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Daily Independent (Nigeria): Transparency And The Oil Dilemma

At a fundamental level, however, oil stands for the paradox of Nigeria's underdevelopment; the frustrating riddle of how, given our immense human, natural and material resources, our people are at the bottom of all the major indices used in measuring the quality and quantity of human development. Thus while we are one of the largest crude oil producers in the world, earning over US$350 billion between 1960 and 2000, we are a giant among the 15 poorest nations on earth. In the collusion with the Nigerian state over the design and execution of the garrisoning agenda in the Niger Delta, Shell Development Petroleum Company (SPDC) has acquired particular notoriety By Festus Iyayi
Today, Nigeria is better known not as an industrial nation, a nuclear nation, the policeman of the world or some other such name but as an oil nation. The impact and consequences of oil upon our life and psyche has been so great that it has become a metaphor that largely defines what, who and where we are. Oil has become emblematic of the series of contradictions, problems and even frustrations that we encounter in all areas of our life. At the simplest, and even for some, metaphysical level, oil today can be taken as a problematic in which, an otherwise good fortune has turned into a curse. The popular imagination is rife, for example, with the idea that life perhaps would have been better, that each one of us would have become a better man, woman or child if we had not encountered the good misfortune of having vast deposits of gas and light sweet crude on our soil.
At a fundamental level, however, oil stands for the paradox of Nigeria's underdevelopment; the frustrating riddle of how, given our immense human, natural and material resources, our people are at the bottom of all the major indices used in measuring the quality and quantity of human development. Thus while we are one of the largest crude oil producers in the world, earning over US$350 billion between 1960 and 2000, we are a giant among the 15 poorest nations on earth. Our men and women can only expect to live for an average of 48 years and over 70 million of our people live on less than US$1.00 or N140 a day. The paradox of underdevelopment against the background of huge oil earnings over the period is also reflected in other areas of our life. One of these is the debtor status of the country. The question is how a nation with so much earning in the form of oil revenues could have become not just a debtor nation but one whose debts began from borrowing from the oil revenues of others Hertz (2004:63).
For me, the oil dilemma therefore resides in this contradiction between possibility, (not potential) and reality. It speaks to the fact that with the possibility of being the much touted giant that we claim we are, we have produced little more than ashes. The relationship between a transparency initiative and this dilemma is that the problem of transparency lies at the core of the dilemma. For example, former US Ambassador to Nigeria, Lyman (2002) has observed that, “Nigeria reels from one of the worst economic declines in the world … corruption has robbed the country blind”. Over the past five years, Transparency International has also consistently ranked Nigeria between the first and fifth most corrupt country in the world.
One fact that has emerged in many Third World countries is that there appears to be a strong relationship between the extraction of valuable minerals in these countries and the problems of corruption, the failure of development, poverty, political instability and crises. In the case of Africa, countries such as Liberia, Sierra Leone, Zaire, South Africa and Nigeria offer strong supporting evidence for this hypothesis. The import of the hypothesis is not to suggest that crises would not have occurred in these countries for some other reasons. It is that the presence and the manner of extraction of valuable minerals not only offer more fertile grounds for conflicts and tensions between various interests but lead also to various economic, political and social crossroads.
Against this background, it is of particular significance what measures are taken to increase transparency in oil extractive activities. Measures that increase transparency in the activities and relationships involved in oil extractive activities will tend to create a greater sense of justice and fair play between the parties involved, reduce the potential for tensions and conflicts, reduce the potential for damaging resource leakages and push the envelope of development at the individual and aggregate levels. For these reasons, the Nigerian Extractive Industries Transparency Initiative (NEITI) is apparently and ought to be a significantly welcome initiative. I say 'apparently and ought to be a significantly welcome initiative' because, it is not simply the fact that there is a transparency initiative on the ground in extractive industries that is important; of greater significance is how effectively such an initiative inserts itself into the process of weakening the foundations that support and drive the oil dilemma as we have presented it. For this to happen, I believe that three conditions must be met. First, such an initiative must be based on a conception of transparency that captures the costs of the various distribution conflicts involved in oil extraction. Secondly, the conception of transparency must be grounded in an understanding of the factors and conditions that drive the lack of transparency or its near obverse, corruption at the larger societal level. Thirdly, and deriving from the second requirement, such a transparency initiative in the economy would need to be complemented by a similar initiative in the polity. I want to suggest that in the case of a transparency initiative in oil exploitation activities, meeting these conditions is of crucial significance. Before dealing with each of these issues, there is an observation that must be made. This observation relates to the origins and hence interests that underlie the transparency initiative in oil extraction.

