President Muhammadu Buhari has replaced the head of the Nigerian National Petroleum Corporation on the day an NGO released a detailed investigation into poor management, inefficiency and corruption at the state oil company.
Buhari has appointed Emmanuel Ibe Kachikwu, executive vice-chairman of ExxonMobil Africa, to replace existing group managing director Joseph Dawha.
The move follows the release of a detailed report from the National Resources Governance Institute, a New York-based NGO, which found that oil intended for the domestic market has become “the main nexus of waste and revenue loss” from oil sales conducted by the Nigerian National Petroleum Corporation (NNPC).
Instead of being processed by Nigerian refineries for the local market, most of the 445,000 barrels per day labelled as “domestic crude” is re-routed for export or oil-for product swaps, finding its way into NNPC accounts which “officials can draw on freely”, according to the organisation.
It is estimated that the NNPC held on to some $7.9 billion by such methods in 2012 alone. Furthermore, revenues accrued by the NNPC from the domestic allocation are frequently squandered on inefficient and potentially corrupt fuel subsidy payments and failed pipeline protection schemes.
“NNPC’s explanations about where the money goes are incomplete and contradictory: past audits showed the corporation claiming hundreds of millions of dollars in duplicated or undocumented expenses,” it says.
The report has urged the government of Muhammadu Buhari to scrap the domestic allocation, which it says “creates more problems than it solves”. Buhari’s administration was elected on an anti-corruption ticket, but the NNPC has long been resistant to reform. In early 2014, central bank governor Lamido Sanusi was ousted after going public with claims that some $20bn was missing from treasury revenues as a result of NNPC mismanagement. The swift replacement of Dawha by Buhari may indicate a renewal of reform efforts.
As well as criticising the domestic allocations, the report is particularly critical of agreements under which the NNPC trades oil for petroleum products. Up to $35 billion of oil passed through such swaps between 2010 and 2014, despite unbalanced contract terms and the potential exposure to downstream rackets. The report urges the government to wind down existing agreements and cease signing new ones.
The NRGI also found a market dominated by intermediaries. The report found that five of the NNPC’s oil trading subsidiaries operate as “passive middlemen”, with commissions going largely unaccounted for, while sales are often made to unqualified firms.
“NNPC enters into term contracts with unqualified intermediaries that capture margins for themselves and create reputational risks for legitimate market players while adding little or no value to deals.”
The report calls for a series of transparency and accountability reforms to encourage oversight of the opaque company, while advocating long-term structural reform.
“Nigeria can no longer afford to leave NNPC’s dysfunctional and costly oil sales system as it is. The status quo, characterised by convoluted, under-policed deals with weak commercial justifications, has cost Nigeria revenues that it needs for its development priorities.”