By Felix Ayanruoh

In July 2010, the United States Congress carried out a robust reform of the financial industry with the passage of Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) The act is geared towards enhancing transparency and accountability in the U.S. financial system.

Section 1504 of the Act introduces mandatory disclosure requirements for extractive companies.  The Act requires companies registered with the Securities and Exchange Commission (SEC) to publicly report how much they pay to governments for access to oil, gas and minerals. It is a powerful tool that allows investors to properly assess risk and the citizens to see the value placed on their natural resources.

In 2012, the U.S. Securities and Exchange Commission (SEC) adopted final rules for the implementation of Dodd-Frank 1504. There are several provisions of Section 1504 with implications for the governance of Nigeria’s oil and gas sector. The SEC final rules mandates statutory disclosure requirements on oil and gas companies among others in the resource extraction sector to provide information in their annual reports (form 10-K) on payments made to the U.S. or foreign governments for the commercial development of oil, natural gas and minerals on a country and project basis.

The rules cover exploration, processing, export and the granting of licenses for these activities. A wide range of payments are to be reported including taxes, royalties, fees (license and acreage fees), production entitlements, bonuses and other material revenues arising from commercial development of extractive sectors. The minimum threshold for reporting payments is US$100,000 in the most recent fiscal year.

With the recent hues and cries about the weak transparency framework of the proposed petroleum industry bill (PIB), it therefore becomes imperative to examine the implications of Dodd-Frank 1504 for the governance of Nigeria’s oil and gas sector. Section 1504 of the U.S. Dodd-Frank Act signals that extractive sector transparency is now a transnational policy issue, how this important reform resonates in passing a robust Petroleum Industry Bill remains to be seen.

In spite of its sizable oil and natural gas reserve, Nigeria remains poor and conflict-ridden. This contrast between resource wealth, slow economic growth and poverty is described as the ‘natural resource curse’ (Richard Auty 1993). Transparency in the governance of emerging economies oil and gas industry such as Nigeria has become a major policy issue, given the implications for economic development.

Dr. Rilwan Lukman, erstwhile minister of petroleum resources, while commenting on the botched 2008 PIB said, “Good governance is promoted through the removal of much of the confidentiality as well as creating transparency. Confidentiality encourages corruption.

The best way to fight corruption is to remove confidentiality for all procedures, contracts and payments. Every Nigerian including all stakeholders should have the right to know what is going on. The bill removes confidentiality on a scale not seen in the world before.

Nigeria will move in one step from one of the most opaque petroleum nations in Africa, to one of the most open and transparent in the world. The texts of all licenses, leases and contracts and any of the changes to such documents will no longer be confidential. Payments to the government of Nigeria will be public information.”

The draft PIB is in conformity with international best practices that prohibit the use of confidentiality clauses in the upstream petroleum industry by proposing changes that will improve transparency, keeping royalty payments and oil company profit taxes public for the first time.

However, transparency provisions concerning corporate income tax, hydrocarbon tax, payment to government, including signature bonuses and production sharing are missing from the bill. Also, provisions that would have mandated the government to report how much oil it pumps and all the payments it receives from oil companies – in an industry where secrecy is blamed for corruption- is missing from the bill.