Open Contracting and Licensing in Extractives (NG0018)

• Open Contracting and Licensing in Extractives (August 1, 2020)

Brief description:
There have been commendable efforts in the extractive sector to enhance transparency and accountability. For instance, the National Oil Company, NNPC, has published monthly operational and financial statements since 2015, engaged with CSOs and citizens’ groups and openly broadcasted bid opening rounds for new licenses. NNPC has also committed and actively participated in the global processes, including the OECD and the Extractives Industries Transparency Initiative (EITI) Commodity working group, working towards bringing further transparency to commodity trading by State-Owned Enterprises globally. The Ministry of Mines and Steel launched the ‘Road Map for the Growth and Development of the Nigerian Mining Industry’ in September 2016 which identified some initiatives within the short, medium and long-term timeline which the Ministry can undertake to better position Nigeria’s mining sector.
Despite these efforts, the extractive sector still has not fully delivered on developing and improving the well-being of the vast majority of citizens. The pace of reform has been slow and there is still widespread opacity in the industry which has allowed corruption to thrive. In the case of the oil and gas sector, deepening issues of underassessment, underpayment and under-remittance/non-remittance of revenues due to government have limited what the government can deliver to improve the lives of citizens. A backlog of remedial actions, especially as identified by NEITI audit reports, to improve accountability across financial, processes and production has not been prioritized or implementation has been too slow leading to further leakage and loss in citizens’ confidence.

A first step towards achieving transparent, broad-based and effective citizens’ participation in the extractive sector is to publish contracts which are the fundamental documents that set out the terms of all investments and projects in the sector. Contract disclosure in the oil, gas and mining sector is increasingly a global norm with progress by governments, international financial institutions and the EITI making bold steps to disclose or require public disclosure. The Government of Nigeria has made several commitments to publish petroleum contracts including at the 2016 UK Anti-Corruption Summit where the President committed to working towards full implementation of the Open Contracting Standard, and the 7 Big Win’s that commits to publishing all established fiscal rules and contracts within two to four years. A growing number of companies with operations in Nigeria also have expressed support for contract disclosure, the majority of these companies have noted, however, that in their view the decision to publish contracts must be initiated and implemented by the government.

Transparency and accountability remain the basis of a sound corporate governance regime. The OECD’s position is that information disclosure and higher standards of accountability in SOEs, coupled with other governance reforms, can contribute to improved efficiency and performance of SOEs. Best practice and global standards demand that information disclosure, including both financial and non-financial data, is essential for the government, so it can be an effective owner; oversight from the National Assembly; the media to raise awareness on SOE efficiency; and taxpayers and the general public to have a comprehensive picture or SOE performance. Transparency, driven by enhanced disclosures, constitutes a major component of an SOE’s accountability to shareholders, potential investors and business partners, and an increasingly engaged civil society.

General problem:
Recent years have seen intense debates between the government, the NASS and companies around issues like fiscal obligations and environmental liabilities. Contract transparency would establish an even playing field of information and encourage better informed debates. Disclosing contracts, which to date remain shrouded, could be another way to demonstrate the new way of doing business. Contract transparency could have deterred some of the poor oil deals struck in the past, such as the lopsided oil-for-product swap deals which the current government swiftly canceled. Establishing this practice now would deter future lopsided deals, creating a strong anti-corruption legacy.

Currently NNPC does not disclose a detailed annual report that would include the audited book of accounts, its finances, the cost of its operations and significant spending on non – commercial activities. It equally does not disclose notable earnings by its subsidiaries and sales level data of the state’s share of production or other revenues collected in-kind in terms of volumes and revenues received on crude oil, gas and refined product sales.

Specific OGP issue:
This commitment will focus on civic participation and public accountability.

Rationale for the commitment:
Publishing contracts will give the general public the ability to hold public officials accountable for contracts they enter into with their private entities.

Main objective:
To promote/enhance citizens’ engagement by increasing access to information on extractive sector revenue and production.

Anticipated impact:
This commitment will improve contracts terms to be favorable.

See action plan for milestone activities.

4. Public disclosure of extractive sector contracts, licenses, permits, payment to government, and revenue stream

Main Objective

“To promote/enhance citizens’ engagement by increasing access to information on extractive sector revenue and production.”

Milestones

1. Identify and publicly disseminate mechanisms, platforms and frameworks for disclosure of contracts and putting them to use – NEITI
2. Identify, create and update a free online portal for disclosure of contracts, licenses and permits (Public Registers) of the extractive sector
3. Disclose contracts in a free online portal, accessible in both human and machine-readable formats. The portal should contain the full texts of all agreements, together with any subsequent amendments, annexes, schedules, side letters or similar documents. The following types of contracts/permits include:

• Upstream operating contracts (e.g., JVs, PSCs, service contracts, any alternative finance agreements) – NNPC;
• Sole Risk, Marginal Fields – DPR;
• Crude oil lifting term contracts – COMD, NNPC;
• Direct Sales Direct Purchase or any other commodity swap/exchange/barter transactions - NNPC;
• Other refined product imports – NNPC;
• Refined product export permit (DPR);
• Export sales of all refined products - DPR;
• Export sales of all natural gas liquids – DPR;
• Export permit for crude oil lifting – DPR;
• Licenses and leases – DPR;
• Mining contracts;
• Environmental documents e.g. EIA, CDA (mining) – Ministry of Mines;
• Review, update and upload.

