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Regulatory lapses foist reign of revenue leakages

By Kingsley Jeremiah
18 September 2022   |   2:45 am
For a nation that is so massively endowed, Nigeria has been operating on something akin to a shoestring budget over the years.

A Nigerian oil installation

For a nation that is so massively endowed, Nigeria has been operating on something akin to a shoestring budget over the years.

Indeed, every budget cycle in the last seven years or thereabouts has been characterised by heavy borrowings, which are used to service the budget.

Despite relying heavily on borrowing, stakeholders, including civil society organisations are mortified that leakages persist in revenue collection and remittances, especially in the oil and gas sector persists.

Even though a global collaboration is emerging through Growth Initiatives for Fiscal Transparency (GIFT), the Federal Government needs to pay greater attention to blocking these leakages than always resort to borrowing at every opportunity. KINGSLEY JEREMIAH writes.

While on a courtesy visit to the Imo State Governor, Hope Uzodinma, last month, the Minister of State for Petroleum Resources, Timipre Sylva, lamented that oil thieves were stealing the country’s crude in an unbridled manner, a development that caused the production level to reduce by 400, 000 barrels per day.
Of course, that industrial-scale thievery translated to a drop from 1.8 million bpd to 1.4 million bpd in a country that has at least 20 security agencies, including the Nigerian Navy, which constantly patrols the nation’s waterways.
This perceived lack of capacity to block revenue leakages and fight corruption to a standstill notwithstanding, the Federal Government has been appealing to all and sundry to help it tackle corruption and revenue leakages. 
For instance, only recently, it tasked the newly created Chartered Institute of Treasury Management (CITM), to come up with measures to tackle corruption and leakages of resources in agencies, including the Single Treasury Account (TSA). 

The Minister of State for Education, Goodluck Opiah, gave the charge while inaugurating the pioneer Council of the Chartered Institute of Treasury Management, in Abuja, recently.
He also reiterated the need for the education system in Nigeria to prepare the youths for a knowledge-driven economy.
Opiah noted: “Treasury management is a ‘must be for any nation that targets sustainable development because it is a strategic approach to optimising beneficial returns of innovative deployment of both public and private finance.
“In addition, treasury management helps to put in place preventive mechanisms to safeguard resources and ensure that there is value for money.”
Only last week, the Senate rejected the 2023-2025 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP), which proposed an N6t tax and import duties waivers proposed for in the N19.76t 2023 budget, which also contained a deficit of N12.4t.
The Upper Legislative Chamber of the National Assembly also directed the Nigeria Customs Service (NCS) to carry out a downward review of the proposed waivers in the fiscal document by 50 per cent, in addition to urging the Federal Inland Revenue Service (FIRS) to critically look into abuse of tax credit by some companies.
The lawmakers bared their minds when the Senate Committee on Finance and the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, and heads of revenue generating agencies met to review the contents of the proposed 2023 – 2025 MTEF/FSP.

Ahmed in her opening remarks informed the committee that the N19.76t proposed as the 2023 budget would have a deficit of N12.43t because N6t had been projected as tax and import duty waivers, while fuel subsidy would gulp a whopping N6t.

Uncomfortable with the minister’s submissions, the Chairman of the Senate panel, Senator Solomon Adeola, pointed out that both the projected N12.43t budget deficit and the N6t tax and import duty waivers should be critically reviewed downward before sending the proposals to the National Assembly for consideration and approval.

Adeola said: “The proposed N12.43t deficit for the 2023 budget and N6t waivers are very disturbing and must be critically reviewed.

“We cannot accommodate this N6t tax waivers. It is in this wise that the committee frowns at the projected N12.41t budget deficit contained in the 2023-2025 MTEF/FSP and the alarming projection of ‘no provision for treasury-funded MDAs’ capital projects in 2023.
“This scenario is unacceptable and we must find ways to drastically reduce the deficit humongous figure. It is apparent that the borrowing trends cannot be allowed to continue unchecked and conscious efforts must be made to reduce budget deficits.