Underlying Interests

The analyses of interests that underlie human action are significant for a number of reasons. One of these is that they enable us understand the ends that particular actions may serve. Secondly, being aware of the interests that underlie action also enables us to respond adequately to the masking of those interests in practical action. An understanding of these interests suggests, for example, that contrary to existing claims, NEITI is not a Nigerian initiative. Let me indicate immediately that the fact that an initiative is not indigenous to a country is not necessarily a bad thing. Various areas of social, economic and scientific life provide hundreds of examples of how borrowings from other contexts added value in the local context. In these instances, however, the local context defined their borrowings in relation to the pragmatic concerns of the contexts involved. The danger in our own case is that not being a Nigerian initiative, nor one in which the nation exercised choice in relation to the pragmatic needs of Nigerian society, the NEITI may find itself answering to a very different set of interests; interests that are disconnected from the real needs of our society.
To illustrate this point, it is necessary to go to the framework of the international interests of capital within which energy questions are encountered and answered. This framework reveals that while the Nigerian government would like to pride itself as being the first Third World government to sign up for the Extractive Industries Transparency Initiative (EITI), the US government had already decided in line with its energy interests that Nigeria must become involved in that initiative. Testifying before the US Senate Foreign Relations Committee Sub-Committee on International Economic Policy, Export and Trade Promotion on July, 15, 2004, Paul Simmons, the US Deputy Assistant Secretary for Energy revealed that Nigeria was one of the first four pilot Third World countries selected by the G8 countries to sign up for the initiative. The other countries were Peru, Nicaragua and Georgia. According to Paul Simmons, the inclusion of Nigeria among the first four pilot countries was occasioned by the fact that:
“US energy policy seeks to encourage in countries around the world like-minded free market policies toward energy and investment, emphasising the expansion and diversification of energy supplies. A key component of our effort to diversify energy supplies is to support greater stability and security among existing supplies. West African energy suppliers have traditionally been quite reliable resources for the world market. Recent trends, however, have threatened the international reputation of some West African countries as reliable suppliers. When one-third of Nigeria’s oil production was shut in March and April because of violence in the Niger Delta, oil markets were faced with an additional, unanticipated supply disruption in the wake of Venezuela oil strike and activities in Iraq. In response to these concerns, we have increased ongoing efforts to foster transparent, accountable governance in the political and economic systems of the region.”
Indeed Paul Simmons grounded his testimony in the previous positions of other high ranking US state officials, such as Larson and McManus, who had admitted that the US approaches “international energy policy recognising that imports supply roughly half of our (US) energy needs. Some of our trading partners are even more dependent on oil imports. The reality is that a disruption (in oil supplies) anywhere affects all market participants”. (ERAction, 2004:19). This reality of dependence on oil had become evident after the Middle East oil crisis in 1974 but it was only in 2001 in a largely unipolar world that the US government began to put together the framework for a new policy that would address that reality. The result in 2003 was the transparency compacts announced by the G8 countries in Evan, France for four Third World countries rich in oil and gas deposits. While the compacts stated their goal as that of 'fighting' corruption and improving transparency', the EITI subset of the compacts limited itself to the extractive, particularly, the oil industry. The US, for example, provided the initial financial and technical support for installing the programme in Nigeria as elsewhere.
These facts indicate that, from the point of view of Western governments, the primary motive for the EIT Initiative is to guarantee the security and stability of the nation states involved in oil supplies to the US and other advanced neo-liberal economies. In this regard, transparency simply comes to function as the outer layer of an onion of interests whose inner core or strategic objective is guaranteeing security and stability in oil supplies. Furthermore, the problem with guaranteeing security and stability in oil supplies is that in the Nigerian case, the measures adopted go beyond transparency and good governance to produce avoidable costs that then have to be captured in any adequate form of transparency accounting. Having made this observation, let us now look at the specific way in which the NEITI understands transparency in extractive industries.
