Gains, concerns as NEITI unveils owners of oil blocks today

AS the Nigeria Extractive Industries Transparency Initiative (NEITI) makes public the beneficial ownership register of the oil and gas sector on December 12, 2019, it has become the great expectation of the common-run in the country.

On the other hand, the plan has jolted the bourgeois who own stakes in the oil blocs and other interests in the industries. Whereas the underprivileged are jubilating that the manipulation of concealed ownership, which some lucky beneficiaries have presumably employed to rob them of the optimal benefits of their commonwealth is going to bring relief, it has unsettled the owners.

The owners, according to feedbacks from the relevant agencies such as the NEITI and the Corporate Affairs Commission (CAC), are jittery that unveiling the register will cause them some security challenges, incite the citizens against them and even impinge on the confidentiality of their businesses.

To the owners, the move to unveil the list amounts to criminalising hard work in the eye of the common man. But the NEITI has always maintained that not all businesses are criminal in nature because the dubious ones are in the minority.

The watchdog organisation of the extractive industries has insisted that it is not designed to open a battlefield for the owners and watchers of the industries. In order to break the cocoon of fear that has heralded the announcement and plan of the unveiling of the register, the NEITI has tried as much as possible to attempt the simplest definition of the term beneficial ownership. It has also explained to the world that the register will not compromise their security.

In its policy brief, the organisation says “beneficial owners are the real, life and blood individuals who profit from and exercise control over companies (as opposed to legal owners and fronts usually filed in registration documents).

“Having a public registry of beneficial owners of extractive companies will definitely limit abuses perpetrated through the use of anonymous covers. No such registry exists in Nigeria at the moment.”

It is, however, worthy of note that the practice of cloaking the real owners of companies manifests in different forms in the extractive sector. This, according to the brief, ranges from chains of ownership (where many companies, including those registering tax havens and secret banking jurisdiction, end owning a particular company), nominee shareholding (where a shareholder holds stock on behalf of a third party), trusts (where a trustee acts for and in the interest of the beneficiary) and the use of fronts or stand-ins.

Continuing, the document said in most oil resource-rich countries, anonymous ownership serves as a vehicle for concealing illicit wealth and conflict of interests by Politically Exposed Persons (PEP). It dropped the hint that when government officials and politically connected individuals seek to profit from a country’s mineral assets, they do so using fronts and ownership structures that do not provide sufficient information about the true identities of the natural person behind the title. But then the real problem is not just about anonymity. It is that the lack of transparency allows the influential officials to use their positions to extract maximum rent from a country’s mineral resources with maximum or no benefit to the citizens.

Narrating how much toll corruption has taken on the oil and gas resources, NEITI recalled that in practical terms, billions of dollars are lost annually which politically-connected individuals appropriate to themselves using fronts and secret ownership arrangements.

A particular example that the organisation cited is that of the controversy around OPL 245 where a former Minister of Petroleum, Dan Etete, awarded the oil license to Malabu Oil allegedly using a fictitious name and company address to conceal his identity and interest in the company. Similarly, according to the NEITI’s document, the granting of pioneer status in which the Nigerian government lost over $1.17 billion (from 2009-2014) to some upstream companies may not be unconnected with the influence of true beneficial owners behind the scene.

In general, local and international oil companies operating in developing countries typically exhibit a complex structure of ownership that makes it difficult to identify the real individuals behind the companies or their connection to companies with whom they transact business.

The watchdog organisation claims that “these relationships matter because the amount of tax which a company pays depends on the profit it declares to the tax authorities. But the size of the profit depends on the cost of operations. If a company finds a way to incur a huge cost for its operations, then it would declare little or no profit or even declare a loss.

As a result, it pays little or no tax. If this scheme allows the same company to go back to its suppliers and service providers to get a refund after declaring little profit and paying little or no tax, then the shareholders keep almost everything and the society gets the short end of the stick. Cost paddling, a practice known as gold-plating in the extractive sector, is suspected to be widespread.”

NEITI said with the above form of “transfer of pricing” it is difficult to detect where fuzzy relationships exist between companies transacting business with each other or where companies engaged in some (or different) transactions owned and/or controlled by the same individuals or entities, it is designed primarily by owners to evade tax.

It insisted that fortunately, a reporting system which makes it possible for everyone else to know the identity of the owners or ultimate beneficiaries of both companies significantly lowers the incentive for businesses to cheat the government and society in this manner. In the policy brief, NEITI noted that the challenges of concealing ownership of firms are same with trade mispricing which allows companies to over-invoiced imports (inputs) or under-invoice exports (products) in order to increase cost, reduce profits, and ultimately pay little tax. From the view of the organisation, a well-designed beneficial ownership map can help flag these sorts of relationships between companies engaged in the extractive sector.

