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NNPC audit report and need for autonomy

By Collins Olayinka, Abuja
22 February 2015   |   11:00 pm
THE PriceWaterhouseCoopers (PwC), which was contracted to carry out a forensic audit report on alleged unremitted $20billion by the Nigerian National Petroleum Corporation (NNPC) into the Federation Account, has not only exonerated the Corporation of wrong doings, but hinged the misleading information on ignorance on how the oil sector works.      Submitting its report to…


THE PriceWaterhouseCoopers (PwC), which was contracted to carry out a forensic audit report on alleged unremitted $20billion by the Nigerian National Petroleum Corporation (NNPC) into the Federation Account, has not only exonerated the Corporation of wrong doings, but hinged the misleading information on ignorance on how the oil sector works.  

   Submitting its report to the office of the Auditor General of the Federation, the global audit firm declared that the gross revenue generated from the Federal Government of Nigeria crude oil lifting for the period 1st January 2012 to 31 July 2013, was $69.34 billion and not $67 billion reported by the Reconciliation Committee.

   Also, the report noted that the total cash remitted into the federation account in relation to crude oil lifting was $50.81billion and not $47billion as earlier reported by the committee. 

   It further explained that the balance of the generated revenue by the NPDC of $5.11 billion as reported by the Managing Director, Mr. Briggs during the Senate hearing will be accounted for through the financial statement of NPDC and any dividend declared will flow into the federation account; PMS and DPK subsidy of $8.7billion; NNPC’s initial costs verified and accepted by the Senate of $2.65billion; additional NNPC costs following the forensic audit $2.81 billion; added to the revenue is the unremitted NNPC signature bonus due for divested assets and taxes/royalties totaling $2.22billion which brings the net amount attributed to the Federation account following the above summary to $1.48billion. 

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

   The forensic audit report stated that the NNPC and NPDC should refund an aggregate amount of $1.48billion after taking account of the excess remittance described above and outstanding self-assessed taxes, royalties and signature bonuses for the divested assets transferred to NPDC. 

   It further stated that the transfer to NPDC of reminder interests in Oil Mining Leases divested by Shell were validly made to NPDC on the basis of a legal opinion provided by the Attorney General of the Federation to the Senate Committee on the matter.

   It also submitted that by reference to the submission to the Senate Committee, NPDC reported crude oil revenues of $5.11billion (net of taxes and royalties) in the period. Subject to defrayment of its costs, the Attorney General’s opinion holds that NPDC/NNPC are expected to ultimately effect a remittance to the Federation Accounts by way of Net Revenue (dividend) payment to NNPC. NPDC has not declared a dividend to NNPC on the basis of which remittances are made to the Federation Accounts in line with the Attorney General’s opinion.        The matter of dividend (net revenue) from NPDC should be followed up for final resolution. 

   The PwC findings regarding the issue of subsidy on DPK (kerosene) said the Presidential directive of 19 October 2009 was not gazetted and there is no other legal instrument cancelling the subsidy on DPK. The Senate Committee had also concluded that all that was required was for Federal Government to propose appropriation for the un-appropriated subsidy for the period in a supplemented budget. According to figures from the Petroleum Products Pricing Regulatory Agency (PPPRA), DPK subsidies in the review period amounted to the sum of $3.38billion.

   The audit also relied on the Act that governs the business conducts of NNPC regarding the powers to defray its operational costs at source without recourse to government for approval. 

   The Act says: “…. Such monies 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 audit submitted: “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% of proceeds of domestic crude oil revenues for the period were spent on operations and subsidies. The Corporation is unable to sustain monthly remittances to the Federal Account Allocation Committee (FAAC) and also meets its operational costs entirely from the proceeds of domestic crude oil revenues and have to resort to third parties to bridge the funding gap. At today’s crude oil price (c.62% 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 any remittances to FAAC.”

   It therefore held that in view of the provisions of the NNPC Act, which appears to grant NNPC a ‘blank’ cheque to spend money without limit or control, and the gravity of unsustainability of the NNPC operating model and its implications for remittances (or potential lack thereof), NNPC Model must be reviewed and restructured as a matter of urgency and that the Act should be reviewed as its provisions contradict the requirement that NNPC be run as a commercially viable entity. 

   Indeed, the National Assembly is also culpable in its continued delay in passing the Petroleum Industry Bill (PIB), which is seen as the magic broom that is needed to reform the oil and gas sector and equally put the NNPC on the path of commercially viable entity in comparison to any National Oil Company (NOC) anywhere in the world. The non-passage of the bill has not only held back the needed reform of the NNPC, but has contributed to the unwillingness of International Oil Companies (IOCs) from investing in the sector as the present situation holds a high level of uncertainty to future investments. 

   With the findings of the PwC, which indicates that the NNPC should defray $1.48billion remittances due to the Federation Account by the Nigerian Petroleum Development Company (NPDC), an upstream subsidiary of the NNPC being signature bonus, taxes and royalties on the assets transferred to the NPDC, the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke promptly directed the NNPC to comply.  

  Relying on the findings of the PwC, the NNPC insisted that it was not indicted by the forensic audit report on the alleged missing $20bn unremitted oil revenue. 

   The Corporation noted that the release of the forensic audit report has finally laid to rest the controversy surrounding allegations of “missing oil revenue” or non-remittance to the Federation Account.

    It explained that it was not true that it was indicted in the Forensic audit report as being speculated in some quarters as the $1.48bn that the audit firm recommended the Corporation to remit to the Federation Account was not part of the alleged unremitted revenues from crude lifting.

   It explained that the $1.48bn was never in dispute as it is made up of statutory payments such as signature bonus, taxes and royalties, which are statutory payments that come with assets acquisition.

   It stated that the delay in payment was due to the reconciliation processes between the Department of Petroleum Resources (DPR) and the NNPC.

   The Corporation stated that the forensic audit report and the Senate Committee on Finance report on the unremitted revenue all alluded to the fact that NPDC reported crude oil revenues of $5.11bn.

   In his reaction to the findings of the audit report, the Group Managing Director of the NNPC, Dr Joseph Dahwa, said: “The forensic audit report also acknowledged that section 7 sub-section 4 of the NNPC Act empowers the Corporation to defray its costs and expenses including the costs of its subsidiaries from crude oil revenues, though it also recommended that the law be reviewed to make the Corporation meet its costs and expenses entirely from the value it creates. However, it should be noted that NNPC currently receives no funding for value destruction through pipeline vandalism, sabotage and crude oil and products theft; an issue that causes enormous losses to NNPC’s operation.”