The above listed anomalies, unfortunately, cannot be addressed by a simple audit of cash calls. This will lead us nowhere as the NEITI audits have already revealed. What is required is a full blown Value for Money Audit that analyzes out-turn project costs and comparing them with similar projects in Nigeria and elsewhere (Internal and External cost benchmarking) with the following key elements:-
a) Reconciling cash-calls paid and received
b) Verifying accounting records to ascertain accuracy and objectivity
c) Analyzing in depth the processes by which capital projects, contracts and procurements are managed and controlled
d) Analyzing, validating and comparing the operating costs between operators
e) Comparing operating costs in Nigeria against costs internationally.
The NEITI of which I am a member of the National Stakeholder Working Group (NSWG) was set up to deal with issues like have been discussed so far as they relate to the extractive industry particularly the oil and gas industry where they have been mandated to inject transparency and accountability into a sector that has been hitherto been most opaque.
The NEITI Act in section 3(a) empowers the NEITI to evaluate without prejudice to any relevant contractual obligations and sovereign obligations the practices of all extractive industry companies and government respectively, regarding acquisition of acreages, budgeting, contracting, material procurement and production cost profile in order to ensure due process, transparency and accountability. In living up to this powers, the NEITI advertised on their website a value for money audit in 2007 which with the following broad terms of reference "The Value-for-Money Audit (VFM Audit) will audit the terms, procedures, and practices associated with joint ventures and production sharing contracts between Nigeria and commercial oil companies. The objective of this audit is to ensure that: i) The financial accounting pertaining to such JVs and PSCs fairly represents the actual and reasonable costs incurred in exploring, extracting, and transporting oil, among other such aspects of oil production in Nigeria; and
ii)Such costs associated with oil production in Nigeria are reasonably consistent with the costs associated with comparable operations, domestically and internationally, along with substantiated analysis explaining material deviations arising from evaluation against such comparables."
As it turned out even though tenders were received and analysed for this laudable audit, the NEITI did not go ahead with this all important value for money audit. The absence of transparency in oil and gas, and doubts about the cost efficiency and effectiveness which a value-for-money audit and a benchmarking exercise, would have at the least given a detailed and informed view to address, still persist and are getting worse as the frustration gleaned in the governors statement clearly shows.
True that the Petroleum Industry Bill (PIB) and the Local Content Bill will address some of the problems but it is going to take a long time for the structures set out in these new Bills to take root and begin to address real problems. Again these Bills when enacted into law will create their own problems which if we are not careful, will only pile into the existing problems which we have refused to even study, understand and to begin to positively address.
One is tempted to say that there is inertia and an attempt to deal with the problems of the oil and gas industry from a position of ignorance which of course is always a recipe for disaster. My position on this is informed by Government's attitude and intentions to solve the oil industry very fundamental problems without wanting to carry out studies that will enable informed judgement, decisions and objective solutions to be proffered and affected thus:
a) NEITI audits that have been hailed as opening up the industry and enhancing transparency and accountability in this very vital sector have stalled on the completion of the 2005 audit. The years 2006 to 2009 are now in arrears and the longer the audit is delayed the more difficult it is to obtain the relevant documents for a successful audit. Besides the lessons learnt will no longer be useful as the report becomes stale by the time it is released.
b) The Government wants to deregulate the downstream sector without first stepping back to carry out a study to document the problems, understand what is responsible for the inefficiency in the sector before taking the right decision to inject competition, efficiency and effectiveness into the sector. Governments' position that they will carry out this study after deregulation seems to me like putting the cart before the horse in which case progress cannot be made.
c) The Petroleum Industry Bill (PIB) which is meant to address the problems with the upstream sector is too wide and sweeping that it will take almost ten years to fully implement the Act when passed. The Bill is the result of the OGIC work. A value for money audit, as discussed above would have supplemented the work of the OGIC, generate useful information on how to attain cost efficiency in the sector whatever the Joint Venture structure is eventually applied (whether Incorporated or Unincorporated). Again, we are putting the cart before the horse and the result is motion without movement.
Decisions reached and actions taken in "a fire brigade" approach cannot be optimal and will not solve deep rooted problems satisfactorily. Well, one could argue that the problem of jumping before we think is peculiar to the oil and gas industry because decisions relating thereto are bound to be "oily" given the importance of the sector to our national budget and well being. But alas, the situation is now becoming a national disease. Just take a look at the power sector, the deplorable state of our road network or the depressing state of our education. We are in deep trouble whatever the sector we look at because we are afraid either to find out facts or we do not want to act from a position of the strength of knowledge.
This is why it is possible for importers of petroleum products to encourage and support a deregulated environment that they know will further entrench their authority to rip off the consumer and guarantee them continued corrupt income; that is why our refineries will never work so that importers can be guaranteed business; that is why the upstream companies will continue to oppose the PIB because it is the first bold attempt to give the oil and gas resource to Nigerians who truly own it.
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All in all, it is our considered opinion that the Governors' call for a cash call audit is appropriate. Such an audit should not just be limited to a confirmation of what cash call has been paid and what cash call has been received. It should go deeper than that to include a full blown value for money audit which should also include cost benchmarking both amongst the companies domestically but also internationally. Unwillingness to carry out detailed study into the challenges that we face, whatever the sector concerned is like jumping blind folded. We should be bold to move away from that attitude and approach. Modern progressive and successful governments do not solve problems in that manner.
Concluded.
Esele, a former President of PENGASSAN, is head of TUC
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