The Way Forward for Buhari

Nigerian President-elect Buhari will be inaugurated at the end of May 2015.  He has constituted a transitional task force to develop priorities for his first year in office. One of his top priorities is to diminish corruption.  One of the most significant sources of diverted revenue is the Nigerian National Petroleum Corporation (NNPC).

The NNPC is the government’s own oil and gas entity.  It receives all of the revenue from oil, gas and LNG sales, as well as oil, gas and LNG royalties. It is from these revenues that money belonging to the people of Nigeria is diverted from the rightful owner.  What is to be done?

Here are some ideas regarding oil and gas revenues.

Until 1985, all new hydrocarbon development investments in Nigeria were joint ventures  (JV).  The NNPC was a partner of the oil companies as co-investors.  In a typical exploration investment of one hundred million dollars, the NNPC contracted to invest as much as 45%, or forty-five million dollars.  Such risk sharing is typical in the oil industry. 

Because the oil exploration business is such a great devourer of money, the NNPC switched its policy in 1985 from joint ventures to production sharing agreements (PSA).  The PSA gives the NNPC a share of the revenue earned by the oil company, or a share of the crude oil that the NNPC sells on the world market.  The NNPC takes a share of the crude oil produced, and sells it on the world market. At the present time, the Government of Nigeria is suffering because of low oil prices.  President-elect Buhari will find that his government’s cash flow will be greatly reduced because of the current depressed state of the world oil market.

Here are my recommendations for President-elect Buhari:

  • Sell the NNPC’s share of all of its joint ventures. This should bring in at least 50 billion dollars, and probably closer to 100 billion dollars.  In addition to the money coming in from the sale, the NNPC will no longer be required to disgorge money for the co-financing of exploration or ongoing operations.
  • Set up a system of publishing daily reports of crude oil sold and revenue received from the sale of the crude oil.  This act of transparency will make it difficult, if not impossible, for the NNPC to “leak” revenue from crude oil sales.
  • Set up an equivalent of the US “Government Accountability Office”  (GAO).  This is an independent agency that audits all government accounts at the Federal level.  The Nigerian Government should set up such an agency that would cover both Federal accounts and state government accounts.  The latter is particularly important because Nigerian state governors have, for the most part, not been held accountable for their management of state revenues, most of which come from their shares of Federal oil revenues.
  • Do whatever is necessary to stop the illegal practice of “bunkering”---the tapping into crude oil gathering pipelines onshore and the removal of as much as 100,000 barrels per day for sale to rogue tankers lingering offshore at the mouth of the various bayous flowing out of the Niger delta. There are many high-powered vested interests that will fight to keep this illegal practice.

All of the above recommendations could be implemented within the first six months, resulting in the release of significant funds to help reform the military and policy, as well as to contribute to the augmenting of electric power generation and transmission.