The Current Understanding Of Transparency In Extractive Industries: An Evaluation
The current understanding of transparency under the NEITI is nowhere better stated than in the NEITI Bill pending before the National Assembly. According to the pending NEITI Bill, the pursuit of transparency in extractive industries has, or should have, three primary objectives:
(a) to ensure due process and transparency in the payments made by extractive industry companies to the Federal Government and its agencies;
(b) to ensure accountability in the revenue receipts of the Federal Government from extractive industry companies; and
(c) to eliminate all forms of corrupt practices in the determination, payments, receipts and posting of revenue accruing to the Federal Government from extractive industry companies
As can be seen, transparency in extractive industries is understood as a form of financial accounting that translates into maximum revenues for the Federal Government. This point was in fact eloquently made in an address by the current Minister of Solid Minerals, then a Senior Special Assistant to the President, at the First Nigeria Extractive Industries Transparency Initiative (NEITI) National Conference. At that conference, the minister declared that 'the introduction of the NEITI is generally seen as a natural complement to the Due Process procurement reform agenda of the Federal Government as both initiatives respectively respond to the two sides of the Federal Budget – the revenue and the expenditure sides. Under the NEITI, transparency thus means 'that both the government and the governed, that is, the people have adequate information on the financial activities (of extractive industries) of the nation.' It includes 'knowing and having full access on a sustainable basis on what government earns (from extractive industries), how it earns it, from whom, where and what it earns, how it spends, on what, how and where it spends' (Ezekwesili, 2005: 2-3).
Efforts to give teeth to NEITI through the work of the NEITI's National Stakeholders' Working Group (NSWG) have shown conclusively that transparency in petroleum extraction means ensuring full disclosure of all receipts and payments to the Federal Government and the public by the companies involved in oil extraction activities. In a Press Release posted on NEITI's website, the NEITI's National Stakeholders' Working Group (NSWG) in announcing its decision to commission a UK-based company, Hart Group to conduct an audit of the oil sector states as follows:
“The programme approved by the NSWG is the most comprehensive energy sector transparency audit ever conducted. The Financial Audit will provide an independent audit, in accordance with international auditing standards, of all payments made to the Federal Government of Nigeria (FGN), and all revenues earned, from the oil sector and gas sector for the past five years and assess whether those payments were recorded in the Central Bank. The report will identify any discrepancies encountered and make public the reports of its findings. A Process Audit will be undertaken for the purpose of examining the most critical management systems, processes and practices in the sector, such as the way Nigeria markets its crude oil, purchases refined products, oversees and participates in the capital and operating expenditures of the joint ventures and how it allocated acreage and manages licensing. A Physical Audit will examine how the FGN monitors the production of oil from the wellhead to flow stations to fiscalisation, and test the integrity of the measuring and monitoring systems. The Physical Audit will also look at the problems of crude theft and illegal bunkering and assess the major systemic weaknesses that permit these losses and propose ways to remedy these losses”.
Based upon its stated objectives in the proposed NEITI, the statements of state officials and the current work of the NSWG, it is clear that NEITI focuses upon:
• payments made to the federal government
• all revenues earned from the energy sector
• recordings of payment of revenues at the Central Bank
• the most critical management systems, processes and practices as they relate to marketing of crude oil; purchasing of refined products, overseeing and participating in the capital and operating expenditures of the joint ventures, allocation of acreage and management of licencing
• how the Federal Government monitors the production of oil from the wellhead to flow stations to fiscalisation
• the integrity of the measuring and monitoring systems
• crude oil thefts and illegal bunkering
• the major systemic weaknesses that permit losses and how the weaknesses can be reduced
Following this understanding of transparency under the NEITI a number of initial results have been attained. For example, the Nigerian state has been able to generate evidence of unreported earnings and therefore some level of inconsistencies and gaps in the reported accounts of a number of companies. Many transnational oil companies, including NNPC, now find that they have to put in more effort to provide data on their transactions that meet the concerns of the NEITI. It has also been shown that there are discrepancies between the reports of payments made by the oil companies and those reported by the Central Bank of Nigeria. Thus whereas the Central Bank of Nigeria reported the petroleum profits paid by the oil companies at US$9,349 billion for 2003 and 2004, the oil companies recorded a total payment of US$8,925 billion for the two years. As a result of this, the NEITI may already have enabled the Nigerian state to reduce inconsistencies in financial reports of earnings, increase its earnings from oil, reduce fraud and increase the potential for more responsible accounting behaviour on the part of global oil companies, the NNPC and the Central Bank of Nigeria. There is also no doubt that more facts may emerge when the Hart consortium completes its work and that these facts will translate into more earnings for the Federal Government.
An important question needs, however, to be asked at this stage. This question is, to what extent does the NEITI understanding and operationalisation of transparency answer to the true range of costs that need to be counted in oil extractive activities in Nigeria? Put another way, the question is should transparency in oil exploitation activities function as a form of accounting that only interrogates the revenue and expenditure claims of oil companies in order to make these less opaque to the government, the oil companies and the public? In answering these questions, it is important to recognise that distribution and hence transparency conflicts in oil exploitation activities involve the Federal Government, the global oil companies and the Niger Delta communities where oil and gas deposits are located and exploited. While the Federal Government expects payments in the form of profits, royalties, taxes, penalties for certain forms of rule violations and direct sale of products, the oil companies expect payments in the form of profits and contributions from joint venture arrangements, among others. The host communities on the other hand expect payments in the form of compensation for acquisition of land and destruction of economic trees and crops, other forms of ecological damage, employment opportunities, development projects, development of infrastructure and payments from the oil revenue funds of the Federal Government.