“Achieving these goals requires us to look inwards towards increased revenue generation, blocking of leakages and restraints on what are generally frivolous expenditures by MDAs, particularly the Government Owned Enterprises (GEOs).
A couple of months ago, The Guardian reported how loopholes in revenue collections and remittances to Federal Government account by its agencies resulted in over $1.3 billion (N540b) and another N670b unremitted revenue from the oil and gas sector alone.
In March 2022, it was also made public, how the 2019 report of the Office of the Auditor General of the Federation (OAuGF) indicted the defunct Nigerian National Petroleum Corporation (NNPC) – now Nigerian National Petroleum Company Ltd, for failing to account for 107 million barrels of crude oil in 2019.
Till now, it is not clear if there has been a cogent response from the concerned entity, or any unravelling from the Public Accounts Committees (PAC) of either the Senate or House of Representatives, which
are expected to investigate the report, and make a submission on the way forward.
The humongous level of indebtedness of oil and gas companies to the Federal Government was disclosed in the 2020 Nigeria Extractive Industries Transparency Initiative (NEITI) audit report.
The revelation of the report showed that as many as 51 oil and gas companies owe as much as $3.17b, a development described as disturbing and mind-boggling by most stakeholders given that the country’s oil and gas industry is the nation’s cash cow and the mainstay of the economy.
Not only the NNPC, the PAC of the National Assembly, and the Nigerian Extractive Industries Transparency Initiative (NEITI) have had a running battle with agencies in the petroleum sector. 
Only recently, the chairman of the Public Accounts Committee (PAC) of the House of Representatives, Busayo Oluwole Oke, disclosed that the NNPC Limited had questions to answer over oil and gas revenue hovering at $2.3b. 
Oke had earlier stated that NNPC Ltd failed to remit funds between 2014 and 2019, which included delayed payments by customers without evidence of any surcharge for the delays to the tune of $510,020,921.79.
He added that incomplete payments by customers stood at $6,203,863.68 and other outstanding payments by customers stood at $80,452,746.83. 
The PAC chairman, pointing to audited documents by the Federal Government, noted that $235, 685,861.31 was transferred to an undisclosed escrow account – due to the sales of gas to the NLNG, adding that there was an unexplained shortfall on NLNG balances standing at $18, 389,334.23 and payment for gas exports of $346, 211,227.59 through NGL Funding Account instead of the Federation Account.
According to him, there were equally $2,664,047.64 unexplained and unsubstantiated foreign exchange losses on sums paid into the Federation Account while sales without payment status, payment details, or payment confirmation from the national oil company stood at $9, 389,105.80.
Disparities in billing price per unit used in billing and amount stated in sales invoice stood at $11, 973,828.48 and discrepancies on the amount transferred to the Federation Account in the five-year stood at N663.8b, Oke noted, adding that a lot of companies are enjoying undue tax waivers as the country’s lax regulations and monitoring allow for infractions in the face of borrowing.  
He further noted that there was non-production of complete information on allocation of crude oil to refineries in 2019; non-adherence to payment of all revenues to Federation Account, while pumped products from refineries without evidence of receipt at depot stood at N7b.
“As of today, Saudi-Aramco is the largest company on the planet in terms of revenue with about $2.332t, ahead of Apple, Tesla, Alphabet, Microsoft, and Amazon. Technology companies have dominated this space for a long while and we have not seen any oil and gas company making the top 10 list. 

“Nigeria as a country has similar potential as Saudi Arabia. However, as of 2022, the GDP per capita for Nigeria is $5, 000, while that of Saudi Arabia is $24, 224. The media has been reporting since the first quarter of 2022 that the NNPC was failing in its ability to make remittance to the Federation Account, despite the current rise in the price of crude oil.”

It would be recalled that last year, the NEITI audit report for 2019 showed that oil and gas companies in the country owe the government $6.48b, about N2.659t based on the then official exchange rate of N410.35 to a dollar.
A breakdown of the figures indicated that a total of $143.99m is owed as petroleum profit taxes; $1.089b as company income taxes and $201.69m as education tax.

Others include $18. 46m and $972, 000 as Value Added Tax (VAT); $23.91m and $997, 000 as withholding tax; $4.357b as royalty oil, $292.44m as royalty gas, while $270.187m and $41.86m were unremitted gas flare penalties and concession rentals respectively.
When this revelation was made, the Debt Management Office (DMO) said that the country’s public debt stock stood at N33.107t (about $87. 239b), as of March 31, 2021.

