NNPC clears air on alleged withholding of 48% of national oil revenue

Concerns mount over ban on 113 vessels from crude lifting

IN the wake of allegations leveled against it, ranging from non-remittance of a N3.8 trillion revenue from January 2012 to May 2015 constituting 48 per cent of total income for the period to withholding of dividends from the Nigerian Liquefied Natural Gas (NLNG), the country’s giant oil corporation has clarified that there was no iota of truth in the claims, saying they are all borne out of a denial of the reality of dwindling petroleum earnings arising from the global fall in prices.

In a position paper that it presented at a recent meeting with President Muhammadu Buhari, the embattled Nigerian National Petroleum Corporation (NNPC) contended that contrary to the general impression that it “spent the balance of N3.8 trillion (after remitting the sum of N4.65 trillion into the Federation Account) on its operations, the truth is that a bulk of that amount was unrealized revenue owing to the fuel subsidy regime which is a Federal Government policy.”

In the document, the corporation stated that the N3.8tn was not remitted because it was unrealized revenue and likened it to a situation where an agency like the Customs Service could not meet its revenue generation target because of duty waivers granted by the Federal Government to some companies on a certain category of goods.

“When petrol and kerosene are imported at say N130 and N140 per litre respectively and the subsidy regime dictates that they be sold at N87 and N50 per litre respectively, the balance of N43 and N110 per litre that is lost (not realized) over the period of review is what makes up a bulk of the N3.8tn that was allegedly not remitted and which Nigerians are being made to believe was willfully withheld by NNPC and ignorantly referred to as operation expense by NNPC,” the document explained.

Putting the losses or unrealised revenue incurred from petroleum subsidy in the period under review at 2.14tn, the Corporation further explained that crude oil and products losses as a result of theft and pipeline vandalism also constitute another stream of unrealized revenue amounting to a total of N250.2bn.

“It is grossly erroneous for people to think that pipeline vandalism and its twin evils of crude and products theft do not have any implication on what accrues to the Federation Account at the end of the day, but unfortunately, that appears to be the thinking,” the document stated.

On the other cost elements that make up the alleged unremitted N3.8tn, NNPC explained that the cost of pipeline management and repairs and the supply of crude to the refineries by vessels as a result of the frequent attacks on the crude supply pipelines by oil thieves amount to N460.1bn and N732.35 bn respectively.

“It needs to be understood that the PPPRA template does not make provision for cost recovery in the transportation of products through the pipelines. Even though the pipelines and the tankers perform the same role of bridging, the PPPRA template makes provision for bridging fee for tankers without a similar fee for product transportation though the pipelines. This has denied the Corporation of a ready pool of resources to draw upon for maintenance and repairs of the pipelines which have lately been under heavy and frequent attacks and consequently has led to a spike in the cost of maintenance and repairs”, the document explained.

It further explained that because pipeline repairs are by nature not what can be delayed while awaiting the normal appropriation process considering the fire and terrible impacts on the environment, the cost is usually defrayed from oil revenue in keeping with “Section 7 Sub-section A and B of the NNPC Act states inter-alia:

“The Corporation shall maintain a fund which shall consist of—
(a) such monies as may, from time to time, be provided by the Federal Government for the purposes of this Act by way of grants or loans or otherwise howsoever; and
(b) 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.”

“NNPC is a creation of the law and a law-abiding corporate entity whose processes and procedures are guided by the provisions of the law and would not engage in expenditure and defray same from revenues generated if there was no legal basis for such”, the document clarified.
On the issue of NLNG dividends, it explained that the investment in NLNG was made by the Federal tier of government as distinct from the Federation and that by law the dividends from that investment are meant to be paid into the Consolidated Revenue Account of the Federal tier of government as internally generated revenue.

“However, it has been the policy of the Federal Government to utilize NLNG dividends first for LNG expansion projects. The NLNG plant for example, expanded from 2 trains in 1999, to six trains by 2006 – one of the fastest growths in LNG expansion in the world at that time. The NLNG dividend was used to finance the Federal Government equity in the expansion project.

“Consistent with that policy, NNPC sought and obtained the President’s permission to utilize funds from the dividend account to fund the Brass LNG project.

“It is therefore not true that NLNG dividends are missing or not accounted for. An Inter-Ministerial Task Team has been set up to look at and verify expenditures from the NLNG Dividend Account. Its work is still ongoing”, the document explained.

Meanwhile, unease at present pervades Nigeria’s oil and shipping business sector following the suspension of about 113 vessels from lifting crude and operating in the nation’s territorial waters by the NNPC.

A document, allegedly signed by the Group General Manager of NNPC’s Crude Oil Marketing Division, Gbenga O. Komolafe, stated that the corporation has prohibited 113 tankers “from engaging in crude oil/gas loading activities in any of the terminals within the Nigerian territorial waters until further notice.”

The letter dated July 15, 2015 was addressed to terminal operators in Nigeria and the affected tankers listed in an attached spreadsheet.

“The affected vessels have also been barred from movements within the Nigerian territorial waters henceforth,” it said.

Although, the document did not state the reasons for the action, it noted that the enforcement of the directive takes immediate effect pending a notice to the contrary by the Federal Government.

The operators, worried about the development, have been making efforts such as calls and visits to the NNPC Towers to get to the root of the matter.

A source told The Guardian the operators are worried as to what could have necessitated such a directive.

“It is shocking. I wonder why they are issuing such directive at this time. Well, we will comply and continue to negotiate for a way forward,” the source said.

Stakeholders believe the directive is among the steps being taken by the NNPC to ensure strict compliance with measures of following due process and ultimately scrutinising the crude lifting process.

Efforts to reach the Group Managing Director, Group Public Affairs, NNPC, Ohi Alegbe, proved abortive as phone calls were not responded to.

An online medium, Platts quoted an active buyer and seller of Nigerian crude oil as confirming the directive, saying: “We have been informed about the ban and it seems terminal operators will have to take that into account.”

However, shipping and trading sources said the NNPC’s grievance with the shipping companies stems from issues surrounding controversial figures related to the crude oil exports at the port of discharge.

Sources said there have been a few incidents between Nigerian authorities and their crude oil buyers on differences between the volume of crude that was discharged and the volume on the bill of lading.

“A lot of market players have received the document and we have to take it seriously. The NNPC is asking for outturn figures but the receivers of the cargoes have this information, not the ship owners. They need to approach the cargo receivers, not the vessel owners,” one source stated.

Other sources said the ban could be related to “settling dues” such as port and maritime fees.
The majority of Nigerian crude cargoes are lifted on Suezmax and Very Large Crude Carrier (VLCC) tankers.

“We suspect it is part of a fallout from the level of scrutiny that NNPC is currently under,” another crude oil trader said, adding that it may also be part of the new government’s drive to target “vessels that have not paid dues or have been involved in incidents with the Navy. In this new administration such lapses are being corrected.”

Sources said the Nigerian Maritime Administration and Safety Agency (NIMASA) had previously issued advice to vessel operators and owners to comply with International Maritime Organisation’s (IMO) directives to countries to phase out vessels that do not meet international standards.

They said some of the vessels in the list might fall into the category of tankers that did not meet the IMO standards.