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Periscoping The Nigeria’s NEITI Act 2007

January 31, 2011

The passage of the Nigerian Extractive Industries Transparency Initiative (NEITI) Act in May 2007, sent very positive signals about Nigeria’s desire to sustain her leadership in the global initiative to the world. The Nigerian oil and gas industry, like in many resource rich countries, has been largely seen as an avenue to fuel corruption and enrich a few privileged, parasitic elite at the expense of ordinary citizens.

The passage of the Nigerian Extractive Industries Transparency Initiative (NEITI) Act in May 2007, sent very positive signals about Nigeria’s desire to sustain her leadership in the global initiative to the world. The Nigerian oil and gas industry, like in many resource rich countries, has been largely seen as an avenue to fuel corruption and enrich a few privileged, parasitic elite at the expense of ordinary citizens.

The blessings that theorists predict will befall a natural resource rich country has not managed to happen in Nigerian even after more than forty years of the flow of petrodollars. . The decision of the Nigerian government to implement wide ranging reforms and openness in payments and receipts, back in 2003, in line with the global multi-stakeholder Extractive Industries Transparency Initiative (EITI) paved a way to enthrone a more open, transparent extractive (oil, gas and mining) industry and to hold governments accountable for public revenue.  Indeed the comprehensive financial, physical and process audits conducted by NEITI on the Nigerian oil and gas sector between 1999 and 2004 clearly exceeded the global focus of EITI and have been often referred to as EITI plus plus.

The NEITI Act was conceived therefore to insulate the implementation of EITI in Nigeria against the vagaries of policy reversal and political manipulation. This legislation became the first of its kind where EITI implementation was codified in law. Some EITI implementing countries in Africa have borrowed from the Nigerian experience in crafting their respective national laws. 

 The EITI secretariat based in Oslo initiated a quality assurance mechanism known as validation to ensure that countries that are part of the initiative achieve implementation compliance in line with agreed multi-stakeholder guidelines. It is expected that the Nigerian EITI will soon achieve compliance alongside other African countries like Ghana and Liberia. While validation is an essential milestone, compliance cannot be seen to be the same as transparency or accountability. Beyond validation therefore , it is imperative  to take a diagnostic review of the NEITI Act could review objectives and suggest entry points for strengthening the  clauses which may be standing between the Nigerian EITI and effectiveness.

One major concern is the fact that the objectives of the Act may be too ambitious and open ended. For instance in section 2(c), the Act empowers NEITI to “eliminate all forms of corrupt practices in the determination, payments, receipts and postings of revenue accruing to the Federal government from extractive industry companies”. This particular clause gives a very broad range of responsibilities to NEITI. NEITI is designed as a lean bureaucracy and so will be unable to carry out these functions. Furthermore some of these functions are already being carried out by statutory government agencies such as the Federal Inland Revenue Service, Central Bank of Nigeria, Office of the Accountant General of the Federation etc.  This clause can however be modified to give NEITI a clear coordinating role and bridge builder to ensure that there is no duplication in terms of the mandate of these agencies yet NEITI will ensure that the numbers flowing add up.

The fourth objective of NEITI according to the Act in section 2(d) is “to ensure transparency and accountability by government in the application of resources from payments derived from the extractive industry companies”. Many complex issues can be deduced from this objective. The unbundling of the word government will mean federal, state and local governments. The federal constitution of Nigeria does not allow a federal government agency such as NEITI to operate beyond the federal level into the state and local government sphere. It is therefore almost in possible for NEITI to implement this objective as it is crafted by the Act. There has been a renewed call for state governments to voluntarily adopt the EITI model in the area of expenditure transparency as has been done by oil rich Bayelsa State. This will provide entry points for NEITI and work with such states in an innovative manner.

Another interesting clause is Section 3(c) which prescribes a function for NEITI to ensure transparency and accountability in the management of the investment of the Federal Government in all extractive industry companies”. Some experts have argued that this function clearly falls within the scope of the functions currently carried out by the National Petroleum Investment Management Services (NAPIMS). Under the current NAPIMS is a unit of Nigerian National Petroleum Corporation. It is believed that the functions of NAPIMS will be taken up by one of the regulatory agencies that will be established after the passage of the Petroleum Industry Bill (PIB). This clause can be modified to specify the role of NEITI to that of ensuring compliance in terms of governance and ensuring that business models are competitive. One way to fast tract this is to expedite the cost (value for money audits) that has been on the table of NEITI in the last five years.
Section 3(d) and (e) of the NEITI Act is crafted to accommodate the issue of confidentiality clauses. This is now an anachronism in the oil and gas industry especially since the passage of Dodd Frank Act. Many extractive industry companies operating in developing countries insist on partial disclosures and argue that complete disclosures may harm proprietary interests. However such confidentiality clauses no longer apply in line with industry best practice. The retention of these clauses in the NEITI Act is generally seen to make NEITI a toothless bulldog. Such confidentiality clauses should be excised in line with global industry best practice.

Another obvious weakness in the Act is contained in Section 7 which states that “a person appointed as a member of NSWG shall hold for four years and no more”. This means that there is a slim chance for transfer of knowledge. During the four year tenure, it will be expected that board members of NEITI will learn more about EITI and the oil and gas industry. This institutional knowledge will be lost as there will be no chance of reappointing any of them. This will mean that every four to five years, NEITI will witness a change in leadership with may not be in the overall benefit of a new regulatory institution. It is my view that a possible re-appointment of performing members of the NEITI board as well as relevant professionals reduces the loss of institutional memory and catalyze policy sustainability.

In section 12 subsection 1 -3, the Act outlines the qualification of the Executive Secretary of NEITI. This ought to be a very important section but sadly there is obvious lack of clarity. The qualification of the Executive Secretary of NEITI said to be “a graduate with relevant qualifications and at least ten years cognate experience”.  This could be interpreted to mean many things and could be hijacked by mischief makers to impose incompetent crones as has been the case in the past. It important for the Act to clearly qualify the sort of disciplinary affiliation and cognate experience expected of that such persons. My candid view is that an economist, accountant or engineer with ten years verifiable experience in the oil and gas industry, integrity and pedigree as well as international exposure will be best suited for a demanding position as that of the Executive Secretary of NEITI.

The sanction clause as contained in section 16 stipulates a fine of thirty million naira for any company that does not comply with the Act. For a multi-million dollar industry, this is seen by many as a slap on the wrist. Rather than leave it on a fixed amount, the law must be crafted to allow relating the office to the magnitude of sanction. Furthermore this will neutralize such things like economic inflation as years go by.

As the new National Assembly comes on stream after the elections, the review of NEITI Act 2007 and suggested amendments must be made to come on the agenda. All the reforms prescribed in the proposed Petroleum Industry Bill are anchored on compliance to the NEITI Act. This Act is therefore too important to be left loose. A concrete demonstration of seriousness with extractive industry reforms in Nigeria will be to carry on the discussions on the PIB alongside the review of the NEITI Act to ensure congruence. The multi-stakeholder process of NEITI means that civil society groups have an important to lead constructive advocacy in this direction. Our prosperity as a nation depends on it, at least for now.

Uche Igwe, is a visiting scholar at Africa Program,  Johns Hopkins University, Washington DC.