Yemisi Izuora
The Nigeria Extractive Industries Transparency Initiative, NEITI, has said that after 40 years of crude oil and gas exploration, Nigeria could only save $3.9 billion in its three oil savings funds, the stabilization fund, the Excess Crude Account and the Sovereign Wealth Fund.
Speaking in Abuja, during the presentation of its Occasional paper titled ‘The case for a robust oil savings fund for Nigeria’, Executive Secretary, NEITI, Waziri Adio, disclosed that in spite of the benefits accruable from oil exploration and the huge revenues that have accrued from oil and gas over the years, Nigeria has one of the lowest natural resource revenue savings in the world.
He stated that the Sovereign Wealth Fund currently has a balance of $1.5 billion, the Excess Crude Account with $2.3 billion and the stabilization fund with N29.02 billion ($95M).
According to Adio, in the last forty years of oil production, Nigeria has extracted about 31 billion barrels of its oil reserves. However, from 1980 to 2015, the country exported crude oil worth about $1.09 trillion but has a current balance of $3.9 billion dollars as at June 2017 in the three funds.
He said the time has arrived for Nigeria to embrace fully a robust policy to save a portion of oil and gas revenue for the rainy day and for the next generation.
The urgent measures that need to be taken, according to him, include the immediate transfer of all revenue savings in the stabilization fund and the Excess Crude Account into the Nigeria Sovereign Wealth Fund.
He maintained that a national consensus on saving for tomorrow has become urgent to prepare the country to overcome frequent commodity price volatility and depletion of non-renewable resources.
He highlighted the fact that portions of mineral resource revenues that are excluded from the national budget and held as part of a country’s reserve can greatly enhance a country’s capital balances, attract greater investors’ confidence and significant flow of foreign capital into the economy.
These funds, he said, also support the provision of critical infrastructure and social interventions during major national emergencies.
He further called for the consolidation of the three oil savings funds, stating that, “These “different oil revenue saving funds should be consolidated and the legal framework harmonised.
“Specifically, the 0.5 per cent Stabilisation Funds and the Excess Crude Account (ECA) should be merged with the Sovereign Wealth Fund, as this multiplicity of savings funds with different rules has led to uncoordinated and widespread extra-budgetary spending.
“Apart from depleting the savings in each fund, such unrestricted spending defeats the purpose for which the funds were set up in the first place which is to shield the economy from revenue volatility.”
Adio disclosed that the $1.5 billion currently in the Sovereign Wealth Fund is one of the world’s worst ratio to annual budget (10%), and one of the lowest Sovereign Wealth Fund per capita ($8) globally.
This ugly revelation is coming as a global index assessing countries’ oversight of natural resources in a report recently released ranked Nigeria’s oil and gas sector 55th out of 89 assessments worldwide.
Nigeria is one of the world’s most resource-dependent countries, with oil and gas sales constituting 90 percent of the country’s exports in 2015. The strength of oil and gas sector’s governance, therefore, impacts the well-being of Nigeria’s 182 million citizens.
The 2017 Resource Governance Index, compiled by the Natural Resource Governance Institute (NRGI), shows that governance challenges are present throughout Nigeria’s oil industry decision chain. According to the findings of the index, the value is lost particularly in licensing and in NNPC’s sales of government oil, as well as when revenues from oil and gas are shared and saved.
Licensing is the weakest link in Nigeria’s “value realization” component, with a score of 17 of 100 points for the policy area, placing it 77th among 89 assessments. This score and ranking reflect high levels of opacity in key areas of decision-making, including qualification of companies, process rules and disclosure of terms.
Despite some progress in the transparency of revenue collection over the past five years, tracking payments from oil and gas companies remains challenging. In terms of the governance of subnational resource revenue sharing, Nigeria ranks 11th in the index. However, the public lacks access to audited information on revenue flows to lower levels of government, and this contributes to the gap between the legal framework and implementation.
“NNPC has made some new disclosures under the Buhari administration, but the details and revenue implications of many of its high-value transactions remain secret,” said Sarah Muyonga, Nigeria country manager for NRGI. “Furthermore, the Nigerian government does not regularly publicly disclose government officials’ financial interests in the extractive sector or the identities of beneficial owners of extractive companies. This enables widespread corruption, with which Nigerians are all too familiar.”
NNPC achieves a poor governance score of 44 of 100 points, falling below the sub-Saharan African average for state-owned enterprises (SOEs), despite being the largest SOE on the continent. The company does not disclose detailed annual reports on its finances, despite top officials having committed to doing so, and little information is publicly available, particularly concerning some of NNPC’s least efficient and most questionable activities.
A finding with huge implications for the country concerns its largest sovereign wealth fund. Nigeria’s Excess Crude Account (ECA) is the most poorly governed sovereign wealth fund assessed by the index, ranking last alongside the Qatari Investment Authority.
Muyonga added: “Improving governance of the state-owned enterprise NNPC is crucial, and will hugely benefit the lives of millions if done effectively. The government discloses almost none of the rules or practices governing deposits, withdrawals or investments of the ECA. Given that the ECA is the largest fund by asset balance in Nigeria, this constitutes a vast governance concern at the end of the oil sector value chain.”