Audit Report: NNPC Vindicated; Ripe For Reforms?

THE burden has simply refused to go away.

When former Central Bank of Nigeria Governor, Sanusi Lamido Sanusi, raised the alarm, mid last year, that funds were diverted by the Nigerian National Petroleum Corporation (NNPC) from the Federation Account, it sent ripples through the economy. 

    To Sanusi’s (dis) credit, the figures dangled from $49bn to $20bn, as altercations between the former apex bank governor  (now Emir of Kano) and the Federal Government dragged to a Senate hearing, where the latter insisted that he had to come out clean with the figures because his first priority was to ensure that the ‘economy was not brought to its knees’  

    Many welcomed Sanusi’s ‘courage’, others, unfazed by the controversially large sum, waved the allegation as just another appendage on the country’s long list of ‘unresolved’ official sleaze. 

     But the NNPC, caught in the middle of the episode, fought tirelessly through advertorials and public statements, explaining that its books were clean of any wrongdoing. 

    With the release of the Investigative Forensic Audit of Crude Oil Revenue and Remittances by NNPC (January 2012-July 2013), by Federal Government-appointed auditors, PricewaterCooper (PwC), which states that NNPC needed only to remit just $1.48bn to the federation account, the state-run oil firm seems vindicated. 

    Highlights of the PwC report, obtained by The Guardian, maintained that the gross revenue generated from the Federal Government crude oil lifting for the period January, 1, 2012, to July 2013, was $69.34bn and not $67bn reported by the Reconciliation committee. 

EXPLAINING this through a descriptive graph, it reported that the total revenue generated (including additional revenue upon investigation) was $69.34bn, highlighting the following: “Actual remittance, $50.81bn; Unremitted revenues-NPDC, $5.11bn; PMS and DPK subsidy, $8.70bn; Costs directly attributable to domestic crude, $2.65bn; other costs not directly related to domestic crude oil operations, $2.81bn; salaries and benefits $1.52bn; monthly operations $0.48bn; other third party payments (including training course fees, estacodes, and consultancy fees, and vendor payments), $0.81bn; NPDC signature bonus, $1.75bn; NPDC taxes and royalties, $0.47; updated expected refund by NNPC/NPDC to the Federal Government, $1.48.”

    The report said: “NNPC has provided information and explanations on the difference between the gross revenues and aggregate remittances leading to a potential remittance by NNPC of $0.74bn, without considering the expected remittances from NPDC. Other indirect costs of $2.81 billion, which were not part of the submissions to the Senate Committee hearings, have been defrayed to arrive at this position.

   “NNPC should refund an aggregate amount of $1.48bn. This, after taking account of the excess remittance described above and outstanding self-assessed taxes, royalties and signature bonuses for divested assets transferred to NPDC.”

    At a press conference last week, the Group Managing Director (GMD), NNPC, Joseph Dawha, explained that the $1.48billion the corporation was directed to refund was the balance of the book value of the divested assets transferred to NNPC upstream subsidiary, the NPDC, excluding taxes and royalties.

    “This does not constitute indictment; rather this value is still being reconciled with the Department of Petroleum Resources (DPR). It is pertinent to note that the $1.48bn was not part of the alleged unremitted revenues from crude oil sales,” he said.

     The report provided more explanation, stressing: “By reference to the submission to the Senate Committee, NPDC reported crude oil revenue of $5.11bn (net of taxes and royalties) in the period. Subject to defrayment of its costs, the AG’s opinion holds that NPDC/NNPC are expected to ultimately effect a remittance to the Federation Account by way of Net Revenue (dividend) payment to NNPC. NPDC has not declared a dividend to NNPC on the basis of which remittances are to be made to the Federation Account in line with the AG’s opinion. The matter of dividend (net revenue) from NPDC should be followed up with final resolution.”

    Another point of contention was the situation with subsidies for kerosene, which has caused Nigerians headaches, with many wondering the rationale for subsidies when the product still sold at exorbitant prices.    

      Regarding this, the report said the presidential directive of October 19, 2009, was not gazetted, stressing that there is no legal instrument canceling the subsidy on kerosene. It noted that the Senate Committee had also concluded that all that was now required was for the Federal Government to propose appropriation for the un-appropriated subsidy for the period in a supplemental budget.  “DPK (kerosene) subsidies in the period under review amounted to the sum of $3.38bn,” it said.

THE report also touched on the spiky issue of the structure of NNPC. Some industry players had called for review of the structure of the corporation, noting that the firm was not viable with the current arrangement. They argued that the monolithic structure of the organisation made it redundant and bred corruption. The report confirmed this, albeit noting that the NNPC Act was to blame.   

   “The NNPC Act provides that “…such moneys as may be received by the corporation in the course of its operations or in relation to the exercise by the corporation of any of its functions under this Act, and from such fund there shall be defrayed all expenses incurred by the Corporation.” The corporation defrays its costs and expenses (including the costs of its loss making subsidiaries), from crude oil revenues in line with the provisions of the NNPC Act.”

     “The application of the foregoing principle has resulted in the potential excess remittance situation, and indicates that NNPC (the Corporation) operates an unsustainable model. 46 per cent of proceeds of domestic crude oil revenues for the period was spent on operations and subsidies. The corporation is unable to sustain monthly remittances to the Federal Account Allocation Committee (FAAC) and also meet its operational costs entirely from the proceeds of domestic oil revenue ad have to resort to third parties to bridge the funding gap. At today’s crude oil prices (at around 62 percent drop from 2012 levels), if NNPC’s subsidies and operational costs are maintained and crude oil production volumes are maintained at current levels, the Corporation will exhaust all the proceeds of domestic crude oil sales and still require additional third party funding for deficit. This means that the corporation will have no funds to make remittances to FAAC,” it said.

FOLLOWING from the findings, PwC recommended that the NNPC be reformed to be commercially viable, a condition, the auditors noted, would allow for it to create value and meet its needs from its operations. It also stressed that proceeds from crude oil be remitted directly to the federation account. 

      It said: “The NNPC Model must be reviewed and restricted as a matter of urgency; the NNPC Act should be reviewed as its provisions contradict the requirement that NNPC be run as a commercially viable entity; NNPC should be required to disclose its consolidated (group and subsidiaries) position with regards to costs, expenses and profits for the purpose of deductions from crude oil revenues, if any; proceeds from oil sales should be remitted fully to the Federation Accounts without deductions and NNPC should be required to create value and meet its costs and expenses entirely from the value it creates.”  

HOWEVER, since the much-dramatised forensic audit of the books of the NNPC should provide final answers to the Sanusi-stoked debate, the Corporation, especially with its insistence on non-indictment by the PwC report, appears to be turning the table against its accusers. 

   How far the new argument can be sustained is, nonetheless, left for time, the ultimate decide, to tell.