4. Quarterly disclosure of actual unit production cost for crude oil, gas and refined product sales – DPR/NNPC COMD.
5. Timely public disclosure by NNPC of the annual report and audited financials

Editorial Note: For the complete text of this commitment, please see Nigeria’s action plan at https://www.opengovpartnership.org/documents/nigeria-action-plan-2019-2021/

Commitment Analysis

This commitment aims to enhance access to information on extractive sector revenue and production, including contracts, licenses, permits, and revenue streams.  It builds on Nigeria’s 2017–2019 national action plan and includes five milestones. Three activities continue from the previous action plan, including: disclosure of extractive sector contracts in a free online portal (Milestones 2 and 3) and quarterly disclosure of oil and gas data product sales by government agencies (Milestone 4). The commitment also includes two new activities (Milestones 1 and 5), which address timely public disclosure by NNPC of the annual report and audited financials along with identification and dissemination of platforms and mechanisms for disclosure of contracts by the Nigeria Extractive Industries Transparency Initiative (NEITI). The commitment provides a detailed description of contract information to be disclosed in a freely available online portal.

This commitment is relevant to the OGP value of access to information because it seeks to provide detailed information on the extractive sector, such as contracts, licenses, and oil and gas sales.

If fully implemented, this commitment could have a moderate impact on increasing the transparency of Nigeria’s extractive sector, which accounts for 15% of the national GDP and more than 90% of exports. ^[68] This commitment’s greatest expected impact is the full disclosure of contractual information on a free online portal. Previously, although a register of oil prospecting, oil mining, and marginal field licenses has been included in the Department of Petroleum Resources (DPR) oil and gas industry annual report, ^[69] contracts have not been easily accessible, available online, or up to date. ^[70] This has undermined the capacity to ensure companies’ compliance with disclosure regulations. ^[71] However, the commitment does not clarify whether disclosures will take place to the NEITI beneficial ownership portal launched in December 2019 or another portal.

According to the Natural Resource Governance Institute, if fully implemented, this commitment has the potential to significantly increase public scrutiny of petroleum contracts and licenses. Under this commitment, the timely public disclosure by NNPC of the annual report and audited financials would also represent an important development because NNPC does not currently release audited financial statements, ^[72] although it has published monthly financial and operations reports for more than three years. ^[73] The National Assembly and the Office of the Auditor General of the Federation have also pointed out that NNPC has not published complete financial information. ^[74] Public access to NNPC’s audited book of accounts, finances, cost of operations, significant spending on non-commercial activities, notable earnings by subsidiaries, and sales-level data on the state’s share of production or other revenues from crude oil, gas, and refined product sales represents an important opportunity for public oversight. However, disclosure is unlikely to be achieved without buy-in from NNPC and relevant government agencies. NEITI has indicated that it plans to prepare a framework to secure “stakeholders’ buy-in,” ^[75] but it is not clear how publication would be encouraged.

To maximize this commitment’s impact, the IRM recommends focusing high-level political support on securing NNPC and other relevant government agencies’ buy-in. Additionally, the Natural Resource Governance Institute encourages government implementers to regularly engage with CSOs on reviewing implementation progress. It adds that the next action plan could benefit from greater inclusion of state-owned enterprises and a convening role for the Ministry of Petroleum Resources within the OGP process. ^[76] Given the size of the extractive industry in the Nigerian economy, the IRM recommends putting priority on commitments for the sector’s accountability and transparency.

Commitment 4. Public disclosure of extractive sector contracts, licenses, permits, payment to government, and revenue stream

● Verifiable: Yes

● Does it have an open government lens? Yes

● Potential Impact: Moderate

● Completion: Limited

● Did it open government? No early results to report yet

This commitment aimed to increase Nigeria’s transparency in the extractives sector through the disclosure of information, such as the Nigerian National Petroleum Corporation’s (NNPC’s) contracts, licenses, permits, payment, and revenue stream. During the implementation period, NNPC published audited financial statements in 2020 and 2021 and retroactively published statements for 2018 and 2019 for the first time. [77] NNPC has continued to publish annual reports. However, CSO Publish What You Pay stated that the reports are difficult to understand and NNPC did not respond to requests to meet to clarify the content. [78] NNPC’s contracts and licenses remain unavailable to the public. As of 2022, NNCP was working on a contract transparency implementation roadmap through National Extractives Dialogue organized by the Nigerian Extractive Industry Transparency Initiative. [79] In the OGP Secretariat December 2022 consolidated report, it states that NNCP publishes licenses, contracts, and production costs. [80] However, As of February 2023, NNPC website links related to contracts and disclosures did not work. [81]

While not foreseen when this commitment was drafted, the passage of the 2021 Petroleum Industry Act (PIA) overhauled governance of natural resources in Nigeria and better empowers civil society to demand transparency. [82] PIA requires the creation of a free, online, public, up-to-date, register of leases, licenses, permits, and authorizations. [83] NNPC was fully commercialized under the Act in July 2022, to be owned by the government and regulated by the Companies and Allied Matters Act. [84] PIA provides for two new regulatory agencies: the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority. [85] After meeting with the Civil Society Legislative Council of Nigeria, NUPRC created a civil society liaison desk to facilitate communication in November 2021. [86] This commitment is assessed to have not yet achieved early open government results as it did not result in the publication of contracts, licenses, and other relevant information during the implementation period. Nigeria has committed to implement PIA under Commitment 5 in the third action plan.