PARLIAMENTARY INITIATIVES IN ENERGY LEGISLATION AND SUSTAINABLE DEVELOPMENT – THE NIGERIAN PERSPECTIVE
PAPER PRESENTED
BY
HON (DR) WALE OKEDIRAN
MEMBER, FEDERAL HOUSE OF REPRESENTATIVES
NATIONAL ASSEMBLY ABUJA , NIGERIA
Email:
AT
THE PARLIAMENTARY FORUM ON ENERGY LEGISLATION AND SUSTAINABLE DEVELOPMENT
BETWEEN
5 TH – 7 TH OCTOBER 2005
IN
CAPE TOWN , SOUTH AFRICA
PARLIAMENTARY INITIATIVES IN ENERGY LEGISLATION AND SUSTAINABLE DEVELOPMENT – THE NIGERIAN PERSPECTIVE
BY
HON (DR) WALE OKEDIRAN
MEMBER, FEDERAL HOUSE OF REPRESENTATIVES
NATIONAL ASSEMBLY
ABUJA , NIGERIA
ABSTRACT
At independence, Nigeria was ranked as a potential middle-income nation far ahead of such Asian nations as Malaysia, among others. This was possible through the country’s dependence on agriculture and solid minerals as the main sources of revenue.
However, the advent of crude oil as the major source of revenue led to the neglect of these sources of income. It also brought with it several environmental, social and economic challenges.
In order to redress these problems, the Nigerian Parliament has in the past few years put in place certain legislations and policies both for renewables and non-renewables energy sources.
BACKGROUND
At Independence in 1960, Nigeria was ranked as a political middle-income nation far ahead of such Asian nations as Malaysia, Indonesia, Singapore and Taiwan 1 This was made possible by the fact that agriculture and solid minerals formed the main sources of revenue for the country. While the Northern part of the country become a world class provider of agriculture products such as Groundnuts, Cotton, Gum Arabic, the Southern part was the leading producer of Cocoa, Palm product and Rubber among other cash crops.
However, the advent of crude oil as the major foreign exchange earner for Nigeria in the late 1960s and early 1970s led to the neglect of these important sources of income. Unfortunately, despite the huge revenue earned by Nigeria from oil, not much impact has been felt in the development of the country 2 In addition, the underlisted problems have emerged as a result of the country’s absolute dependence on oil.
PROBLEMS
1 Oil spillage
2 Environmental pollution and loss of revenue as a result of incessant gas flaring
3 Distortion in the management and distribution of oil revenue
4 Increased restiveness among the oil producing communities especially the Niger Delta Region.
5 Excessive dependence on foreign expertise and equipment to the detriment of local sources in the oil industry.
6 Excess Oil Fund
7 Lack of accountability and transparency in the oil industry
8 Neglect of the use of the more environmentally friendly and cheaper renewable forms of energy.
In order to address the above named issues, the Nigerian Parliament, relevant Non-Governmental Organisations, Civil Societies and other Stakeholders have over the years put in place the following legislations and policies to assist the Executive arm of government in the very important job of adequately managing the oil industry.
1. OIL SPILLAGE: It is estimated that over 50% of the oil community has suffered from one incident of oil spillage or another in the past three years 3. It has been estimated that as much as 9,000 bpd of oil spill was recorded in 2004. 4 Apart from the loss of revenue, incessant cases of oil spillage has long and far reaching environmental and social consequences on the nation at large and the oil producing community in particular.
In order to stem this ugly tide, the Nigerian Parliament passed in 2004, “ A Bill for an Act to provide for the Establishment of the National Oil Spill, Detection and Response Agency and to charge it with the Responsibility for Detecting and Clearing up Any oil spill in the country and for Related Matters.
The Bill sets out to among other things:
(i) Identify oil spill and administer any emerging response programme associated with oil spill and pollution control.
(ii) Collate data relating to sites of oil spills, consequences causes, measures taken to remedy such spill and effect damages.
(iii) Identify high risk areas as well as priority areas for protection and clean up.
(iv) Coordination of the plan within 200 nautical miles from baseline of the territorial waters of the country.
