OIL AT THE CENTRE OF THE NIGERIAN POLITY

Oil became a major source of income for the State at the end of the Nigerian civil war in 1970. Meanwhile, the growing production and revenue went together with corruption, military regimes, misgovernance, rising crime and a serious crisis of development in the 1980s and the 1990s. Today, Nigeria is often presented as a textbook case of the resource curse theory (Ikein Reference Ikein1990; Auty Reference Auty1993; Karl Reference Karl1997; Okonta & Douglas Reference Okonta and Douglas2001; Omeje Reference Omeje2006; Lewis Reference Lewis2007; Shaxson Reference Shaxson2007; Watts & Kashi Reference Watts and Kashi2008; Obi & Rustad Reference Obi and Rustad2011; Ross Reference Ross2012). However, the situation is a bit more complex than just an alternative between ‘boom’ and ‘doom’.

As a matter of fact, the oil wealth helped to fund reconstruction after the end of the Biafran secession war. According to Reynolds, ‘the oil boom of the early 1970s did much to help bury ethnic and religious tensions under mountains of petrodollars’ (Reference Reynolds1997: 61). The state utilised petroleum revenues to attain national unity and promote Pan-Africanism during the Second World Black and African Festival of Arts and Culture (FESTAC) in Lagos in 1977.Footnote ¹ Frank (Reference Frank1984: 296) concluded that ‘Oil wealth had a positive impact on political life in Nigeria … It made compromise among groups and dispersion of benefits much more rewarding than in the First Republic (1960–1966)’. When a parliamentary regime was eventually restored during the Second Republic (1979–1983), people continued to have electoral rights, yet paid fewer taxes since the state relied on royalties and no longer needed to coerce and extract resources from its citizens (Guyer Reference Guyer1992).

Oil money also contributed to buying peace and solving social conflicts. In Nigeria, corruption is a system of governance in itself, a way to redistribute wealth and create a constituency. Combined with lineage solidarity and self-help, it explains why the economy did not completely collapse, defying all logic, as a former military head of state, Ibrahim Babangida, himself acknowledged in a famous interview in 1987. The decline in agricultural production was certainly a result of the so-called Dutch disease. Yet it was also a result of the Biafran war in the East. On the contrary, the oil boom of the 1970s boosted the demand for food and revitalised the sector by helping peasants to buy fertilisers and tractors (Guyer Reference Guyer1997). Moreover, price movements did not strictly follow oil prices. In the 1980s and 1990s, the low real GDP growth had more to do with waste, mismanagement and poor government efficiency. Indeed, the authorities kept the official exchange rate artificially high to compensate for a decline in oil revenues and create rents via the black market premium (Sala-i-Martin & Subramanian Reference Sala-i-Martin and Subramanian2003: 17).

In other words, the oil wealth in Nigeria has been both a blessing and a curse (Akinwumi Reference Akinwumi2004: 116–35). On the political front and abroad, it helped to consolidate the state as a regional power and ‘peacekeeper’ that led various military operations in Chad in 1980, Liberia and Sierra Leone in the 1990s, and eventually Mali briefly in 2013. Oil contributed to further the diplomatic objectives of Nigeria. In 1979, for instance, Lagos did cut off its petroleum supplies to stem the tide of the revolution in Ghana and bring the war-torn Chadian government to the negotiation table, while it nationalised British Petroleum as retaliation for the British support to the apartheid regime in Southern Rhodesia, now Zimbabwe (Soremekun Reference Soremekun1995: 186). However, the oil wealth also reinforced military dictatorship within Nigeria. Thanks to his bargaining power with oil importers in Europe and America, for instance, General Sani Abacha did not fear an embargo and challenged the international community by assassinating his opponent Ken Saro-Wiwa in the Niger Delta, just before the opening of a Commonwealth Summit at Auckland in 1995. The military regimes in power in the 1980s and 1990s were certainly not accountable to the people. Paradoxically, however, repression went together with an economic crisis and a decline in oil revenue that contradicted the correlation of the resource curse theory between coercion and mineral extraction. On the contrary, the return to a parliamentary regime coincided with rising oil prices and production at the beginning of the 2000s.

The positive and negative sides of the situation are outlined in Hill's essay (Reference Hill2012: 70–3). The author, a lecturer in defence studies, believes strongly that the Nigerian state has failed and is on the verge of implosion. He argues that oil-fuelled local insurgencies drove the demands for secession and undermined the quality of life of residents in the Niger Delta. A typical application of the resource curse theory, oil also exacerbated corruption, eroded democracy and destroyed the rest of the economy in the other regions of the country. However, Hill acknowledges that the effect of the oil rent was not completely negative. Indeed, it helped to keep the country together because it fortified international support for Nigeria's continued unity. Moreover, it strengthened the determination of the ruling class to prevent the Niger Delta from breaking away.