Following the current version of transparency in oil extractive activities, it is clear that while it answers to the concerns of the Federal government and the oil companies, it is entirely silent on the claims of the host communities. I want to suggest that a transparency initiative in Nigeria's oil industry that speaks the language of accounting in favour of the interests of multinational oil companies and the Federal government while ignoring the interests and claims of the host communities in the Niger Delta may boost government revenue and company profits but it would be an unstable form of transparency. It would also easily become susceptible to the charge that it was in fact designed to guarantee the stability and security of oil supplies for interests that are disconnected from the real needs of the Nigerian people.
These observations suggest that while an initiative that speaks to the need for transparency in Nigeria's oil industry may speak the language of accounting, it has to accommodate the human and environmental accounting concerns of members of host communities in Nigeria's Niger Delta region. In effect, a credible transparency initiative in oil extractive activities must accommodate the concerns for justice in the social relations formed between the interests involved in oil extractive activities. These concerns are several and we have referred to some of them but three of such concerns stand out. The first is that a transparency initiative in oil must count and account for the human cost of oil extraction activities. Secondly, it must accommodate the concerns over environmental justice and environmental rights in oil extractive activities.
Thirdly, it must rethink the regime of laws and regulations that are applied in oil extraction. Let me briefly elaborate on each of these concerns.

Counting And Accounting For The Human Cost Of Oil Extraction Activities

Counting and accounting for the human costs involved in oil exploitation is of fundamental importance not only because, particularly on the side of host communities it is usually a significant but hidden cost of oil extraction, but also it is a consequence and cause of the transparency problems in oil extraction. It has been widely documented and it is now accepted that oil extraction activities in Nigeria occur within a framework that routinely involves killings, gross violations of human rights, disease, hostage taking, and various other forms of violent conflicts. Fleshman (2000:180, 186, 189-190) has noted for example that: “For decades, U.S. and European oil companies have operated behind the bayonets of successive Nigerian military regimes. Over time, the companies have become the effective local governments in the areas in which they operate. The companies have often corrupted and de-legitimised traditional rulers, operate free of environmental or industrial regulation and wield de facto operational control of local military and police forces, engaging directly and indirectly in gross human rights abuses, and despoiling the fragile Delta Niger ecosystem.… Leaked (Shell) company and Nigerian government documents have subsequently revealed that Shell closely monitored Saro-Wiwa's foreign travels and collaborated with the Babangida and Abacha regimes to crush MOSOP's structures on the ground… Chevron avoided virtually any mention of its presence in the Niger Delta… All that changed with the revelation that Chevron had flown Nigerian naval personnel and Mobile Police platform in May 1998 to remove unarmed Ilaje youths occupying the facility in a dispute over compensation and employment. Two young men were shot dead and a third was wounded. Others were arrested and tortured… A few months later, Chevron provided helicopters and boats to the Nigerian military for use in attacks on Ijaw supporters of the Kaiama Declaration…'
In his book titled ••••The OMPADEC Dream••••• Horsfall (2000:39), former head of the National Security Organisation (NSO) and first CEO of OMPADEC gives an account of the background to the creation of the OMPADEC that reveals the character of the garrisoning agenda. This is what he says:
“Different persons – politicians, ex-governors, violent protesters, environmental groups, traditional rulers and various other individuals or groups have claimed at different times for having made the decisive contribution which forced President Babangida to finally create a special commission to develop the oil producing communities of the Niger Delta. I guess every one has the right and freedom to claim as he wishes. Babangida, alone, in the end, knows what finally motivated him to create OMPADEC. My own `fight, came through an accidental encounter with a top white official of one of the leading exploration companies. After he had attended a top-level meeting at which the option to garrison the oil exploration areas and use force to dispel violent attacks on oil installations was agreed, the official paid a courtesy call on me. During our discussion, he exposed diagrams and other details on the issue of garrisoning. I 'ceased' these from him. With them I had audience with the President and during the discussion that followed, I expressed my grave fears about the security and other consequences that would attend such action. The President was probably convinced, discussed the alternative of a development commission with me and instructed me to make jottings on the matter for him which was passed to the then Attorney General of the Federation, Sir Clement Akpamgbo (SAN). The OMPADEC decree seems to have developed from these jottings submitted to the Attorney General”. (emphasis, ours)
In essence, Horsfall's revelations are not only instructive, they are alarming. They indicate that the Nigerian state not only sees garrisoning of the Niger Delta as a legitimate means for conducting oil exploitation activities but also the nature of the symbiotic relationship between the highest levels of Nigerian state officials and those of the transnational oil companies in the design of measures for oil extraction activities. In the collusion with the Nigerian state over the design and execution of the garrisoning agenda in the Niger Delta, Shell Development Petroleum Company (SPDC) has acquired particular notoriety (Douglas, 2000, ERAction, Fleshman).
