Nigeria terminates oil reserves incentive scheme

May 07, 2004 02:00 AM

Irritated by cases of flagrant abuse of the Reserve Addition Bonus (RAB) incentive scheme which encourages joint venture oil companies to intensify oil exploration activities, the Federal Government the other day terminated the scheme.
Introduced in the 1980s when oil exploration in the country was very low, RAB has been government's way of encouraging the oil companies to raise the nation's oil reserves by exceeding their normal exploration targets.

Oil firms which exceeded their reserve targets were normally paid some bonus for their efforts in increasing the national reserves which are a key yardstick for the determination of production quota by OPEC of which Nigeria is a member.
However, goaded by this incentive among other factors, some of the beneficiary oil firms, according to reports, had presented bloated/falsified figures of their oil discoveries on the basis of which they were paid huge undeserved bonuses under the RAB scheme. Consequently, in addition to scrapping the bonus scheme, government is also determined to retrieve the sum of about N 65 bn allegedly paid to three of the key oil operators as RAB claims between 2000 and 2001 by the Federal Inland Revenue Services (FIRS).

The Government certainly deserves all the support in these efforts to checkmate the oil companies in their dubious and devious manoeuvres in the exploration and production of oil in the country. Actually, there are several other ways through which the multinational oil giants rip off the country in the guise of oil business.
The government has now discovered the abuses in the otherwise well-intentioned RAB which is supposed to assist the country in OPEC considerations. There is also the subsisting suspicion about the actual daily oil production figures by these oil firms, a subject that remains shrouded in controversy and secrecy.

Regrettably, however, expatriate managers of the oil companies engage in these fraudulent activities with the connivance of their Nigerian colleagues, including people in other public establishments. After all, the oil exploration companies are populated more by Nigerians than by expatriates who, in most cases, only play along with their Nigerian colleagues.
In the instant matter of excess RAB payments, for instance, certain public officers are suspected to have colluded in the calculation, approval and payment of the claims. Sometime last year, following mounting complaints, the Senate Committee on Petroleum was mandated to investigate the circumstances surrounding the payment of RAB claims by officials of the FIRS.

Apparently, a fallout of this probe is the removal of the RAB clause from the current Memorandum of Understanding (MoU) between the government through the Nigerian National Petroleum Corporation (NNPC) and its six joint venture partners. An MoU contains the fiscal and monetary incentives granted to foreign oil companies under the Joint Operating Agreement (JOA) while the RAB spells out incentives to any oil company under the joint venture arrangement that is able to increase the national oil reserves above its statutory investment target for a year.
But while the RAB scheme may have assisted in boosting the national oil reserves, it has also created a leeway for the unscrupulous oil executives and their (local and foreign) collaborators to loot the nation's treasury. Incidentally, either by design or sheer coincidence, the RAB racketeering blew open at a time when the global oil scene is inundated with the scandal of bloated reserves claims by the Anglo/Dutch Shell Group. Mr Phil Watts, the erstwhile Group Chairman of the Group Board of Directors of the oil conglomerate, in the heat of the corporate scandal, opted to resign his post.

Again, either by coincidence or design, the local company of the Shell Group, the Shell Petroleum Development Company of Nigeria (SPDC), the largest oil producing company in the country, was also involved in the dubious RAB claims and overpayment. SPDC, Agip and Elf were allegedly paid $ 500 mm as RAB claims without approval by the Department of Petroleum Resources (DPR) and the Minister of Petroleum Resources or any other official performing this function.
It is heartening that the government is rising to the occasion by refusing to pamper the oil companies any more, as well as expose their nefarious activities. This is commendable and the effort should not only be intensified but also extended to all aspects of the oil business, including the downstream sector where the refineries have remained a drain pipe to the national wealth. The relevant agencies, especially the DPR must steadily step up their monitoring of the reserves and production levels.

There is no doubt that the bloated reserves claims scandal has exposed Nigeria in bad light in the OPEC fold, especially given the country's quest for higher production quota allocation. The RAB scandal has similarly exposed the hypocrisy of the multinational oil companies who would rather present themselves as models of corporate integrity.
Now that such a facadeis removed, the regulatory and supervisory agencies of the oil business in Nigeria must begin to close the loopholes that had facilitated varieties of fraud in the sector over the years.

Source: Guardian Newspapers
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