A SHORT HISTORY OF THE PETROLEUM INDUSTRY BILL

In this context, a reform of the oil industry was a crucial issue to consolidate the democratisation process after 1999. A first track was to try to appease Niger Delta militants by giving a special bonus to oil-producing states, the so-called ‘derivation’ percentage, which rose to 13% (Ukiwo Reference Ukiwo2007). But the attempt to revive fiscal regionalism did not directly address problems of the industry and did not work well (Pérouse de Montclos Reference Pérouse de Montclos2013). Instead of solving the conflict, the derivation option, together with high levels of corruption and electoral fraud, exacerbated an armed rebellion which became very nasty and almost halved oil production until an amnesty was negotiated for the fighters of MEND (the Movement for the Emancipation of the Niger Delta) in 2009.

At the end of Nigeria's military dictatorship, a second track for the civilian government was to try to reform the industry, targeting both the national and international oil companies. Interestingly enough, the PIB did not focus on foreign operators only. A major challenge was indeed to revamp the state-owned oil company NNPC (Nigerian National Petroleum Corporation). In 1988, the military regime had already tried to split it into twelve units to cover the entire spectrum of the oil and gas industry: petrochemicals and the refineries of Warri, Kaduna and Port Harcourt; exploration and production (Nigerian Petroleum Development Company, Nigerian Gas Company and Nigerian Liquefied Natural Gas Limited); distribution (Products and Pipelines Marketing Company); engineering (National Engineering and Technical Company Limited); services (Hydrocarbon Services Nigeria Limited and Integrated Data Services Limited); and investments (National Petroleum Investment Management Services). In 1992, during the short-lived Third Republic, the corporation was then supposed to become a commercial and autonomous entity. Yet it remained state-owned, and government officials did not desist from digging into its reserves to finance electoral campaigns or divert funds for personal ends after 1999. In this regard, NNPC was – and still is – quite different from the public oil companies analysed by Marcel in the Middle East, which succeeded in preserving their operational autonomy to avoid political interference and improve their economic performance, except for Iran (Marcel Reference Marcel2006: 4).

Today's NNPC is best described by Thurber and his colleagues (2010: 5). The national oil company (NOC), they write, ‘is neither a real commercial entity nor a meaningful oil operator. It lacks control over the revenue it generates and thus is unable to set its own strategy. It relies on other firms to perform essentially all of the most complex functions that are hallmarks of operating oil companies. Yet unlike some NOCs it also fails to fit the profile of a government agency: Its portfolio of activities is too diverse, incoherent, and beyond the reach of government control for it to function as a government policymaking instrument.’ Actually, the NNPC is structurally insolvent and in a condition of perpetual indebtedness because crude sales pass straight through the Federation Account and the company loses money on subsidised refined product sales. Like Mexico's Pemex or Malaysia's Petronas, it does not retain enough earnings to cover operational costs. Neither is it allowed to sell bonds in the international financial market, unlike Brazil's Petrobras or Norway's Statoil (Sayne et al. Reference Sayne, Mahdavi, Heller and Schreuder2012: 10). As a result, its annual turnover is low: $4.8 billion in 2005, compared with $26.6 for Algeria's Sonatrach, for instance.

This poor economic performance goes together with political problems of accountability, fraud, mismanagement and conflicts of interests. In a joint report by Transparency International and the Revenue Watch Institute, NNPC was listed as the least transparent of 44 national and international companies surveyed in 2010, mainly because it did not disclose internal organisation and anti-corruption programmes (Kowalczyk-Hoyer Reference Kowalczyk-Hoyer2011). Ironically, it was created in 1977 because of suspicions of corruption that led to the dissolution of its precursor, the NOC, whose senior management had instigated preferential discounts to select buyers of Nigerian crude during the oil crisis in 1973. But the NNPC was also to become the main public entity to siphon funds for the military. Parliamentary regimes did not solve the issue either. In 1993 during the Third Republic, the NNPC Group Managing Director, Edmund Daukoru, was charged for paying inflated fees for fraudulent petroleum storage infrastructure and the lease of two supertankers. He was consequently sacked by the interim government of Ernest Shonekan, and immediately replaced by the authorities instead of setting up an independent board as envisaged by the petroleum minister in 1991. In 2003 during the Fourth Republic, another Group Managing Director of the NNPC, Jackson Gaius Obaseki, was fired over the fraudulent award of fuel importation contracts.

