Ways of Ensuring Disclosure In Nigerian Petroleum Contracts, By Anne Chinweze & Rob Pitman
An immediate way to make contract disclosure mandatory would be via a provision in the Petroleum Industry Administration bill. It is encouraging that a draft produced in April 2018 already included such a provision. An alternative route would be via a ministerial directive.
Petroleum contracts in Nigeria are fundamental documents that set out the legal framework for oil and gas projects. A new report from Natural Resources Governance Institute (NRGI) specifies why these contracts should be disclosed, what type of documents should be released, and how the government can make it happen.
Why Should the Government of Nigeria Publish Petroleum Contracts?
Because they said they would. Since 2015, the government of Nigeria has made several public commitments to publishing petroleum contracts. These include a 2015 public statement by the minister of state for Petroleum Resources; a commitment at the 2016 U.K. Anti-Corruption Summit; a 2016 commitment in 7 Big Wins; the Federal Ministry of Petroleum Resources’ short- and medium-term strategy; and a commitment as part of the 2017 Open Government Partnership National Action Plan.
Because contract transparency would bring important benefits. Petroleum contracts contain a huge amount of important information that citizens, as co-owners of these resources, have a right to know. These include: Fiscal terms, such as taxes, royalties and production shares, which can have an enormous impact on public finances; operational and production commitments, which can influence investment and government revenues; environmental commitments that may have national and local significance; and social obligations, including infrastructure, local content and consultation requirements.
Where contracts have been obtained or made it into the public realm, independent analysis has helped identify problematic contractual provisions and led to much-needed reform. For example, NRGI analysis of a type of oil-for-product-swap agreement known as an offshore processing agreement (OPA) revealed that the OPAs contained terms that inappropriately favoured certain companies. Nigeria might have lost an estimated $381 million (USD) in a single year from two of these contracts, due to just three inappropriate provisions. This stirred a national discussion in the media, and, after the change in government, the Nigerian National Petroleum COrporation (NNPC) canceled the OPAs in August 2015.
Because current arguments against contract transparency are myths and not facts. Our analysis of Nigerian contracts shows that standard confidentiality clauses in Nigerian contracts do not present barriers to publication if the Nigerian government wants to make contract disclosure a requirement. Furthermore, while it was once common practice to keep contracts secret, times are changing. Over 40 countries have now disclosed extractive industry contracts, and 22 have laws requiring disclosure.
The private sector is also coming on board. A recent survey of 40 major petroleum and mining companies showed that 18 have made public statements supporting some form of contract transparency. This includes Total, Statoil, BP and Shell who all have significant operations in Nigeria. Other major oil companies working in Nigeria have allowed their contracts to be disclosed in other countries, including Chevron (Liberia), ENI (Mozambique), and ExxonMobil (São Tomé and Príncipe).
What Documents Should Be Disclosed?
Upstream. There are five different types of contractual arrangements under which companies carry out exploration and production operations in over 160 license areas: Joint Operating Agreements, Production Sharing Contracts, Service Contracts, Sole Risk Contracts and Marginal Field Agreements. For each of these, the government should release the main contract document, any annexes, amendments as they are made and other associated documents, including environmental and social documents.
Downstream. While there is a wide range of midstream and downstream issues for which there are important contractual relationships, our analysis focuses on trading contracts. In this area, government should disclose crude oil term contracts, spot sales contracts, inter-company contracts, direct sale of crude oil and direct purchase of refined products agreements and contracts for domestic and export sales of natural gas feedstock, natural gas liquids and refined products. Other areas where important contractual relationships may require increased transparency include but are not limited to refining, sale of products and petroleum imports.
How Can the Government Make Contract Transparency a Reality?
Define the scope of disclosure. Full text disclosure represents the strongest path to realising the benefits of public contracts. Contracts usually have several interlinked clauses and subclauses.
Establish a contract disclosure rule. An immediate way to make contract disclosure mandatory would be via a provision in the Petroleum Industry Administration bill. It is encouraging that a draft produced in April 2018 already included such a provision. An alternative route would be via a ministerial directive. Such a directive could easily be made by the Federal Ministry of Petroleum Resources and would allow it to quickly meet its commitments, including those in the 7 Big Wins, the Open Government Partnership and elsewhere.
Make contracts accessible. The government should set up a contract web portal that will allow users to browse contracts by company, by project and also by geography. Good examples of these kinds of portals have been developed by a range of countries including Mexico, Philippines and Ghana.
Support contract use. Nigeria’s efforts should not end with the disclosure of contracts and licenses. For the government, companies and citizens to benefit from contract disclosure, the Nigeria government should support initiatives to encourage the use of contracts.