Nigeria: 2017 Resource Governance Index (Oil and Gas), By Natural Resource Governance Institute

Governance challenges are present throughout the extractive decision chain. Value is lost particularly in licensing and in the Nigerian National Petroleum Corporation’s (NNPC) sales of government oil, as well as when revenues from oil and gas are shared and saved.

Nigeria scores 42 of 100 points and ranks 55th among 89 assessments in the 2017 Resource Governance Index (RGI). It has the largest oil and gas reserves in sub-Saharan Africa with an estimated 37 billion barrels of oil and 188 trillion cubic feet of gas. Nigeria is one of the world’s most resource-dependent countries — oil and gas contributed the majority of government revenues and constituted 90 percent of Nigeria’s exports in 2015. Nigeria also has the largest population on the African continent, so the oil and gas sector’s governance issues impact the wellbeing of a large number of people. Governance challenges are present throughout the extractive decision chain. Value is lost particularly in licensing and in the Nigerian National Petroleum Corporation’s (NNPC) sales of government oil, as well as when revenues from oil and gas are shared and saved. Furthermore, a history of scandals involving top officials and the NNPC has plagued the sector and drawn public attention to corruption and asset recovery. Given NNPC’s central role in all stages of the decision chain, improving governance of the state-owned enterprise (SOE) is crucial.

INDEX RESULTS SUMMARY

Improving transparency could help mitigate Nigeria’s failures in licensing

Licensing is the weakest link in Nigeria’s value realisation component, with a score of 17 of 100, placing it 77th among 89 country licensing assessments. This score and ranking reflect high levels of opacity in key areas of decision-making, including qualification of companies, process rules and disclosure of terms.

The Nigerian government does not regularly publicly disclose government officials’ financial interests in the extractive sector or the identities of beneficial owners of extractive companies, though it has made some early commitments to do so with the Extractive Industries Transparency Initiative (EITI) and the Open Government Partnership (OGP). The government has committed to disclosing all oil, gas and mining contracts in its “seven big wins” policy strategy and as part of its OGP action plan, but thus far, it has not disclosed contracts.

Nigeria’s Excess Crude Account (ECA) is the most poorly governed sovereign wealth fund assessed by the index, ranking last alongside the Qatari Investment Authority. The government discloses almost none of the rules or practices governing deposits, withdrawals or investments of the ECA.

Despite some progress in transparency of revenue collection over the past five years, tracking payments from oil and gas companies remains challenging. According to Nigeria’s 2014 EITI data, just over half of public revenues from oil and gas were distributed to the federal government and the rest were shared between the state and local governments. In terms of revenue sharing, Nigeria ranks 11th, alongside the United States (Gulf of Mexico) and Ecuador. The public lacks access to audited information on revenue flows to lower levels of government, and this contributes to the gap between the quality of the legal framework and actual implementation.

STATE-OWNED ENTERPRISE GOVERNANCE

Despite some improvements in transparency, NNPC’s performance and accountability challenges persist

NNPC, the largest SOE on the continent, achieves a poor governance score of 44 of 100. The corporation mainly scores well on indicators that measure elements of transparency required by EITI reporting, such as transfers to government and production volume disclosure. NNPC has recently strengthened some of its reporting practices, particularly for high-level financial data. However, the company does not disclose detailed annual reports on its finances, despite top officials having made a commitment to do so. Little information is publicly available, particularly concerning some of NNPC’s least efficient and most questionable activities, notably earnings by its subsidiaries, the costs of its operations and its significant spending on non-commercial activities. Government agencies and external auditors have disputed NNPC’s interpretation of rules set in the constitution and the NNPC Act governing monetary transfers between NNPC and the government. Officials exercise significant discretion around how NNPC sells the government’s share of oil production—for example, when selecting buyers, pricing exports or transferring sales proceeds to the government.

SOVEREIGN WEALTH FUND GOVERNANCE

Nigeria performs poorly in oversight of key revenue collection, sharing and savings practices

Nigeria’s Excess Crude Account (ECA) is the most poorly governed sovereign wealth fund assessed by the index, ranking last alongside the Qatari Investment Authority. The government discloses almost none of the rules or practices governing deposits, withdrawals or investments of the ECA. Nigeria also has other natural resource funds, some of which are more transparent than the ECA. As the largest fund by asset balance, the ECA constitutes a vast governance concern at the end of the oil sector value chain.

What is the RGI?

The 2017 RGI assesses how 81 resource-rich countries govern their oil, gas and mineral wealth. The index composite score is made up of three components. Two measure key characteristics of the extractives sector – value realisation and revenue management – and a third captures the broader context of governance — the enabling environment. These three overarching dimensions of governance consist of 14 subcomponents, which comprise 51 indicators, which are calculated by aggregating 133 questions.

Independent researchers, overseen by NRGI, in each of the 81 countries completed a questionnaire to gather primary data on value realisation and revenue management. For the third component, the RGI draws on external data from over 20 international organisations. The assessment covers the period 2015 to 2016. For more information on the index and how it was constructed, review the RGI Methodology.

The Natural Resource Governance Institute, an independent, non-profit organisation, helps people to realise the benefits of their countries’ oil, gas and mineral wealth through applied research, and innovative approaches to capacity development, technical advice and advocacy.