At the end of the military regime in 1999, the challenge for President-elect Olusegun Obasanjo was thus to tackle economic and political problems within the industry. To do so, the OGSRC (Oil and Gas Sectors Reform Committee) was created in 2000, followed by the OGIC (Oil and Gas Implementation Committee) under ministers Rilwanu Lukman until 2003, and Edmund Daukoru from 2004 onwards. At the end of Olusegun Obasanjo's second term in April 2007, the Committee presented its conclusions, which were approved by the government and were to form the bases of a bill introduced to the National Assembly in September 2008. However, the death of President Umara Yar Adua and procrastination from legislators made a vote impossible. After the election of Goodluck Jonathan in 2011, the project was taken up by, amongst others, Osten Olorunsola, Director of the DPR (Department of Petroleum Resources). In 2012, a new draft was submitted to Parliament by the Minister of Petroleum Resources, Diezani Alison-Madueke, who has since been accused of tampering with the document by removing amendments proposed by trade unions and NGOs.Footnote ²

Throughout these years, many versions of the bill have been in circulation, to the extent that legislators and oil operators were no longer sure of the government's true position. Without clear directions and a legal framework for the future, foreign companies have therefore suspended a large part of their investments, notably in deep offshore production, the nation's most promising sector. In addition, the government's contractual engagements proved to be unreliable as the health of President Umaru Yar Adua deteriorated and the leases allocated by his predecessor to foreign firms in 2005 were simply cancelled in 2008. In 2011, however, there was hope that the election of Goodluck Jonathan would clarify the situation. At the time, it was expected that the new president, the first to hail from the Niger Delta since independence, would sincerely push for the vote of the bill before the end of his term in 2015.

At the beginning, the objectives of the PIB were extremely varied in scope. The bill aimed simultaneously to reform the fiscal regime of joint ventures, to create a commercially viable national oil company, to increase government revenues, to support gas production for domestic use and power generation, to enhance community participation in order to create a peaceful business environment, to facilitate the exploration of petroleum resources, to promote Nigerian Content, to protect health safety and the environment, to improve the efficiency of regulatory entities by avoiding conflicts of interests, to reduce discretionary ministerial powers and political interferences, to deregulate the downstream sector and to engender accountability, transparency, competiveness and openness. The sheer ambition of the project thus generated criticism: some found it to be too large in scope where it should rather amend existing laws regarding, for example, environmental protection or the indigenisation of the economy.

Nevertheless, important issues eventually disappeared as the content of the bill evolved, revealing the government's weak capacity for reform. Today, the PIB essentially focuses on the taxation of oil companies, the commercialisation of the NNPC and the creation of community funds in the Niger Delta. These three issues deserve to be analysed further.

TAXING OIL COMPANIES

For the time being, extractive companies in the upstream sector pay royalties, various social contributions and a special Petroleum Profit Tax (PTT), which replaces the Companies Income Tax (CIT) used for other private firms, for instance in the downstream sector. The amount of royalties is not determined by barrel price or profit rate, but rather by the volume of production, the nature of the contractual arrangement, the type of drilling, the size of the company, the depth of the well and, for offshore drilling, the distance from the shore. The social and professional taxes include 2% levied on assessable profit for education, 3% of budgeted operation costs of a joint venture for the NDDC (Niger Delta Development Commission), and the Petroleum Profit Tax, which varies from 50% offshore to 85% onshore. The PPT derives from the 1993 tax regime, which favoured foreign direct investment in offshore drilling at a time when deep-sea exploration and production techniques were not as well developed as they are today.

To increase government revenues, the Petroleum Industry Bill now attempts to raise taxes on oil companies. The PPT is to be replaced by the CIT and a new Nigerian Hydrocarbon Tax (NHT). The objective is also to create more attractive fiscal terms for investors in onshore marginal fields, particularly in mangroves, shallow waters and swamps. Contrary to the situation in 1993, deep offshore has become more attractive, not just because maritime production techniques have improved, but also because the Niger Delta's insurgency has reduced the possibilities for onshore exploitation. The government is therefore trying to reverse the situation by lightening taxes on onshore wells. With the bill, two issues are put on the table at once: support of local indigenous companies, and the elimination of gas flaring by encouraging oil operators to invest in the gas industry at more attractive terms than before, when domestic prices were lower than the world market – sometimes even negative.

In a similar vein, the government wishes to review the fiscal bonus that was granted by the military regime of Ibrahim Babangida in the offshore sector. The production sharing agreements of 1993 only applied to the petroleum profit tax but did not levy any royalties for deep offshore at more than 1000 metres water depth. In 2000 and 2005, Olusegun Obasanjo then introduced royalties of 8% of production, irrespective of barrel price or well size. This relatively rigid system was nevertheless accused of discouraging investments in small follow-up fields. One of the PIB's first objectives was thus to tighten the duration and condition of production for OPLs (Oil Prospecting Licences), which are still limited to 5 years, as well as OMLs (Oil Mining Leases), which were granted for 20 years if oil was found in commercial quantities – 50% of the surface was however to be given back to the government in cases of non-exploitation.

