NEITI: Why it needs legal backing

IT’S generally believe that natural resources wherever they are deposited belong to the citizens, therefore the general population has a right to know “the financial details of any revenue such as royalties, fees and exploration licences generated from these resources.  It is sequel to this that the Extractive Industry Transparency Initiative, (EITI) established in 2002 has taken giant steps in this direction with its list of principles and criteria upholding the view that revenues generated from natural resource wealth should contribute to the development and poverty alleviation in the country.

The EITI sets a global standard for companies to publish what they pay and for government to disclose what they receive; this is the underlying philosophy of the evolution of the Nigeria Extractive Industries Transparency Initiative (NEITI), established by the administration of former President Olusegun Obasanjo through an EITI Act in 2007.

However, and like every sector of the Nigerian life, the extractive industries is associated with high level corruption because revenue from resource extraction are often not disclosed by the governments or the companies involved; in some cases this information is considered a state secret.

Little or no wonder, Ogbonnaya Orji, the Executive Secretary of NEITI, recently disclosed that a whole lot of 77 oil companies owe the Federal Government N2.659 trillion. Addressing a press conference in Abuja, Orji said, NEITI’s findings are contained in its 2019 audit reports of the oil and gas sector. The ES said the sum owed the government could fund 46 percent of Nigeria’s 2021 budget deficit of N5.6 trillion.

Orji’s revelation was hinged on the NEITI reports based on findings in its 2019 audit reports of the oil and gas sector show that oil and gas companies in Nigeria owe the government about $6.48billion which equals about N2.659 trillion at today’s exchange rate of N410.35.

He said, data available to NEITI indicates that 77 companies (including international and Nigerian-owned oil and gas companies) owe these debts which arise from failure to remit petroleum profit tax, company income tax, education tax, value-added tax, withholding tax, royalty and concession on rentals.

The Executive Secretary further explained that this debt is at a time when the government was borrowing money to fund the provision and upgrade of infrastructure for Nigerians, uplift their standards of living, provide steady power supply and access to good roads, quality healthcare and security.

Alarmingly, a breakdown of the figures shows that a total of $143.99 million is owed as petroleum profit taxes, $1.089 billion as company income taxes and $201.69 million as education tax. Others include $18.46 million and £972,000 as value-added tax, $23.91 million and £997,000 as withholding tax, $4.357 billion as royalty oil, $292.44 million as royalty gas, while $270.187 million and $41.86 million were unremitted gas flare penalties and concession rentals respectively.

He alluded that a comparative analysis of what this huge sum can contribute to economic development shows that it could have covered the entire capital budget of the Federal Government in 2020 or even used to service the Federal Government’s debt of $2.68billion in 2020.

In 2021, Orji observed that the N2.659 trillion could fund about 46% of Nigeria’s 2021 budget deficit of N5.6 trillion, and is even higher than the entire projected oil revenue for 2021.

He however noted that he was committed to strengthening the powers and functions of the NEITI through an amendment of the NEITI Law enacted in 2007.

“The amendment is to align the law with EITI emerging issues, the new Petroleum Industry Act and ongoing reforms in the industry,” he added.

Recalled earlier this year, the Federal Government inaugurated the 15-member board of the Nigeria Extractive Industries Transparency Initiative NEITI, with a charge to them to ensure that the standard set by their predecessors was not just maintained but surpassed.

Inaugurating the board, which  also known as the National Stakeholders Working Group NSWG, Secretary to the Government of the Federation SGF, Mr Boss Mustapha said, the extractive industry is very strategic to Nigeria’s economy and hence central to the administration’s economic agenda.

The nation’s scribe noted that, transparency and accountability in the management of our national resources was equally central to the anti-corruption agenda of Nigeria; therefore, the country was irrevocably committed to the implementation of EITI in the oil, gas, and mining industries.

The government’s faith in the EITI process, he said was not just because it is key to these two key government agendas, but also because, over the years, NEITI has demonstrated a high degree of competence, integrity and commitment to the values that the country requires to achieve economic growth and development in the sector through availability of reliable information data required for national planning and reforms. It has supported phenomenal revenue growth in the sector through meticulous application of EITI principles.

The board members were charged that they must ensure that NEITI continues to preserve these virtues for the benefit of all of us present here today and for future generations.

“In order to achieve this, I must remind you that your assignment is non-partisan because NEITT itself is non-political and has maintained dignified neutrality all through almost two decades of existence.

“Let me also on behalf of Mr. President use this opportunity to renew the commitment of the Nigerian government to the EITI implementation under the provisions of the NEITI Act 2007, and international standards and best practices under the Extractive Industries Transparency Initiative principles and emerging issues such as Beneficial Ownership Disclosure, Contract Transparency, data mainstreaming, among others.

“I am aware of the giant strides and laudable achievements that NEITI has already recorded over the development of our extractive sector by previous Boards in the implementation of NEITI in Nigeria. But I trust that you will not only consolidate on these achievements, but you will also build strongly and surpass them”, Mustapha charged.