Earlier that month, President Muhammadu Buhari approached the National Assembly to approve the borrowing of another $4b ($4, 054,476,863) and €710m loan from bilateral and multilateral organisations to fund the 2021 budget deficit.
In May 2021, Buhari also approached the lawmakers to borrow $6.1b from bilateral and multilateral organisations to fund the deficit in the 2021 budget, whereas the 2019 debt of the oil companies alone is higher than the amount borrowed. 
Last week, the DMO revealed that the country’s debts rose by about N4t, bringing the nation’s debt to 45.25t. This is even as the Federal Government raised the alarm in July this year that the country was broke given that debt payment now exceeds revenue.
To paint a clearer picture, while the country’s gross oil and gas revenue for the first four months of the year was projected at N3.12t, only N1.23t was realised as of April end.
While oil prices were high, production remained dismal forcing Finance Minister, Ahmed, to admit that urgent action was needed to address the nation’s revenue challenge and expenditure efficiency at both the national and sub-national levels.
It would again be recalled that as a way to ensure efficiency and effectiveness of public spending, the Auditor-General, as enshrined in Section 85(5) of the 1999 constitution, is expected to submit annual reports on the accounts of the federation to the parliament, which then refers such reports to the Public Accounts Committee for review as to whether public funds were utilised as approved in the yearly budget, and to ensure that the integrity of such budget documents is not compromised.
Despite these unequivocal provisions, the parliament still struggles to carry out its oversight duties owing to non-compliance by some MDAs, the NNPC, and its subsidiaries. This has now been worsened by the exclusion of the NNPC from the provisions of the Fiscal Responsibility Act (FRA).
The FRA was enacted in 2007 to provide for prudent management of the country’s resources and to ensure the long-term macroeconomic stability of the nation’s economy. It was also to secure greater accountability and transparency in fiscal operations within a medium-term fiscal policy framework and promotion and enforcement of the nation’s economic objectives. 
However, lapses by government agencies, lack of monitoring, and undue advantage given to some companies operating in the country, especially in the free trade zones have been a source of worries for the Growth Initiatives for Fiscal Transparency (GIFT). GIFT, a Nigerian Project, is an activity under the Strengthening Civic Advocacy and Local Engagement (SCALE) Project funded by USAID, and implemented by Palladium, in collaboration with Resource Partners (RPs). The SCALE project was designed to enhance local civil society organisations’ ability to be positive and responsible change agents in Nigeria. 
The goal of the project is to “improve public accountability, transparency, and sustainable service delivery in Nigeria,” by strengthening the managerial, financial, and advocacy capacity of civil society groups to engage citizens to influence the government in key development reforms at national, state, and local levels.
By implication GIFT Nigeria’s activities are expected to catalyse reforms around Transparency, Accountability, and Good Governance (TAGG) concerning Public Finance Management, especially relating to the country’s extractive sector. 
Currently, the project is jointly implemented by OrderPaper Advocacy Initiative (OAI), Centre for Transparency Advocacy (CTA), HipCity Innovation Centre, CLICE Foundation, and the Nigeria Institute of Quantity Surveyors (NIQS). 
Like the NEITI, the GIFT project has raised concerns over mounting revenue leakages across sectors, but the extent to which these challenges are addressed by appropriate agencies of government remains a mirage.
Nigeria, a country rich in natural resources and endowments has remained poor in development indices largely because of a massively dysfunctional economic structure perpetuated by a rentier state. While this persists, the level of budget deficits, borrowing, and debt servicing have gone from bad to worse in recent times.
A Revenue Remittance Compliance Index of Federal Government Ministries, Departments, and Agencies designed under the GIFT sees the Fiscal Responsibility Act (FRA) as a leeway, especially given the fact that it was enacted to ensure long term macro-economic stability of the nation’s economy, secure greater accountability, and transparency in fiscal operations within the Medium-Term Fiscal Policy Framework (MTEF) and to establish the Fiscal Responsibility Commission (FRC). 
It, however, noted that the provisions of the act were being violated amidst the need to amend its provisions. 
“Section 12(1) of the FRA 2007, provides that the deficit appropriated for in the budget should not exceed three per cent of the estimated Gross Domestic Product or any other sustainable percentage as be determined by the National Assembly for each financial year,” Nigeria’s debt profile has continued to grow
over the years. 
Records show that while the 2019 and 2020 budget deficits were within the permitted range, the 2021 appropriation had a deficit amounting to 3.9 per cent of the nation’s GDP, as against the stipulated three per cent.