Currently, the government seeks to use taxes as an instrument to increase the value of neglected fields onshore and at sea. Notwithstanding the opposition from international oil companies, the problem is that the fiscal reform displays serious, fundamental weaknesses. From a technical point of view, first, the government does not know exactly how much petroleum is produced. Instead of metering, export terminals still use the dipstick, an outdated procedure which is susceptible to manipulation. Moreover, the devil is sometimes in the detail. In May 2011, at the end of the last legislature, the PIB drafters dropped the recommendation to measure oil production at wellheads rather than at export terminals or flow stations. Such an amendment may appear minor, but is in reality a question of millions of barrels left completely unaccounted for by tax services and customs. A large portion of crude oil stealing, or ‘bunkering’, occurs at pipelines between wellheads and the stations that separate water from oil and gas. According to unofficial sources in the industry, this massive theft is estimated at more than 10% of total production. Yet corrupt officials condone ‘bunkering’ while transnational corporations are often accused of being too soft as long as they don't have to pay taxes on products that they cannot export – hence their opposition to such a possibility (Ribadu, Reference Ribadu2012).

THE COMMERCIALISATION OF THE NNPC

The government also scaled back the attempts to reform the NNPC. Initially, the PIB aimed at rationalising and breaking apart a public entity that had become a sort of ‘state within a state’, a major source of corruption and a ‘black hole’ in the national accounting system. The three-fold objective was to assure the commercial viability of the firm, avoid conflicts of interest and minimise political interference. In 2009, a government memorandum proposed to partially privatise the NNPC. The plan was that the national oil company would no longer be dependent on taxpayer contributions, government subsidies and political meddling from the National Assembly. Modelled after the examples of Statoil in Norway and Petrobras in Brazil, a partial privatisation was expected to create an efficient commercial entity subject to the same royalties and taxes as any other petroleum operator in Nigeria. The new corporation would therefore dissolve into international joint ventures able to raise funds in financial markets abroad.

At the time, however, private operators were already worried about integrating NNPC employees. As the government intended to remain majority shareholder, analysts also wondered how such a semi-privatised entity could claim independence while being subject to some of the public regulations of the civil service. The new national oil company would have continued to control the board of directors of international joint ventures in which 80% of executives would have been Nigerian. In addition, Parliament approval and Central Bank regulations would have been required to borrow money abroad. Likewise, the company would have needed to repatriate exports proceeds, whereas creditors would have no doubt asked for deposits in offshore accounts as collateral for the loans.

In any case, the final version of the PIB in 2012 removed the mention of international joint ventures. Instead, the NNPC was to remain a purely national oil company and be incorporated on a commercial basis with a maximum of 30% in the Nigerian private sector. In this new arrangement, its shares of joint ventures with foreign firms were to be taken by a National Petroleum Assets Management Agency (NAPAMA). In theory, the two entities were not to be subjected to the regulations of the civil service, the Fiscal Responsibility and Public Procurement Acts of 2007 in particular. To a certain extent, the national oil company was therefore expected to run on a commercial basis without political meddling. As originally planned, it could thus avoid conflicts of interest. The new national oil company was just to produce and sell petroleum. It was no longer in charge of regulating the industry, collecting royalties and inspecting operations for the federal government.

The reform currently being proposed remains superficial because it does not really solve conflicts of interests between the state and the company. In 1977, the regulator (the Ministry) and the producer (the NOC) had been merged into the NNPC, in addition to the new responsibility for refining crude. In 1988, the military junta then decided to separate commercial and regulatory functions. The NNPC's Petroleum Inspectorate was transferred back to the Ministry, under the name DPR. The latter was supposed to supervise all petroleum operations, enforce environmental and safety regulations, keep accurate records of reserves, production and exports, process applications for licences and monitor the local content policy. However, qualified personnel left DPR and sought employment in the NNPC because it offered better, non-civil service based emoluments (Nwokeji Reference Nwokeji2007: 26). Appointed and funded by the government, the remaining staff had to rely on the logistics of oil companies to carry personnel and monitor oil spills. Moreover, its inspectors were sometimes former employees of international oil corporations or the NPDC (Nigerian Petroleum Development Company).

As a result, DPR was accused of collusion with the operators and criticised by environmental lobbies and Niger Delta activists.Footnote ³ In practice, the NNPC was still in charge of producing oil and, simultaneously, regulating the industry (Onuoha Reference Onuoha2005: 125). This contradiction explains, for example, moratoriums on gas flaring, so that both the government and transnational corporations do not pay penalties for atmospheric pollution. Today, plans to partially commercialise and privatise the NNPC are not likely to solve these conflicts of interests either, since the State, the majority shareholder, continues to act at once as producer and regulator, violator and inspector.