While a retired Permanent Secretary in the Office of the SGF, Olusegun Adeyemi Adekunle was named Chairman, the Executive Secretary of NEITI, members include the Executive Secretary, NEITI, Dr. Orji Ogbonnaya Orji; Group Managing Director NNPC, Mele Kyari (Representing National Oil and Gas Company); Executive Chairman, FIRS, Muhammad Mamman Nami (Extractive Industry Revenue accountability); President, Nigeria Mining & Geosciences Society, Alabo Charles (Extractive Industry Professional Union); and President, PENGASSAN, Comrade Festus Osifo, (Extractive Industries Professional Union Industries) among others.

Historically, the Nigerian government launched the Nigeria Extractive Industries Transparency Initiative (NEITI) in 2004 and was admitted as an Extractive Industries Transparency Initiative (EITI) candidate country in September 2007 following the passage of NEITI bill into law in May 2007. (Domestication of Extractive Industries Transparency Initiative, EITI, in Nigeria: 2010:77)

According to the publication, the inception of initiative, Nigeria has made significant progress in the implementation of Extractive Industries Transparency initiatives by publishing the first set of extractive industries financial, physical and process audits for the period 1999 – 2004 in 2006, and the second report covering 2005 published in August 2009; these reports were both conducted by a consortium led by the London-based Hart Group. These reports have revealed a lot of shocking issues that generated considerable interest and series of critical analysis and reviews by various interest groups in Nigeria and beyond.

Furthermore, international standards and expectations in the conduct of an audit are to ascertain the validity and reliability of information, and to also provide an assessment of a system’s internal control mechanisms. EITI has a robust yet flexible methodology that ensures a global standard is maintained in the performance of extractive industries audit throughout the different implementing countries. Audit reports lie at the heart of EITI initiative and thus need to be to produced accurately, comprehensively and should be accessible to form the basis for better informed and more participatory management of the extractive sector.

NEITI Audits: An overview

In 1999-2004 & 2005 Audits of the Nigerian Oil and Gas industry threw up a lot of issues relating to both immediate and long term viability of the industry. The issues concern the structure and governance of this vital of Nigeria’s economy. Among the issues are inadequate and power manpower; poor record keeping processes; inefficient accounting system and manual information storage systems. There were also poor interface, co-operation and information sharing between government agencies, maintenance of a single account for more than one tax type and lack of adequate and sufficient data base for the verification of records submitted by the oil and gas companies due to lack of automation of systems amongst other issues.

The 1999 – 2004 Oil and Gas sector audit threw up the following issues:

• Record of CBN were not organised in a manner to facilitate extraction of required information
• Federal Inland Revenue Service (FIRS) lacks capacity on interpretation of tax laws
• Office of the Accountant General of the Federation (OAGF) was by-passed by the flow of information in the extractive industries sector
• Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC) was not able to establish access to NNPC, hence did not have the data it needs to discharge its constitutional duty in the economy
• RMAFC’s operation was hindered by lack of capacity and under resourced
• CBN that kept records of payments did so very incompetently
• The DPR lacks capacity for assessing, filing and monitoring royalty payments
• DPR also lacks capacity to measure (metering) the exact quantity of oil produced
• The need to improve information technology and accounting systems to levels commensurate with those used by producing companies
• Apparent legal ambiguity in respect of Royalty payments.

The 2005 Oil and Gas Audit Report revealed were not different from the previous ones in terms of transparency, gaps and loopholes in the financial management of the nation’s oil and gas resource.

Black holes in NEITI: So far the audits have revealed shocking gaps between revenues paid by companies and received by government. It has also shown embarrassing ineptitude on the part of managers of the industry- all illustrating glaring situation of non-transparency in the sector. The challenge of NEITI is that there does not appear to be any real move towards eliminating those anomalies from the mode of operation of the industry. Another issue with the audits carried out so far was that none was yet to cover the period with the current group of leaders in power in Nigeria (1999-date). It could be speculated that NEITI is happy to audit and uncover malfeasance perpetuated by past regimes and not touch the pile of filth accumulated under the regimes of Obasanjo-Yar’Adua-Jonathan era (EITI: 2010: 93).

The following were some recommendations to improve the process of conduct and publications of NEITI audit reports:

• The scope NEITI audit should be expanded to cover other extractive industries activities instead of focusing on oil and gas sector alone
• The NEITI audit need to be more comprehensive by extending focus to details of payment (application of money realized from extractive activities) instead of focusing on reconciliation of receipts between extractive companies and government only
• Though NEITI audit report of 2005 released in 2009 was a great improvement on what was published in 2007, effort is still needed to improve the structure of this important report in terms of summary, explanations on reconciliation or otherwise of discrepancies discovered in the course of the audit
• The NEITI audit needs to be linked with other national and international revenue and payment date and bench-marks
• Though Nigeria is gradually closing down on timing gaps in the preparation and publication of extractive industries activities report, efforts should be intensify to ensure that these audits and conducted and published on timely basis to uphold its usefulness as a tool for decision making and corrective measure.

IZANG  a former Diplomatic, Defence  and Parliamentary Reporter writes from Jos,can be reached through:atangizang4@gmail.com