Optimizing revenues from hydrocarbon is the main policy emphasis for Nigeria’s the petroleum industry; the entire regulatory regime sits on this but at great expense. The regime, failing to pay due respects to effects of the business on the ecosystem, decimates expected benefits from the industry. Putrid conditions resulting from decades of unethical exploration and production in the Niger Delta (ND) have caused inexpressible miseries for present and future generations.
In Eleme LGA, “8 cm layer of refined oil was observed floating on the groundwater which serves community wells.” Oil pollution occurring over the past half-century has destroyed vegetation “leaving roots coated in a bitumen-like substance sometimes 1 cm or more thick”, which may become irreversible over time. Pollution on the surface water in the creeks in Ogoniland has destroyed aquatic life and stultifying fish farming, the main economic stay of host communities (HC). Illegal oil bunkering and artisanal refining have become survival responses of HC. Benzene, a carcinogen, is present in outdoor air and drinking waters in all communities, in concentrations far above national and international limits. In Nsisioken Ogele levels of Benzene in drinking water was at least over 900 times above WHO limits. The restoration of Ogoniland may cost about $1billion and would span 20-30, with much more needed to clean-up the entire ND.
In the ND, oil spills and gas flaring are daily occurrences. Even with the heart wrenching and ongoing “state-of-emergency” situation, governmental action is minimal. “Amnesty payments” to militants to prevent hostilities is no solution. The Petroleum Industry Bill (PIB) 2012 fails to amply address the issues. The PIB contains no clear strategy to clean up, stop, and prevent hydrocarbon pollution.
The ideas of responsibility and accountability directs on strategy. The polluter pays principle (PPP) stands on faultless theories of economic efficiency, liberty and justice, and the right to life. The pollution producer is responsible and accountable if s/he/it (is made to) delivers a commitment or ensures an outcome by taking initiative with exhaustive follow-through. The person accountable takes ultimate praise or required to remedy any failure. Subject to disputation, Oil companies (OCs) (72%) on one hand, and illegal oil tappers, illegal refiners, and pipeline vandalizers (28%) on the other are responsible for pollution. But because the 28% directly results from actions of the 72%, OCs including the NNPC who holds federal government stakes in production, should be held accountable on PPP and on corporate social responsibility (CSR) being defined as the duty of a company to consider the full scope of the impact of their activities on communities and the environment when making decisions, balancing the need to make a profit.
The “save face” CSR activities like scholarship awards, school and hospitals, and bridges and jetties construction, portable water and electricity supply are hypocritical and at the expense of the abjectly poor. Priority must be located where it belongs. This failure, however, results from imbalance and misplaced priorities of the fiscal regime.
An overhaul must give deserving weight to revenue generation, environmental preservation, and value addition. The current regime bags extravagant fortune (high taxes, royalties, signature bonuses), leaving investors with all costs and risks, duty to provide expertise, and to build and utilize Nigerian Content.
State participates in exploration and production by collaboration arrangements between the NNPC and MOCs, in which NNPC holds around 45-55% of the venture with the investor solely bearing risks. OCs (in addition to cost of licenses) pay tax at 85% or 65.75% within the first 5 years of operation. For companies under a Production Sharing Contract (PSC) and deep offshore operations, the rate is 50%. In addition, certain license holders pay royalties between 4% and 20% of oil produced in cash. These companies also pay an annual 3% of their total budget to the Niger Delta Development Levy.
These companies have therefore pay upfront for their polluting activities on the polluter pays principle, internalize the external costs of their business, and shifting accountability to the State. However, with levels of corruption in government, it is futile to wait for governmental action. A solution would be an overhaul that (1) legislates accountability on OCs who would maintain prescribed environmental standards and installations; (2) requires investors to establish infrastructure according across the value chain; and (3) require investors to develop build and utilize Nigerian Content. Tax rates should be as charged to other companies. Prudent investors will fulfil these requirements while maximizing profit. The monitoring and enforcement apparatus must also have access to rich data, be independent, and adequately financed. To clean-up existing pollution, government must take initiative with funds from its coffers and OCs.
Senior Associate, SimmonsCooper Partners.