COMMUNITY FUNDS

Another objective of the PIB – to create Community Funds in the Niger Delta – also appears unlikely to improve the situation and guarantee social peace as long as the federal government and local officials control and misuse the oil rent. The initial idea was to encourage ‘host communities’ to take an interest in production, so as to discourage them from attacking oil companies. Funded by dividends, some kind of local cooperatives were to develop the oil-producing areas in addition to the regular allocation from the Federal Government and the states. A nominal 10% equity participation in upstream petroleum operations was to be vested in Community Funds and replace development projects undertaken by international oil companies. However, it was never explained how villagers would manage such amounts. Other versions of the story held that the Community Funds would get 10% of net profit from each corporate entity, or even 10% of the annual production. Under this last hypothesis, they would have received up to $ 10 billion each year, out of one billion barrels at an average price of $100 per unit! In cases of vandalism, sabotage or civil unrest, the contributions would have been suspended and transformed into tax reductions for the companies impacted.

As for the Nigerian Senate, it proposed in 2010 to distribute dividends to all communities whose ‘centres’ were located within a radius of 10 kilometres from a well, or within a corridor of 2–10 kilometres width along a pipeline. For offshore operations, dividends were to be shared in equal amounts to all people within the relevant coastal state. However, this system did not solve the issue of land ownership and some Niger Delta activists would have preferred the funds to be distributed to fishermen and villagers living near export terminals, at the end point of maritime pipelines.Footnote ⁴ In addition, members of the TUC (Trade Union Congress) were concerned about the lack of regulations regarding the expenses of these cooperatives: of the 10% of the net profit from companies, they wanted 20% to finance infrastructures, 20% as a fund for future generations and 60% for the ‘host’ communities.Footnote ⁵

However, the 2012 version of the PIB contains no such stipulations. To begin with, the bill does not give clear guidelines for the community cooperatives. It merely specifies that their boards must be chaired and supervised by the oil ministry. In directly taking the funds without first handing them to the Federal Government at Abuja, they could then escape fiscal control and circumvent supervision by the Accountant General of the Federation. They could also duplicate development projects, encroaching on the mandate of the NDDC and the Ministry of Niger Delta. The legal problems do not only concern these two institutions. To a great extent, the 2012 version of the PIB follows the Senate's proposal of 2010, which created an unconstitutional 10% royalty for the Niger Delta and governors of the coastal states without any requirement to justify the corresponding expenditures. However, according to the Nigerian constitution, all regional revenues – and therefore all royalties – must first be paid to the federal account at Abuja.

LOCAL RESISTANCE: THE NORTHERNERS AND OTHERS

Today, the bill thus faces a number of oppositions, even within the ruling People's Democratic Party (PDP). The public debate has largely focused on the personal case of Diezani Alison-Madueke, the Minister of Petroleum Resources, who has been accused of rewriting the bill to her own benefit, not to mention various allegations of corruption. The opposition to the bill is also structural, since the PIB touches upon the ‘federal character’ that regulates the mode of distributing oil wealth, as against the ‘derivation’ formula. The resistance to the reform comes from a variety of sources: Northerners because of Community Funds; the transnational corporations because of the new fiscal regime; nationalists because of the dismantling of the NNPC; unions because of the transfer of public personnel to commercial entities without equivalent salary and retirement packages, etc. Even in the Niger Delta, activists and ecologists have criticised a bill that does not meet their demands in terms of land ownership and environmental protection.

Under the aegis of Niger State PDP governor Muazu Babangida Aliyu, the Northerners lead the battle against the PIB. Indeed, they feel excluded from top positions within the NNPC and the government since the 2011 election of a president hailing from the Niger Delta. In their eyes, the PIB is an attempt to definitively deny them their share of oil revenue, and to introduce disguised royalties free from government control. To them, Community Funds are more than local compensations for pollution: rather they reinforce the ‘derivation’ formula, which is currently fixed at 13% of the revenue that oil-producing states can retain in the Niger Delta. From their perspective, the PIB is unconstitutional. It infringes upon the ‘federal character’ which requires wealthy regions to finance the development of the poorest areas, which are usually in the North. Another problem is that the PIB discriminates against Nigerian citizens who do not live in the Niger Delta. For the Northerners, the president's ethnic bias is crystal clear. Further proof comes from the multiple mechanisms that favour oil-producing areas: the derivation formula (which is currently limited to 13%), the NDDC (which siphons off 3% of the operational budget of joint ventures), the ministry of the Niger Delta (which received 1·3% of the Federal Government's budget in 2012), amnesty payments made for the demobilisation of former fighters of MEND, and, finally, the ‘local content’ and ‘federal character’ quotas which ensure the hiring of native residents for jobs in extractive industries and the local civil service respectively.