In addition to the above, the Nigerian Parliament recently presented for ratification two international treaties in the area of oil pollution;
1. The International Convention on Civil Liability for Oil Pollution Damage (Retrification and Enforcement)
2. The International Convention on the Establishment of an International Fund for compensation for oil pollution damage 1971
2. INCESSANT GAS FLARING: With a reserve of 159 trillion standard cubic feet, Nigeria has the 9th largest natural gas reserve in the world 5
It is established that out of its 130 trillion gas reserves, Nigeria flares 70 percent of the 1.2 trillion standard cubic feet (SCF) annually thus losing an estimated 1.5 billion dollars every year.
Apart from this colossal economic loss, the environment pollution and severe consequences on the flora and fauna of the marine ecosystem has affected the health and livelihood of the inhabitants of the oil producing community for long.
Again in order to stem this nefarious activities, the Nigerian Parliament in June 2005 enacted A Bill for an Act to Amend the Associated Gas Re-Infection Act, Cap 26, Laws of the Federation of Nigeria, 1990 to Regulate the Phasing out of Gas Flaring by 2008.
Some of the functions of the bill are :
(i) To stop companies and individuals to stop flaring natural gas on before 31st December 2008 (the former date was December 2003)
(ii) Companies to establish oil and gas reinjection schemes before 30th December 2008
The Bill also has the following penalties:-
a. Individuals: $300 for every 28.317 (SCM) gas flared or a term of 3 years imprisonment or both.
b. Corporations: $500 for every 28.317 (SCM) gas flared or term of 3 years imprisonment or both
3. ANOMALIES IN DISTRIB U TION AND MANAGEMENT OF OIL REVENUE
Nigeria as a major exporter of oil has earned a lot of revenue from the sale of oil. However, the question on the lips of the average Nigerian is what impact the foreign exchange earnings from this natural resources have had on the citizenry. In fact, one of the contentious issues is the formular for sharing the proceeds from the recent windfall occasioned by the skyrocketed increase in the price of crude in the last couple of months which has brought with it a lot of agitations especially from the populace 6.
Whereas, the 1990 Revenue Allocation Bill proposed the distribution of federal funds in this pattern
Federal Government - 48.5%
State Government - 24.0%
Local Government - 20%
Special Fund - 7.5%
Recent agitation has necessitated a review of the distribution arrangements. Consequently, a new Bill entitled Allocation of Revenue (Federation Account) Amendment Act of 2004 is presently before the parliament in order to correct any anomalies in the previous act.
Also slated for amendment is the Petroleum Products Prices Regulatory Agency (PPPRA) Act of 2002 which gave powers to the agency without any recourse to the National Assembly t to fix prices of domestic oil. In view of the recent spate of discontent from the activities of this agency, the Nigerian parliament in response to the agitations of Nigerians is set to amend this act and make the Agency refer to the Parliament before any change in the price of petroleum products is effected.
4. INCREASE D RESTIVENESS OF MEMBERS OF THE OIL PROD U CING COMMUNITIES
Many of the restive situations in the Niger-Delta and other oil communities have been blamed on what is termed “heinous environment crimes” of multinational oil companies 7
It is believed that the over 4,000 oil wells drilled in the Niger-Delta and offshore areas since 1937 has constituted a lot of environmental hardship to the inhabitants. Also important is the allegations of neglect by the people of the oil producing community 8.
The high level of restiveness in the Niger-Delta region of Nigeria, arms proliferation and the call for resource control by the people of this area shows that a lot more needs to be done to correct the injustice in management and distribution of revenue accruing from the sale of oil.
Some of the steps taken by the Nigerian Parliament is the passage of the Bill establishing the Niger-Delta Development Corporation (NDDC) which among other issues is tasked with the job of using the crude oil proceeds to develop the area. Also important is the controversial derivation formula which recently tore apart the recently concluded National Political Reform Conference which still stands at 13% 9. It is equally gratifying that the government has been publishing oil accounts as well as monthly allocation to the different states to entrench accountability. However, the Niger Delta community is agitating for 25%. It is believed that the Nigeria Parliament will settle an appropriate figure between these two sums.
5. DEPENDENCE ON FOREIGN EXPERTISE IN THE OIL INDUSTRY: there have been renewed and sustained calls for increase local utilization of local equipments facilities and manpower in the Nigerian Oil industry for long. It is believed that out of the $7 billion spent annually in the oil and gas industry less than 5 percent is domesticated. Through this practice, nearly 95% of the oil service budget is lost to foreign exchange 10.