In response to the combined repression by the state and the oil companies, several communities of the Niger Delta have been and are still involved in several forms of resistance and protest: demonstrations, petition writing, legal action, hostage taking, armed uprising and community mobilisation. These protests began well before flag independence in 1960. For example, the Willink Commission of 1957/1958 was set up by the colonial government following petitions from the Ijaw and Itsekiri communities, which presented the 'special problems' of the area and the fears of the people about marginalisation. By 1966, Isaac Adaka Boro had raised the Niger Delta Volunteer Force, which organised an armed uprising against the Nigerian state. A major development in the struggle against the underdevelopment of the area has been the emergence of the Ogoni nationality movement, the Ijaw Youth Congress and several other movements in the area. Led by the late Ken Saro-Wiwa, the Ogoni nationality movement conducted its struggle under the Ogoni Bill of Rights. The Ogoni Bill of Rights subsequently inspired the Ijaw nationality organisations to produce and launch the Kaiama Declaration. As it is well known, Ken Saro-Wiwa and several leaders of the Ogoni Nationality Movement were first detained and then murdered in cold blood in 1998 by the Nigerian state with the support of the transnational oil conglomerates.
The situation of generalised repression in the Niger Delta by the combined forces of the Nigerian state and the multinational oil companies and the corresponding resistance of the communities in the Niger Delta mean that oil has and is being extracted at great human costs. On both sides of the divide, but especially on the side of the communities, there have been heavy causalities. Thus there have been massacres of villagers, the murder of environmentalists and leaders of nationality movements and large-scale abuse of human rights. The oil extraction activities of the Nigerian state and the oil companies have thus produced historical and ongoing wrongs that a transparency initiative must seek to right within a canvass of accounting that makes us mindful of not perpetuating and repeating those wrongs. While wounds may never be completely forgotten, it is a fact as stated as the guiding value of ••••The Guardian•••• Newspapers that conscience is an open wound that can only be healed by the truth. Most, if not all, wounds can be healed by the truth. More than 40 years after the events at Auschwitz, the Germans apologised to the Jews for the Nazi pogroms. The Japanese have received an apology for the nuclear bombs that were needlessly dropped on Nagasaki and Hiroshima.
Today, there are several wounds in the Niger Delta that lie not just open but that have been trampled upon over the years. One of these lies in the murder of Ken Saro-Wiwa and his compatriots. Another is the wound that has been festering in the sacking of the village of Odi. There are also profound wounds that lie open in the massacre of villagers all over Ogoniland, at Umuechem and Odioma. These and other wounds need to be healed by a form of transparency initiative in oil exploitation relationships whose accounting enables the truth to be told. We want to suggest that a transparency initiative in oil extractive activities that does not enable the righting of historical wrongs; that does not account for as well as count the human costs of oil exploitation activities would not be true to the tenets of transparency. Even if such a transparency initiative existed, it would be one that openly displayed its partisan character within the contexts of interests involved. And in the end, it would be an opaque and unstable form of transparency.

Accommodating The Concerns Over Environmental Justice And Environmental Rights

The concept of environmental rights draws attention to the fact that the environment in which extractive activities occur has rights as the human beings in that environment. It indicates that interactions with the environment must be conducted in such a way that those rights are respected. In the case of oil, extractive activities that damage the environment either in the form of pollution, gas flaring, oil spillages, indiscriminate construction of canals, indiscriminate laying of pipelines, engaging in extractive activities without adequate Environmental Impact Assessments (EIAs) undermine environmental rights. Environmental justice addresses the corresponding actions that must necessarily follow from abuse of environmental rights. It advances the idea that such abuse of the environment must attract ecological debts. As early as the 1920s, Nicolas Pigou, the Cambridge economist, argued that, “the full cost of production, including whatever pollution, sickness or environmental damage they caused” must be paid by producers. In essence, ecological debts are obligations owed by economic and political actors to society or sections of it for conscious acts on their part, which while aimed at gaining or sustaining economic, political or social advantages lead to the damage of the ecosystem and or impairs the ability of the ecosystem or parts of it to support life Transparency And The Oil Dilemma.

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