Some Southerners from non-oil-producing regions also complain about the position of President Goodluck Jonathan. Out of 36 states, Lagos is the only one to be viable. All the others depend on funding from the central government in Abuja, which derives from hydrocarbon extraction. In other words, non-oil-producing states in the South would also suffer from a substantial rise in the bonus given to the Niger Delta, to the detriment of other regions of the Federation. Faced with such dissent, even within his own party, Goodluck Jonathan will no doubt attempt to buy the opposition. Despite insecurity due to attacks by the Islamist sect Boko Haram, he has already promised to finance further oil prospecting in the North, so that the region may one day benefit from the PIB. In 2013, the governor of Sokoto made loud claims about an oil discovery in his state without any independent confirmation. In theory, Northerners could also benefit from Community Funds along the pipelines leading to the Kaduna refinery. Obviously, the outcomes of the bill would be much greater if the infamous project of a Trans-Saharan pipeline toward the Mediterranean Sea was developed. Former President Umara Yar Adua had attempted to revive the project in 2009 when Algeria and the Republic of Niger signed an agreement. But Goodluck Jonathan has not followed through, and the situations in Libya and Mali have put the plan to a halt. In any case, Nigerian Northerners are not likely to support a policy that would deny them immediate sources of revenue in exchange for the hypothetical gains of the PIB in a remote future.

RESISTANCE FROM TRANSNATIONAL CORPORATIONS

Resistance on the part of international oil companies is just as strong as that of the leaders of non-oil-producing states. However, their criticisms focus on deep offshore taxes and are less visible at the National Assembly, where some representatives have allegedly been lobbied and even rewarded with cash. International oil companies complain that the lawmakers intend to repudiate past production-sharing agreements. Moreover, they argue that the PIB is to cancel the single fiscal account which allowed them to compensate losses in non-producing wells onshore. Tensions have been strong enough for some companies to publicly threaten to cut off investments or even to withdraw entirely from the country. In October 2009, a confidential report of the International Monetary Fund warned authorities of the excesses of a fiscal reform: ‘insensitivity to project costs’ could result in many projects being uneconomic and ‘translate into a sharp and immediate drop in capital investment and an eventual decline in government revenues’ (McPherson et al. Reference McPherson2009: 36).

International companies indeed argue that their future is in offshore and that if they are overtaxed, Nigerian production would become one of the most expensive in the world. They hold that fiscal recovery based on a comparison with tax rates in Norway or the United Arab Emirates is irrelevant if it does not account for extraction costs, which are higher because of security requirements and the lack of infrastructure in the Niger Delta. From roads to hospitals to schools, the international oil companies allege that they need to cover all costs themselves, including payment for police and military forces that protect the operators. Investors also argue that the situation is quite different in onshore joint ventures, where the NNPC is the primary shareholder and therefore bears the bulk of costs, and offshore production-sharing agreements, where foreign companies cover all costs until revenues from production reimburse their investments.

Thus the negotiation with the government now focuses on the estimation of costs. Contrary to standard practices in other countries, the 2009 version of the PIB did not allow for the inclusion of administrative fees incurred abroad, interest in contracted loans or demurrage fees paid to ship owners in the case of immobilisation in Nigerian ports. Despite several minor revisions, the bill as it was presented in 2012 continued to subtract 20% of other expenses made outside of Nigeria from the calculated profit rate. The government argued that it strived to promote local purchases and that it simply did not have the means to verify the exact costs incurred abroad. In line with the International Monetary Fund, the international oil companies responded that the current fiscal regime was perfectly capable of preventing unnecessary expenses (McPherson et al. Reference McPherson2009: 91). To approve the provisional budgets of joint ventures, for example, the NAPIMS (National Petroleum Investment Management Services) could control and forbid unjustified costs in advance. Moreover, the government always had the option of ordering ex post audits. In essence, the problem resulted rather from the absence of an independent third party to determine the true production costs in Nigeria and abroad.

THE TRADE UNION PERSPECTIVE

Paradoxically, oil trade unions are not distanced from the international companies on these issues. Under the aegis of the TUC, the industry executives of PENGASSAN (Petroleum and Natural Gas Senior Staff Association of Nigeria) support the privatisation of the sector, contrary to their counterparts of the civil service in the NLC (Nigeria Labour Congress), who remain hostile to deregulation and who protested in January 2012 against astronomical fuel price increases after the removal of government subsidies. Despite several points of divergence with the blue collars of NUPENG (National Union of Petroleum and Natural Gas Workers), the leaders of PENGASSAN therefore advocate a reform modelled after the NLNG (Nigerian Liquefied Natural Gas) plant at the Bonny export terminal, where the private sector is the majority shareholder (51%).