A total of 150 MDAs were captured in the data compliance indexes, including almost all agencies, as well as other scheduled and non-scheduled corporations and agencies of the Federal Government. 
Of most of the oil agencies captured, it is pertinent to note that the Department of Petroleum Resources (Now Nigerian Upstream Petroleum Regulatory Commission (NUPRC); the Nigeria National Petroleum Corporation (now Nigerian National Petroleum Company Ltd); the Nigerian Maritime Administration and Safety Agency (NIMASA); the Petroleum Equalisation Fund (Management) Board (now Nigeria Midstream and Downstream Petroleum Regulatory Authority); the Petroleum Products Pricing Regulatory Agency, PPPRA (now Nigeria Midstream and Downstream Petroleum Regulatory Authority); and the Nigerian Ports Authority (NPA) posted Average performances. The National Oil Spill Detection & Response Agency (NOSDRA); and the Oil & Gas Free Zone Authority posted above-average performances. 

However, the Nigerian Content Development & Monitoring Board (NCDMB) stands alone in the below-average performance zone having not submitted AFS from 2017 to date. 
The Executive Secretary and National Coordinator of the Nigeria Extractive Industries Transparency Initiative (NEITI), Dr. Orji Ogbonnaya Orji, not long ago recalled that the agency had raised the alarm that companies in the oil and gas sector owe the government over N2. 6t in unpaid taxes and other levies in 2019, stressing the need to close the gap in remittances. 
He said there was a need to support the government in generating the needed revenues from the extractive sector that would be deployed to provide and upgrade existing infrastructure for citizens. 
For the Executive Director, OrderPaper Advocacy Initiative (OAI), Oke Epia, it is not welcoming to read of the alert by the International Monetary Fund (IMF) that Nigeria may be spending 100 per cent of its revenues on debt servicing.  

According to him, such a prospect signposts the grim reality where Nigeria’s rich natural resource endowments have turned into very little or no benefits to its citizens. 
He stressed the need for an amendment to the Fiscal Responsibility Act (2007).
Epia said that even though the FRC has the mandate to intervene in addressing the leakages, a lack of power to cause compliance with provisions of the FRA has greatly impeded the performance of the commission. 
“It is important that MDAs are properly acquainted with the provisions of the FRA and functions of the FRC. The powers to enforce the FRA should be bestowed on the commission,” Epia said, adding that a speedy passage of the FRA (Amendment) Bill currently before the National Assembly remains an urgent necessity.

Epia added that the brief would examine extant fiscal responsibility instruments, especially as they relate to the petroleum sector. “This is because the sector is not only the mainstay of the economy and major foreign exchange earner, but also the pivot upon which diversification and economic growth and development should stand. However, the widespread perception is that there is little transparency and accountability, and a prevalence of corruption, waste, and leakages in the sector. Therefore, the need to ensure fiscal responsibility and responsiveness; as well as instil transparency and accountability in the governance and management of the petroleum sector, is an urgent imperative,” he stated.
He said the PIA entrenched the perceived closed character of the petroleum industry by imposing certain ouster clauses that unfortunately impact public finance managers and entities like the Fiscal Responsibility Commission (FRC) in providing oversight on the sector.
Even though Epia noted that the Petroleum Industry Act has several good initiatives, he also pointed out that there were some drawbacks related to revenue mobilisation into the central pool of government. “For instance, the reduction in remittance of collectables by the NNPC Ltd will result in a considerable reduction in revenues available for service delivery by the government.” 
This to some extent, explains why some stakeholders are calling for the amendment of the FRA Act, and further interrogation of the PIA to address ouster clauses that it places on the FRA.
An energy expert, Henry Adigun while reacting to the revenue leakages in the oil sector, insisted that disclosure alone cannot do the trick if transparency is not improved.
“Disclosure does not translate to transparency. I can disclose rubbish. The NNPC has improved disclosure, but has not improved transparency,” he said.
Even though he admitted that the national oil company has moved from being opaque in its financial transactions to being clearer, he harped on the fact that the media and civil society organisations must ensure that the company becomes transparent.
He noted that the Fiscal Responsibility Commission which was set up to manage resources in a way that meets the needs of present and future generations, could do better but was grossly underfunded, as well as discharge its mandate effectively. 

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