SUMMARY OF THE ARTICLE MAKING A CASE FOR THE PUBLISHING OF

PETROLEUM CONTRACTS IN NIGERIA

The article, written by Rob Pitman and Anne Chinweze, argues for the public disclosure of
petroleum contracts, relying on the notion that making public the terms of these contracts
allows for the much-needed public scrutiny of the terms of these contracts.

In Nigeria, the practice of keeping the terms of petroleum contracts secret is rife, and this cuts
across contracts in both the upstream and downstream sectors of the industry. One of the
arguments proffered for this secrecy is that keeping petroleum contracts confidential is in line
with standard practice, while another is that contracts contain commercially sensitive
information that can lead to competitive harm if disclosed. For these reasons and more,
petroleum contracts have been kept confidential, thus keeping majority of Nigerians in the
dark as far as operations in the sector are concerned.

The article outlined several reasons why petroleum contracts should be published, chief of
which is the repeated commitment made by the government of Nigeria, at several fora and
within certain frameworks to publish petroleum contracts, e.g., the public statement by the
Minister of State for Petroleum, Dr Ibe Kachikwu in 2015 that contracts would be made open
to the public, President Buhari’s statement at the 2016 U.K Anti-Corruption Summit that
Nigeria was committed to the full implementation of the principles of the Open Contracting
Data Standard, and so on.

At the home front, the 2016 “7 Big Wins” and its 2017 Mid-Term report both reiterate the
fact that Nigeria is committed to making petroleum contracts public.

In Nigeria, several laws and regulations govern the oil and gas industry, but while these laws
and regulations are readily available to the public, the contracts are not, thus making it
difficult for stake holders to understand what goes on in the industry.

In the process of writing the article, 23 upstream and downstream contracts were reviewed,
including 10 model contracts, and according to the authors, this review showed that
“contracts in Nigeria contain several terms for which a strong public interest case can be
made for disclosure.”

Petroleum contracts contain fiscal terms which can have several impacts on public finances,
in addition to this, petroleum contracts usually contain clauses that dictate the amount of
money that the country receives in taxes and royalties, and how much oil or gas the
government receives as its share and tax incentives or holidays granted companies, such
clauses that ought to be made available to Nigerians to allow for public scrutiny in situations
where it appears the country might have been short-changed in the place of negotiations.

A typical petroleum contract contains several clauses such as the work programme,
geographical boundaries for exploration and production, environmental protection, social
obligations, local content and training requirements, and much more, therefore, availability of
contract terms allows oversight actors to determine whether the state and companies are
meeting their commitments, and it also provides an avenue to hold public official accountable
for the deals they make on behalf of Nigeria and Nigerians.

Being in the know of the fact that the outcome of their work will be made public and subject
to legal, public and commercial scrutiny, negotiators and drafters of these contracts would
therefore have the incentive to draft and negotiate more carefully, even in the face of high-
level political interference and excessive industry pressure during negotiating and drafting
these contracts.

It must be noted at this point that the concept of making contracts confidential is fast
becoming outdated, and while contract secrecy is still rife in Nigeria, in several countries the
world over, public disclosure of extractive industry contracts is already the norm. Currently,
over 40 countries make disclosures of extractive industry contracts, and in Africa, 11
countries have already began disclosing either petroleum or mining contracts. Ghana, Liberia,
Mail, Guinea and Mozambique are a few examples of countries in Africa that make public
disclosure of mining or petroleum contracts. Apart from these, a recent survey carried out in
2018 of 40 major petroleum and mining companies, which was referenced in the article,
revealed that 18 have so far made public statements supporting some form of contract
transparency, and amongst this 18 were Total, BP, Shell, and Statoil (Equinor), firms that
have significant operations in Nigeria.

In the international sphere, the practice is endorsed by the International Monetary Fund’s
Guide on Resource Revenue Transparency, the United Nations Principles for Responsible
Contracts, the International Bar Association’s Model Mining Development Agreement and
encouraged by the Extractive Industries Transparency Initiative (EITI) Standard (which
expects that signature countries have in place, a functional public register by January, 2020.)

It should be noted that companies, which would not readily assent to contracts transparency
in Nigeria are willingly doing so in other climes. Companies such as BP, Chevron, ENI,
ExxonMobil, Shell and Total have allowed for contract disclosure in other countries in
Africa, so the question then is what makes it so difficult for these companies to give consent
to contract disclosure in Nigeria?

As mentioned earlier, one of the reasons given in support of the argument against disclosure
is the presence of confidentiality clauses in contracts, which do not permit disclosure.

According to the authors of the article, their review of Nigerian confidentiality clauses
showed that the clauses were extremely broad, applying to a range of information including
plans, maps, drawings, designs, data, etc. Most importantly however is the discovery that
these clauses (which in most cases were similarly couched and worded) contained an
exemption which allowed for disclosure of the contract. The exemption kicks in in situations
where disclosure is to be made “to comply with statutory obligations or the requirement of
any governmental agency or rules of a stock exchange.” (Clause 18.1 (b) of the Draft PSC for
Continental Shelf Blocks, 2007.)

This clause is all important, given that it makes contract disclosure a possibility in Nigeria, if
Nigeria makes it statutory for companies in the extractives industry to do so, or if the rules of
the Nigerian Stock Exchange require companies which are listed to disclose the terms of
contracts such companies have entered into.

On the level of disclosure to be made with regards to contracts, the authors argued in favour
of full text disclosure. According to them, “full text disclosure represents the strongest path to
realize the benefits of public contracts.” This argument of theirs is premised on the fact that
contracts usually have several interlinked clauses and sub-clauses, therefore, it would be
impossible to scrutinize or fully understand the full terms of contracts without access to the
full text of the contracts. This argument put forward by them agrees totally with EITI
requirement 2.4 which encourages implementing countries to publicly disclose any contracts
and licenses that provide the terms attached to the exploitation of oil, gas and minerals.

For the contracts, the disclosure is expected to include the full text of the contract, concession
and production sharing agreement, the full text of any annex, and addendum, and the full text
of any alteration or amendment. While the same standard is also expected for licenses, leases
or permits granted by the government to anyone. This disclosure they argue, should apply to
all contracts in the upstream and midstream sectors, common amendments, and
environmental documents.
In establishing a contract disclosure rule, the article argues in favour of a government decree
(in Nigeria however, this would be a regulation), as against having to wait on the National
Assembly to pas a legislation that would compel disclosure in Nigeria.

Given the very nature of our country, that is, putting into consideration the length of time it
takes to get a law passed, the fastest way to go about this would be to pass a regulation to that
effect. This is owing to the fact that regulations by their very nature do not need to go through
the rigours of parliamentary consideration before becoming effective. Regulations come into
effect once they are made by the empowered party to do so, and they are binding.

The Petroleum Act of 1969 governs the Nigerian oil and gas sector, and it empowers the
minister of petroleum to make regulations governing the conduct of parties in the sector.

Ideally, the regulation should state what specifically must be disclosed, a reasonable
timeframe for the publication of the contract following the date of signature, and the format
of the disclosed contract (machine readable form) and finally, the regulation should state the
channel for disclosure.