Such a position might come as a surprise from labour organisations that are among the most powerful in the country, in the most heavily unionised sector in the economy. Actually, PENGASSAN and NUPENG already favoured plans to privatise refineries. As far as production is concerned, they were hostile to the first version of the PIB in 2009, which intended to create international joint ventures wherein the government would remain the majority shareholder. Today, these trade unions are also opposed to the transformation of the NNPC into a corporate structure opened to only 30% of private shares. They distrust the continuation of a parastatal company whose staff size shrank from 17,000 in 2003 to 9,000 in 2007 (Nwokeji 2007: 7). They also fear that the PIB is a ploy to disengage Nigerians because it would compel all employees to take up new employment in the national and international oil companies. To attract investments, create jobs and improve performance, they would prefer to rely on transnational corporations which, they claim, are more respectful of workers' rights.

In the NLNG consortium, for example, PENGASSAN alleges that foreign companies have a better management of relations with host communities. Generally speaking, they pay more attention to the Labour Code. By contrast, Nigerian indigenous private companies do not pay salaries regularly and are less vigilant about human rights. According to the PENGASSAN representative for Rivers State, they account for up to 90% of the social conflicts in the oil and gas industry (Onuegbu Reference Onuegbu2012). In the Onne free zone of Port Harcourt, they even forbid workers to unionise. As for the NNPC, a public company, it is handicapped by federal laws that require the recruitment of locals and imposition of regional quotas irrespective of merit. Aside from failing to meet the expectations of unions in the way of job creation, the PIB is a further source of concern in that its section 356 does not guarantee the same salary and retirement plans for employees who would be transferred to parastatal commercial entities. The bill does not plan to create a retirement fund in keeping with the current NNPC system, which guarantees payment of a full salary.

CRITICISM FROM ADVOCACY NGOS AND NIGER DELTA ACTIVISTS

In yet another paradox, activists from the Niger Delta criticise the PIB since it confirms the prerogatives of the federal government and does not authorise communities to own their land. One might think that those slated to benefit the most from the bill would lend it the strongest support. But instead strong resentment is felt toward the central government, which claims to control and manage Community Funds and offshore production tax increases. Many activists consider that the authorities never truly intended to consult with host communities, nor promote their involvement in oil projects. For symbolic proof of this, they cite the reformulation of the Preamble to the PIB when it re-entered Parliament in 2009. The first article of the bill initially proclaimed that the ‘property and ownership of petroleum … shall vest in the sovereign state of Nigeria for and on behalf of the people of Nigeria’. However, the authorities were quick to reframe the sentence, replacing it with a simple reference to the ‘Federal Government of Nigeria’.

Today, some activists call for a suspension of parliamentary debates about the PIB as long as the so-called ‘civil society’ has not been consulted – beginning with host communities in the oil-producing areas. ERA (Environmental Rights Action), a well-known NGO, insists for example that the bill should address the issue of pollution.Footnote ⁶ As for the Port Harcourt-based Stakeholder Democracy Network, it opposes sections 118 and 293 of the PIB, which requires host communities, Local Government Councils and States to pay for repair in case of sabotage of oil assets. Generally speaking, advocacy NGOs and activists are worried by a bill that would provide the federal oil ministry with discretionary powers to supervise bids, manage the new NNPC and co-opt board members of the parastatals, whose nominations would have to be approved by Abuja.

In 2010, the government had in fact promised to fight against corruption by increasing the transparency of the industry. Faced with various Senate amendments, it proposed to publish licence agreements, leases and subcontracts as well as geological data and information on production, tax payments and royalties. The 2012 version of the PIB also claimed to follow the recommendations of the NEITI (Nigeria Extractive Industries Transparency Initiative). But the bill did not truly break with the typical opacity and secretiveness of the petroleum sector (Abutudu & Garuba Reference Abutudu and Garuba2011). Today, the Federal Ministry of Petroleum remains exclusive regarding bids and the attribution of contracts. It is in no way accountable to the Nigerian citizens nor to the communities living in oil-producing areas. So it is very unlikely that the bill could help to fight against current corruption in the industry.

A COMPROMISE BEFORE THE 2015 ELECTIONS?

In reality, the Niger Delta activists are not the only ones to criticise the holes in a reform that fails to solve problems of governance, especially in the oil-producing states. Analysts worry about the consequences of a bill that favours host communities and ignores the general social impact of the industry at the national level. In the Niger Delta, the PIB will most likely exacerbate disparities in development and deepen conflicts between villages with or without hydrocarbon deposits. In rural areas, non-host communities will still have to rely on the poor public services of a weak state. Socially and politically speaking, the bill is also unrealistic in that it intends to liberalise fuel prices and promote the exploitation of marginal fields despite consistent insecurity in the Niger Delta.