The document recalled that the leaks from the Panama Papers show the biggest victims of these practices are developing countries, or generally countries with weak institutions of accountability and tax authorities. It is worse where these countries are reliant on the activities of large corporations to exploit their resources to generate revenue without which the government is unable to provide services to citizens. It observes that oil and gas companies in Nigeria operate within a typical corporate environment, complete with a complex web of commercial relationships and corporate identities, that require utmost regulatory vigilance by accountability institutions.

In the oil and gas industry, there is always a commonplace reference to the $1 trillion scandals in the 2014 World Campaign report. It estimated that developing countries lose $1 trillion annually due to all kinds of shady businesses transactions. There is an assumption that since the losses are mostly in resource countries, Nigeria is the major loser as it accounts for a huge stake in the industry.

Besides the NEITI’s explicit depiction of pitfalls of concealing beneficial ownership, other stakeholders have noted that unveiling the real owners of the oil and gas firms will bring respite to the nation’s economy.

But exactly what does the nation benefit from unfolding the register of beneficial owners? Minister of Finance and Budget Mrs. Zainab Ahmed told The Nation at the Media Initiative for Transparency in Extractive Industries METEI Roundtable on Beneficial Ownership Register in Abuja, that without the register “we are losing the opportunities to be able to track revenues and track corrupt practices. Once we have this disclosure, the anti-corruption agencies will be better equipped to track all the corrupt practices.”

Similarly, the NEITI policy brief pointed out that it is in the best interest of Nigeria and Nigerians as full ownership disclosure has practical implication for increasing government revenues, reassuring investors interested in partnering with local companies, reducing the incidence of corruption and money laundering and cutting off funding for drugs lords and terrorists.

Insisting that there is need to reinforce the power of beneficial ownership disclosure, the NEITI’s policy brief called on President Muhammadu Buhari administration to prioritise this aspect of transparency and champion policy and legal framework for lifting the veil of secrecy on ownership disclosure will facilitate the present thrust of the Nigerian government to trace, recover and repatriate the country’s stolen assets in foreign jurisdiction.

This is because the document has discovered that the problematic process of recovery of stolen assets in other jurisdictions is compounded by the absence of relevant information occasioned by secrecy and opaqueness of the real actors behind the transactions.

Tracing the beginning of beneficial ownership policy in Nigeria, the document said in 2013, Nigeria volunteered, alongside 11 other NEITI -implementing countries, to pilot the reporting of Beneficial Ownership in the oil, gas and mining sectors. Hence, in the NEITI Oil and Gas Audit Report of 2012, which was released last year, ‘beneficial ownership’ information was published for 40 of the 42 companies covered by the oil and gas audit, and 32 of the 65 companies covered in the solid minerals audit.

The ownership information is captured through templates filled out by companies and validated with records at the CAC and the Department of Petroleum Resources (DPR). In the pilot, however, most of the ownership information was for the “legal owners” as opposed to the “beneficial owners.”

Consequently, the decision to lift the veil off the faces of the owners of the oil and gas firm has now unsettled the real owners. From the analyses of watchers of the industry, no investor seems to have been cautious of any single obligor limit in the oil and gas industry. This is apparently accountable for the jitters that are now running down the spines of the stakeholders.

At the Media Initiative for Transparency in Extractive Industries METEI Roundtable, the NEITI Executive Secretary, Dr. Waziri Adio noted that since the disclosure means putting people’s information in the public domain, the organisation is being careful so that it is mostly resorting to using the Bank Verification Numbers (BVN) or Tax Identification Number (TIN) of the individuals because everyone has it. Without applying the utmost precaution of the security of the stakeholders, it will hamper compliance and the integrity of the exercise.

Mr. Peter Nyam, who represented the Acting Registrar-General Corporate Affairs Commission (CAC), Lady Azuka Azinge, expressed fears that stakeholders may misconstrue the idea of beneficial ownership disclosure.

He said: “This identification will disclose a lot of things about directors. My fear is that we have a situation where people, rather than contributing to the economy, would rather wind up their companies. For the past three years, we have been having a series of companies being wind up. At times when you ask them, they will say it is the hardship in the environment. With this initiative, there is the issue of business rescue. There is also the need to engage members of the public to allay the fears that will emanate.”

Adio recalled how he received some calls from players in the industries who related their fears to him. But he allayed the fears of the stakeholders stressing that “there is a way we (media) frame this as in the benefits the country is going to derive against the companies that have been cheating. I think we need a more inclusive frame for this. But everybody stands to gain from the disclosure. This is not a we-against-them game. It is a win-win game.”

Although the NEITI has downplayed odious implications of the unveiling of beneficial ownership register, the reactions and feedback from the citizens in the next few weeks shall tell exactly how much it is loved and feared.

THE NATION

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