Global Insight Perspective | |
Significance | Nigeria's federal government has suspended the director of the DPR for the second time in less than two years. |
Implications | The order comes from President Umaru Yar'Adua, who does not want Chukwueke to be able to interfere with the investigation into the last three oil licensing rounds. |
Outlook | The investigation can be seen as part of Yar'Adua's attempt to cut corruption, but with so many vested interests in the country's oil sector Global Insight is sceptical about how much progress will actually be made. |
Chukwueke Suspended Again
The government has announced that the director of the Department of Petroleum Resources (DPR) has been suspended while a full investigation takes place into recent oil licensing rounds under former president Olusegun Obasanjo. Domestic newspaper This Day reports that President Umaru Yar'Adua has specifically ordered DPR head Tony Chukwueke to take compulsory leave so that he is not able to interfere with the enquiry that is taking place.
The last few oil licensing auctions have attracted considerable criticism for favouring certain firms in the bidding process. The most recent oil licensing round was held only weeks before Obasanjo stepped down from office and did not see any western supermajor make bids for acreage. The round in fact was under subscribed, with many oil companies wondering whether the contracts would be honoured given that a new administration was due to take office in the following weeks. Production-sharing contracts (PSCs) for the round have still not been signed by the companies and the government despite the concessions being awarded over a year ago. This Day reports that the investigation is to cover the 2007 oil licensing round as well as the 2005 and 2006 auctions, for which PSCs have been signed.
Outlook and Implications
This is the second time that Chukwueke has been censured. He was originally suspended by Obasanjo in November 2006 after awarding acreage to an unknown domestic oil company in that year’s oil licensing round. The new investigation can be seen mainly as a financial audit of the 2007 bid round, which saw 45 blocks auctioned. Eleven of these blocks were located in deepwater offshore, 10 in shallow water on the continental shelf, 13 onshore in the Niger Delta, and 11 in inland basins. The licensing round saw the federal government receive US$615.45 million in the form of signature bonuses, with 50% of this immediately deposited by the successful bidders and the remainder to be paid when the PSCs are signed.
The investigation is part of wider changes to Nigeria's vital oil sector, alongside the reform and restructuring of the NOC in order to cut corruption and make it more efficient. The enquiry is likely to unravel sensitive information that could cause acute embarrassment to many high-level officials in past administrations as well as in Yar'Adua’s own team. However, it remains to be seen whether Yar'Adua's government will act on any of this to cancel suspect PSCs or whether such matters will be swept underneath the carpet. If Yar'Adua and his Energy Ministry are serious about reforming the oil sector then they need to address key issues such as how oil licences are granted. One possibility could be for the administration to opt not to prosecute any of the players involved in past discrepancies and to start afresh when Yar'Adua's administration holds its first oil licensing round under new rules and regulations, which will only happen once new legislation has been approved.
Related Article
(see Nigeria: 17 November 2006:Director of Petroleum Resources in Nigeria Reportedly Dismissed over Oil Licence Allocation)