The Nigerian Government wants to raise the level of domestic (local) content to 45% by 2006 and 70% by 2010 through the enactment of laws and sustained policy directions. In this regard, the Nigerian Parliament recently passed A Bill, for an Act to provide for the change of name of the Petroleum Technology Development Fund and the Re-designation and Re-enactment of the Petroleum Technology Development Fund Act as the Petroleum and Minerals Technological Development Fund Act.
According to the Act, the Fund shall be dedicated for the purposes of development, promotion and implementation of petroleum technology and manpower development policy through research and training of Nigerian as graduates, professionals and technicians among others.
It is hoped that with this, the operational predominance of the Nigerian oil and gas industry by foreign personnel and expertise would be reversed.
6. EXCESS OIL FUND
Extra-budgetary funds have become fashionable among oil and mineral producers in the wake of high and volatile prices Apart from assisting to insulate the government budget from sharp flunctuations of oil revenue, they also smoothen the process of public expenditures.While they receive budget surpluses in periods of high prices and revenues,they will finance shortfalls in lean years. Thus, they help avoid severe budget cuts and align actual spending to budget projections. Unfortunately, unless well managed, excess oil funds can turn out to be more of a curse than a blessing. This is more so with the temptation for government to overspend or even borrow in times of high oil prices as the access to credits is easier due to the increased value of oil reserves.
It is for this reason that a stringent fiscal discipline is imperative. Firm policy decisions are required in order to gain from the advantages of any oil fund. As the representatives of the people, the Nigerian Parliament has always been in the forefront of the battle against fiscal indiscipline. This it has done through its budgetary appropriation and oversight functions. However, in view of the absence of a substantive Minister Of Petroleum Resources for a number of years, a lot of the activities of the Nigerian Petroleum Industry has been shrouded in mystery. This development has been compounded by the absence of any audit of the books of the industry for the past six years.
For example, in the 2004 budget, The House Appropriation Committee despite all efforts could not ascertain the exact revenue from the sales of crude oil for that year. In the same vein, The House Finance Committee, could not confirm till date how much of the excess oil fund was used to pay off the 2004 budget deficits 11.
In spite of these difficulties, the Nigerian Parliament will continue to live up to its responsibilities by insisting on a sound fiscal discipline in the oil industry. Thankfully, with the recent audit exercise embarked upon by the Nigerian government especially its decision to make all procurements for Oil and gas projects open to scrutiny, the work of the parliament will hopefully be greatly enhanced.
7. ACCOUNTABILITY AND TRANSPARENCY: Non transparent practices in dealing with a nation’s wealth contain enormous risks and incur substantial costs in terms of development foregone. Measures towards institutional strengthening aimed at improving transparency could hence yield high returns. The issue of corruption in government’s finances is well established and the blame is both on the government and the multinational oil companies.
As the Chairman of The House Committee On Foreign Affairs, Dr Usman Bugaje 12 remarked in a recent paper delivered in Abuja, Nigeria, ”Although Nigeria in the last six years has realised an unprecedented revenue from oil, the nation is going through an unprecedented level of misery; in other words, more money and yet more misery. The question therefore is, where is our money going?”
It was this kind of question that gave impetus to the series of investigations recently conducted by the Nigerian Federal House Of Representatives into the Missing Ship Saga as well as the privitisation deals such as Pentascope, Alscon, Itape Iron Ore Company among others where several rip-offs and shady deals were unearthed.
Members of the Appropriation Committee of the Nigerian Parliament also 11 established the fact that the country does not know the exact revenue from the sales of crude oil while no oversight function has been carried out over the very important Federal Ministry of Petroleum Resources for the past six years.
Equally embarrassing is the failure of many of the major oil companies in the 13 country to account for Nigeria’s daily oil production of 2.4 million barrels per day.
It was as a result of the persistent calls by the Nigerian Parliament, The Civil Society and other concerned citizens that finally prompted the Federal Government to institute an audit of the activities of major oil companies such as Shell, Chevron, Exxon Mobil, total and Agip among others. As Dr Oby Ezekwesili Nigeria’s Minister of Solid Minerals recently put it, “we hope that by the end of December 2005, the independent auditors that are looking at the financial records of payments and receipts from the oil and gas companies to the Federal Government over the last five years will make their findings available for public scrutiny”