US$10.8 billion as against US$10.2 billion over the January 2001-March 2004 period.

Figure V-3.
Figure V-3.

Nigeria - Estimated and Reported PPT Revenue, 2001-03

Citation: IMF Staff Country Reports 2004, 242; 10.5089/9781451828948.002.A005

153. As a further demonstration of difficulties in following-up on oil related flows, staff estimates of payments due and actual payments received differ significantly on a monthly basis, as could be expected.49 However, the sum over the three-year period of staff estimates and payments recorded by the central bank differ “only” by about US$100 million (about 1 percent of PPT paid). The data reported by CBN and the OAGF on royalties match rather closely.

Implications for revenue reporting under the EITI

154. The available data raise questions. The publication of such data could cause confusion and add to the public mistrust in petroleum revenue management in Nigeria. However, a delay of publication until after these issues have been resolved, would not be useful. First, delays would probably raise more suspicions than careful publication (with the admission of shortcomings in the data and some accompanying explanations) following the authorities’ public announcements of their commitment to transparency. Second, the publication of preliminary data would show the government’s commitment to transparency, and public interest could help promote reforms to improve oil sector oversight.

155. There is an urgent need for reconciliation between data sources. NNPC, CBN, and OAGF should be able to explain discrepancies by reconciling different definitions, and accounting for time lags between export shipments, payments made, and payments registered. The data series then need to be independently verified by the planned external audits of oil sector accounts. It will still be difficult, however, to present the different revenue concepts and sources in a way that can be easily understood by the public. The revenue flows from alternative licensing arrangements are even more difficult to present than those from the joint ventures. The carried interest arrangements are particularly complicated. The NSWG has to note that a careful aggregation of data and some measure of public awareness campaign may be needed to establish credibility. Information on the financial consequences and an explanation of the reasons for entering into the alternative licensing arrangements will have to be provided.

156. To help facilitate the reconciliation of oil data, the authorities could work more closely with IOCs to receive assistance in data reconciliation and to build technical capacity. The authorities have also requested technical assistance for revenue collection agencies and the NSWG from the Fund, the World Bank, and bilateral donors. Technical assistance in tax administration is being provided by the Fund, while the World Bank and DfID have agreed to finance training of Nigerian officials in oil taxation issues.

E. Oil Revenue Transparency for Policy Making

157. The EITI templates are designed to inform the public of the amount of oil revenue paid by oil companies to the government, and the amount received by government. While the availability of information required by the EITI templates would constitute an important improvement over the current situation in many oil producing countries, it is not sufficient for decision making. A wider set of information is needed for the government oversight of the oil sector: the government needs to be able to not only compare payments made with payments it received, but also with payments due on the basis of production volume, prices, and tax arrangements. The government also needs more frequent updates on developments in the oil sector than the yearly publication cycle proposed by the EITI. A detailed understanding of the oil sector is also needed for adequate budgetary projections.

Oil revenue monitoring and projections

158. Monitoring of revenue from the oil and gas sector is weak in Nigeria due to the complicated tax rules and limited technical and institutional capacity. Weaknesses in the information sharing system between the different agencies involved hamper the government’s ability to determine payments made and received at any given time. Individual oil companies may be tempted to take advantage of the weaknesses and this possibility creates mistrust of all oil companies with frequent allegations of fraud.50

159. Out of the three main sources of oil revenue, government equity crude and royalties are relatively easy to monitor, whereas PPTs are much more difficult. Some of the main challenges are as follows:

  • The need to follow up on payments. Information collected by the DPR and NAPIMS on crude oil liftings, realized prices, expected payments, payments made, and payments outstanding has not always been available to the Ministry of Finance and the OAGF on a timely basis, although the recently formed Cash Management Committee has improved the situation.

  • The ability to assess PPT liabilities, payments made, and payments outstanding. This is technically difficult because of the complicated formula in the MoU (the definition is 15 pages long), the time lags between monthly payments and year-end adjustments, and the fact that the fiscal year for oil companies is not the same as the Nigerian fiscal year.

  • The need to understand and control costs of production to be offset against tax liabilities. It has been noted that costs of production in Nigeria increased each year since the mid-1990s, despite a trend in the opposite direction in the international oil industry.51 While NAPIMS is a member of the joint venture operating committees that define work programs and cost structure, it cannot effectively be both equity partner and regulator of joint venture companies. Nigeria, therefore, lacks an independent evaluation capability of the cost structure.

  • The need for more information on operations under alternative licensing arrangements. NAPIMS is not an equity partner in arrangements such as production sharing or sole risk licenses, and information on operations is therefore weaker than in the joint ventures.