Given the strong opposition to the PIB, the law could only be voted through if a compromise is reached between the executive and the legislature, the government and transnational oil companies, the private sector, trade unions and the NNPC, Northerners and Southerners, etc. The task is quite challenging and some believe that Goodluck Jonathan has deliberately submitted a bill that cannot pass. Under such a hypothesis, the government would be able to save face and find its way out of a dilemma: either the president tries to appease rebel groups of the Niger Delta in promoting the ‘derivation formula’ so that oil production could resume and finance the state, or he attempts to restore the trust of Northerners so that the ‘federal character’ of Nigeria could prevail and continue contributing to the funding of the poorest regions in the Sahel. In the first case, Goodluck Jonathan would upset the Muslims who elected him in 2011, but who worry about the economic damages of the Islamist insurgency of Boko Haram. In the second case, he would displease his own Ijaw people, who supported him because of ethnic solidarity, but who are not ready to give up on their demands for regional autonomy.

In the end, Goodluck Jonathan could attempt to leave his mark on history by encouraging a compromise before the end of his term in 2015. He is well aware that the representatives of oil-producing states (Abia, Akwa Ibom, Bayelsa, Cross River, Delta, Edo, Imo, Ondo and Rivers) are a minority in the National Assembly, with only 23% of seats in the House of Representatives (82 out of 360) and less than 25% in the Senate (27 out of 109). Out of 36 states, 27 do not produce oil and would certainly resist a reduction of the ‘federal character’ that regulates the redistribution of the oil rent. Lagos, the only self-sufficient state in the Federation, could be an exception if the PIB was to promote the autonomy of the richest regions economically speaking. However, the bill submitted to Parliament hardly does so, since it confirms the central government's prerogatives.

In all probability, then, the PIB will initially be rejected at the National Assembly and the subsequent discussions will drag on. Representatives of the Northern states will no doubt make legal arguments to stall the bill. In theory, the Constitution would not need to be amended since the PIB does not reduce presidential powers. The dismantling of the NNPC could also do without a revision of the Basic law. Though it mentions a ministry of justice and an attorney general, the Constitution does not speak of a national petroleum company or an oil minister – a post which remained unoccupied during Olusegun Obasanjo's presidency. But the Northern states may well argue that the PIB goes against the ‘federal character’ written in the Basic law. Their opposition opens the way to fierce legal battles. As for the government, it might refuse to approve major amendments proposed by the Senate. The National Assembly could then force the passing of the bill as it did with the Niger Delta Development Commission Act in 2000. In any case, it will become increasingly difficult to get a compromise before the PDP primaries and the 2015 presidential elections since the party in power lost its majority in Parliament because of defections in late 2013.

A LAW … FOR NOTHING?

Should a bill be adopted, it remains to be seen if the law would truly be applied. Previous attempts did not succeed in reforming the industry and the energy sector, including electricity. Under Rilwanu Lukman in 1988, the restructuring of the NNPC led to a mere change in the company's organisational chart without actually commercialising the public firm. After the end of military rule in 1999, new reforms were not devoid of contradictions. President Olusegun Obasanjo restored the regulatory function of the Ministry. Yet he made himself Minister of Petroleum Resources and Chairman of the Board of NNPC, removing any pretence of independence from government interference. Likewise, he failed to act on the recommendations of the Oil and Gas Reform Implementation Committee he initiated in 2000 (Thurber et al. Reference Thurber, Emelife and Heller2010: 20). There was no real privatisation of refineries or the upstream sector, except for Eleme Petrochemicals, which was sold to an Indonesian firm, Indorama, in 2006.

More recently, the 2010 Local Content Act also failed to support the transfer of technology to Nigerian indigenous oil companies. As early as 1973, military indigenisation decrees had limited the number of expatriates in the oil industry. Thirty years later, Olusegun Obasanjo's government then tried to urge Nigerian companies to take up marginal fields left behind by international companies. The problem, however, was that the bids were so opaque and discretionary in nature that they did not enhance the competitiveness of local companies (Gboyega et al. Reference Gboyega2011: 27). Passed in 2010, the Local Content Act is not a good model for the PIB in this regard. Indeed, it established quotas in the oil industry for hiring and subcontracting, unlike in other countries where similar stipulations only give preference to national companies if they propose skills, rates and delivery delays equivalent to those of their foreign competitors. The Local Content Act also gives the Ministry of Petroleum Resources discretionary power to grant waivers which are a source of corruption. Moreover, sanctions in cases of non-compliance are negligible, maybe on purpose because the NNPC, which has the majority in all joint ventures, would have to contribute to the payment of the fines.

In practice, the Local Content Act has been hijacked by politicians and their bogus companies, which receive commissions for subcontracting work to foreign firms with the least training or technology transfer. A study revealed that the law has increased contract awards to existing companies. But it has created only a few more jobs and not significantly enhanced the participation of new entrants in the industry (Ihua Reference Ihua2010). Employees trained by indigenous firms are still ‘poached’ by bigger international companies, where they are better paid. Sometimes, the Local Content Act has also been used by operators as an excuse for outsourcing jobs and firing the Nigerian staff.