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Published On: Wed, Aug 27th, 2014

Nigerian audit speaks but will government listen?

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By Dauda Garuba

In 2007, Nigeria passed a law requiring an audit of extractive revenue payments made to and received by the federal government. In advancing the implementation of its mandate, the Nigeria Extractive Industries Transparency Initiative (NEITI) recently presented itsfirst report on the Fiscal Allocation and Statutory Disbursement (FASD) Audit 2007-2011, marking a major milestone in its implementation of the global Extractive Industries Transparency Initiative (EITI). At 219 pages, the NEITI FASD audit report is rich and revealing. It shows that Nigeria relies just as heavily on oil and gas today as it did in 2007. More than 80 percent of Nigeria’s budget comes from extractive revenues. Nigeria’s state-owned oil company, Nigeria National Petroleum Corporation (NNPC), administered 51 percent of total fuel subsidy payments for the period covered by the audit in a manner that placed “a shadow cast” on transparency and its role in the subsidy payment process.

The report also revealed that the Niger Delta Development Commission (NDDC) had no updated financial statement from 2009 to 2012. This contravenes the provision of Section 20(1) of the NDDC Act 2000 (amended) which mandates that the commission prepare and submit audited accounts of the preceding year to the president no later than 30 June. Similar breaches were observed in the administration of the Natural Resource Development Fund and the Equalization Fund. Contrary to the purposes for which they were instituted, both funds became a pool for grants and loans to finance various expenditures. The FASD Audit also reveals subnational governments’ poor capacity for managing internally generated revenue.

The report contains important recommendations—though they are buried in the text and not legally binding. For example, the NNPC should draw subsidy claims only from a petroleum support fund at the Central Bank of Nigeria, not directly from domestic crude proceeds. It should also close loopholes in the production-sharing contracts that may lead to exploitation or fraud. The report further suggests that lawmakers constitutionalize Nigeria’s Excess Crude Account—a stabilization fund created by the Obasanjo administration to hold excess revenue earned from increased crude prices. (The account currently has “no Constitutional backing,” according to the report.) At the subnational level, aggressive revenue generation and proper management can and should aid poverty reduction and sustainable development.

Nigeria received a “weak” score of just 42 of 100 on NRGI’s 2013 Resource Governance Index, which measures resource governance in 58 countries. The new NEITI report has reinvigorated the collective call to action spurred by the index score. To its credit, the federal government recently passed a freedom of information law, and it has worked tirelessly to meet the new EITI Standard. But unless it moves quickly to implement the recommendations in the new FASD Audit report, it risks fueling even greater public mistrust, and Nigeria as a country will continue to fail to realize the maximum benefits from its resource wealth.

At a May roundtable organized by NRGI, NEITI, the Open Society Initiative for West Africa, and the Facility for Oil Sector Transparency (FOSTER), we developed a roadmap for improving resource governance in Nigeria—a document that will soon be available online. We did this because transparency cannot be an end in itself, but rather must be a means to an end. With citizens’ participation in debate increasing and the demand for transparency and accountability on the rise, the NEITI report signals a growing push for Nigerian energy reform. Now is the time to act.

Dauda Garuba is Nigeria program coordinator at the Natural Resource Governance Institute (NRGI).


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