  • The authorities need more information on gas production and use in Nigeria. Gas exports are becoming increasingly important as the Nigeria Liquefied Natural Gas (NLNG) company is expanding. The company is a joint venture between the NNPC (with 49 percent equity) and foreign oil companies. It enjoys tax breaks but is expected to start paying dividends in 2004, despite ongoing investment out of retained earnings.52

160. While the templates for oil revenue reporting provided under the EITI may not be sufficient to alleviate oil sector monitoring weaknesses in Nigeria, audits would contribute to enhancing the knowledge of revenue agencies about the industry, and reduce the potential for fraud. The current weaknesses stem mainly from the lack of an effective system of information gathering and sharing between the many different agencies. Regarding government equity share exports, payments can be tracked on a per-shipment basis with the information available from the Crude Oil Marketing Department (COMD) of NNPC. Crude oil liftings are monitored by the DPR, which gives it the information needed for assessing royalties. The DPR and NAPIMS collect all relevant information on cost. Regarding PPT, however, even with information on the cost and export proceeds, the assessment formula is complicated, tax reassessment only comes at the end of the tax year, there are no penalties and interest on late payment of taxes, and the oil industry tax year does not coincide with the official fiscal year. Effective oversight is technically difficult.

161. The enhanced understanding of the oil and gas sector activities expected from audits and better systems of information sharing would also help in the preparation of realistic budgets for the government. Detailed information on production from different fields, contractual arrangements, and price forecasts are necessary to prepare the annual federal and SLG budgets. Budgeting so far has relied on simple approximations of the government equity share (the JV share of 57 percent has been used), and the PPT formula. In a more transparent environment, this may not be sufficient. An oil and gas policy unit has been created in the ministry of finance to provide oil sector intelligence. The unit intends to utilize a computer model of the Nigerian oil sector that would enable it to make accurate simulations of government revenue under different scenarios. Members of the unit will also benefit from the training financed by the World Bank and DfID.

F. Conclusions

162. The Nigerian authorities have committed to full oil sector transparency. Their approach is based on the involvement of civil society and consensus building in order to overcome the public’s mistrust of the government after decades of military rule. The EITI aims at making available to the public a set of data to compare payments made by oil companies to the government with payments received. The chapter has discussed the challenges that lie ahead given data discrepancies, which are mostly due to reconciliation issues (time lags, exchange rate issues, and definitions that differ).

163. At the same time, the authorities will need a wider set of information than proposed under the EITI for policy making. This chapter has suggested that information would be needed for comparing payments made with payments due for effective oil sector oversight and projections of oil revenue for budgeting purposes. The chapter has identified a weak system of information sharing between NNPC and government agencies, and the portrayed complexity of the PPT regime as a source of weaknesses in oil sector oversight. While the formula in the MoU cannot be easily modified (as it would necessitate renegotiation of the oil licenses), the government can address information sharing issues, more frequent tax reassessment, and incentives for early tax payments. It could also align the petroleum profit tax year with the Nigerian fiscal year.

G. References

  • Baunsgaard, Thomas, 2001, “A Primer on Mineral Taxation” Working Paper No. 01/139, International Monetary Fund (Washington).

  • The U.K. Department for International Development, 2003, Revised Draft Reporting Guidelines. Available via internet:

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  • International Monetary Fund, 2003, Issues and Prospects in the Oil and Gas Sector, in: Nigeria: Selected Issues and Statistical Appendix, IMF Country Report No. 03/60 (Washington).

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  • World Bank, 2000, “Nigeria – Taxation and State Participation in Nigeria’s Oil and Gas Sector” Discussion Paper, (unpublished, September, Washington).

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Prepared by Ulrich Bartsch.


Statements made at the opening of the petroleum revenue management workshop, Abuja, 19 February, 2004.


About 80 of the participants came from the government, 100 from the private sector and civil society organizations, and 30 from international organizations. The workshop aimed at providing a broad overview of technical and political issues in the petroleum sector.


With the exception of the joint venture with Royal Dutch/Shell at 55 percent, all JVs have 60 percent government participation. The JV production-weighted average government share is 57 percent.


This difference in concepts means the auditor-certified annual accounts for NAPIMS cannot be compared to government revenue receipts.


For a more detailed description of the Nigerian fiscal regime, see IMF (2002).


“Indigenous producers” are Nigerian companies operating small marginal fields at their sole risk. They pay royalties and petroleum profit tax, but the government has no equity participation.


The government’s overall equity share changes from year to year, as production under alternative arrangements changes. It was 47 percent in 2003.


The price was significantly below the market price in order to subsidize the NNPC’s downstream operations, which were incurring losses because the official retail price for petroleum products did not cover costs of refining, imports, and distribution at market price (see chapter on Petroleum Products Market for more details).


The NNPC series has been shifted by one month to the right.


It should be noted that the NNPC is not concerned with the collection of PPT, but that it calculates PPT for the joint venture partners to register payments for NAPIMS’ accounts.


Staff estimates are based on actual production and cost data, and the formula specified in the MoU. In contrast, payments reported by the CBN and OAGF are based on ex ante estimates of production data, and the agreed work program for the year. Tax assessments are made on the basis of actual production and cost data at the end of the tax year (April-March), and adjustments are paid during April-May.


Oil company executives are often asked to testify before parliamentary committees to clear misunderstandings; in addition, numerous partly overlapping committees are charged with overseeing the oil sector, which delays decision making in the sector and increases production costs.


See chapter on Natural Gas Prospects for staff estimates of dividends.

Nigeria: Selected Issues and Statistical Appendix
Author: International Monetary Fund