‘Weak licensing process in oil sector encouraging illicit financial flows’

The Nigeria Extractive Industries Transparency Initiative (NEITI) has disclosed that discretionary practices facilitated by legal and regulatory framework are providing prospects for Illicit Financial Flows (IFFs) in the allocation of oil and gas licences in the country.

Head of Policy, Planning and Strategy at NEITI, Godwin Okpene, stated this yesterday in Abuja during a summit to review report on IFFs in the oil and gas sector organised by the Independent Corrupt Practices and Other Related Offences Commission (ICPC).

Okpene said lack of contract disclosures or transparency in the licencing process and absence of ownership disclosure requirements were also encouraging IFFs in the country.

Hee noted that IFFs were rife in the sector because government does not receive the full market value for the mineral assets, adding: “Currently the Federal Government does not have adequate infrastructure to independently verify the volume of oil produced in Nigeria.

“The implication is that the country cannot also verify the amount of crude oil that the companies declare as losses, for which they do not pay royalties or taxes. This also facilitates under-invoicing of crude oil exports, which accounts for a huge volume of illicit financial flows from Nigeria.”

He said the shortfall in value is usually captured by Politically Exposed Persons (PEPs) using family, friends, associates or fictitious applicants as proxies.

“There is no official policy requiring disclosure of contracts in Nigeria, hence it is not generally practicable for accountability institutions and industry watchdogs to review contracts and agreements between government and companies.

“However, NEITI has found major issues on administration of oil and gas contracts in Nigeria, which affect government’s revenue from oil and gas assets.

“One current practice that cause government to receive less than its statutory entitlements from oil and gas assets is arbitrary variation of contract fiscal terms for individual contracts.

“This happens when individual oil mining contracts are negotiated to exclude some elements of fiscal terms in the model contract and contracts that exclude government’s share of profit on oil,” he stated.

He revealed that at least one such contract was found to have been signed in the last 10 years, even when the Nigerian government had discontinued such contracts over 20 years ago.

Okpene explained that another case of variation of contract terms in favour of licence holders to government’s disadvantage was arbitrary issuance of ‘side letters,’ which give additional incentives to licence holders outside the original contract terms.

“Side letters are usually issued by the parent ministry, which is vested with statutory powers to issue regulations on the industry. They have the force of law, since such actions are backed by industry legal and regulatory framework,” he added.

He also pointed out that arbitrary variation of contract fiscal terms had been discussed previously in the section on the minister’s exercise of discretionary powers.

“However, this is being discussed again to highlight another aspect of the challenge, which arise due to absence of government policy to make contracts public. Lack of transparency fuels the incentive for government officials, not necessarily the minister, to alter contracts or vary contract terms in favour of private interests,” he cautioned.

On his part, a professor of Law, Dayo Ayoade, in his presentation noted that the prevention and elimination of IFFs requireed concerted efforts on the part of the Federal Government, which involved international, regional, sub-regional and national engagements.

He said due to inadequate monitoring of the extractive industry, government was incapable of preventing wrong invoicing, under-reporting and other systemic abuses.