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Nigeria Proposes Reform of Oil Industry

Author: John Campbell, Ralph Bunche Senior Fellow for Africa Policy Studies
November 12, 2009


WASHINGTON - Nigerian President Umaru Yar'Adua's efforts to reform the oil and gas industry have the potential to upset the fragile Nigerian internal political balance among the regions, ethnic and religious groups, and patronage networks.

Oil provides most of the Nigerian state's formal revenue. Under current agreements, nearly all of Nigeria's oil and gas is produced through joint ventures between the Nigerian National Petroleum Company (NNPC) and the major international oil companies. The federal government collects more than 90 percent of the profits from oil and natural gas and, in turn, redistributes about half of this revenue to state and local governments throughout the country by a complex allocation formula.

Especially at the lower levels of government, lack of transparency facilitates Nigeria's notorious corruption. Competition for access to oil money is at the center of Nigeria's patronage politics. In that sense, oil is the glue that holds Nigeria together, and changes in the petroleum regime have significant political ramifications, with winners and losers.

Minister of Petroleum Rilwanu Lukman's Petroleum Industry Bill (PIB) would rationalize the complex relationship among the federal government, the national oil company and international investors to increase production and ensure maximum revenue for the state. He wants to transform the national petroleum corporation into a profit-driven national oil company such as those in Brazil, Saudi Arabia or Malaysia. However, the devil is in the details.


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