Scrap NTLC, Privatize NNPC’s downstream assets – FOSTER

The Facility for Oil Sector Transparency (FOSTER), has called for the privatization of the Nigeria National Petroleum Corporation’s (NNPC) downstream assets and for the National Transport Logistic Company structure for the downstream to be scraped.

FOSTER a technical and support programme is designed to strengthen transparency, accountability and promote a better and more efficient governance in the Nigerian oil and gas sector, made the call at a two days round-table discussion on the Petroleum Industry Bill in Lagos on 31 January and 01 February 2012.

Senior figures from the organized private sector, civil society, trade unions, and media participated in both sessions. During each session, participants frankly discussed and agreed upon a shortlist of “must have” issues to be considered during the development of the final draft of the Bill.

FOSTER agreed that the downstream product and gas infrastructure development requires significant investment which the federal government is unable to provide on a sustainable basis.

“Recent experience in the downstream (including the privatization of Unipetrol Plc and Eleme Petrochemicals) indicates that privatization boosts efficiency and unlocks private finance for infrastructure development. The Public Enterprises (Privatisation and Commercialisation) Act of 1999 already provides for the privatization of NNPC’s downstream assets. This should be implemented in accordance with existing legislation”.

Participants agreed broadly that strong transparency and accountability provisions would improve sector management, engender industry confidence and, most importantly, send the right signals to investors.Some of the signals include Competitive, open, non‐discretionary licensing and tender processes.

They said less secrecy and discretion in these areas will encourage fewer controversies, better asset management, and higher returns on investment. Past drafts of the PIB mandated this for the upstream (HB4 270; SB5 212; IAT6 189), but not for crude oil lifting, midstream or downstream activities.

The participant supported the motion that all licenses, tenders and contracts should be published online.

“Documenting licensing and contracting online is a strong incentive to good process. Past language governing the upstream subsector should be retained (HB 270(3); SB 214(7); IAT 189(4), 189(6)”.

“Requiring the Inspectorate to provide copies of all midstream and downstream licenses through an open registry system is also a positive step (HB 301‐ 306, 340‐44; SB 301, 302, 306, 333‐38; IAT 221‐223, 258‐260). One draft called for online publication of all licenses and contracts where Nigeria National Petroleum Corporation (NNPC) is a party (IAT 174(6)), but the strongest PIB would extend this to other government bodies as well”.

They also noted that there are sound commercial reasons for Void contract confidentiality clauses for oil revenue and payment information, but keeping financial flows secret is not among them.

“One past PIB draft cancelled confidentiality clauses for upstream taxes, royalties, fees and bonuses (IAT 173). Stronger language would uphold confidentiality only for business secrets or other narrowly defined proprietary information”.

FOSTER agreed that a comprehensive list of production, export and import figures should be published on the Inspectorate website.

“Better information about Nigeria’s hydrocarbon flows could help ease waste and improve regulation. One past draft provided for this and other positive disclosures (IAT 173(9); IAT 362)”.

Participants said the inspectorate should be empowered to be a single, independent regulator for upstream, midstream and downstream.

“Past drafts of the PIB provided for the creation of multiple agencies to regulate each subsector—in the downstream, for instance, creating overlapping mandates for the Inspectorate, Directorate, and Petroleum Products Regulatory Agency”

“This would be costly, stretch limited human resources and may weaken regulatory oversight. Recent experience from regulatory reform initiatives in Nigeria (aviation, telecommunications, electricity) suggests that the key to the success of a regulatory agency is the insulation of the regulatory process from short‐term political goals through independence of the regulator and its funding, legislative confirmation of appointments and dismissals, and the limitation of ministerial powers to give only “general policy directions”.

To ensure the efficiency of the new company, FOSTER said the commercialization of NNPC must be based on international best corporate governance principles.

“The company must be wholly subject to the Companies and Allied Matters Act and should not be granted any special privileges that are not available to companies of its kind. For instance, NNPC must be required to compete for acreage”

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