A Review of the Nigerian Energy Industry

NNPC got $3.789bn from NLNG between 2006 & 2008

*No confirmation the money got to federation account
*IOCs firms underpay Nigeria $2.33bn

Omoh Gabriel

29 July 2012, Sweetcrude, LAGOS — Nigeria Extractive Industry Transparency Initiative, NEITI, has disclosed that from its audit report between 2006 and 2008, the Nigerian National Petroleum Corporation, NNPC, received $3.789 billion as dividends from Nigeria Liquefied Natural Gas, NLNG, and there is no confirmation that the payments were made to the Federation account.

The report also said NEITI audit recalculations of royalty for the years 2006-2008 estimated an underpayment of $2.33 billion arising from subjective interpretation of volume, pricing and API (American Petroleum Institute grading variable).

It further stated that under-assessment of $690 million in Petroleum Profit Tax, PPT, was due to pricing mechanism used (realisable price instead of official selling price) while the discrepancies between annual PPT returns and Annual Financial Statements was responsible for the under-assessment of $424.6 million in the determination of Petroleum Profit Tax, PPT, value.

It said Operating Expenses, OPEX, indicated a possible under assessment of $364.9 million. Following the disclosures, NEITI is currently working with the Federal Inland Revenue Service, FIRS, and the Department of Petroleum Resources, DPR, to review the assessments as well as recover these underpayments from companies and remit same to the federation account.

The report further disclosed that the NNPC owed the federation for domestic crude N842.7 billion as at December 31, 2008. The NNPC, it said, deducted the subsidy claims of N816.55 billion directly from the domestic crude proceeds before remitting the balance to the Federation Account without authorisation.

According to the NEITI report, the total financial inflows to the federation from the oil industry was $148.832 billion.This was made up of $44.687billion for 2006, $43.781 billion for 2007 and $60.364 billion for 2008, respectively.

According to the NEITI report just released, “from the 2006-2008 Audit Report, the unreconciled ‘differences’ between what was paid in by companies and what was declared as received by government are: Royalty: in 2006 companies paid in $4,457.9 million while government received $4,418.5 million leaving an unreconciled difference of $ 39.4 million. This difference in what companies paid in 2007 and 2008, and what government received was found to be below the set materiality level.

“Signature bonuses: from 2006 to 2008, the companies paid a total of $1,470.80 million to government, while government received $1,523.3million as bonuses. This leaves a difference of $52.5 million; Income from oil in settlement of Royalty and PPT given by the report was in 2006 there was no such record. In 2007 $1,673.9 million was received as income in settlement of royalty and petroleum profit tax. In 2008 the amount went up to $6,577.8 million.

“ 2006                 “ 2007                “ 2008                 “ Total

“ $Millions      “ $Millions         “ $Millions        “ $Millions

“          –              ” 1,673.9              “ 6,577.8            “ 8,251.7

The Audit observed that “the legal basis for petroleum sharing contract (PSC), Royalty, and petroleum profit tax (PPT) calculations were in dispute between NNPC and the contractors and before an arbitration panel. This transcend to cost and fiscal entitlements with a possible contingent liability of up to $8billion if NNPC loses the arbitration. NEITI said that “The Reports of the Audit so far conducted and published have been internationally acclaimed and lauded by the EITI International.

Most recently an independent Consultant- SCAN TEAM that was commissioned by EITI to assess amongst other things the effectiveness of the audits among all the 45 member countries using Nigeria, Mongolia and Gabon as case studies endorsed NEITI and its operations as the best, most comprehensive and complex”

It further said that Necessity for increased transparency has now come to be accepted by key actors in Nigeria’s Oil and Gas industry, particularly the Oil companies who have come to embrace the Audit processes and also support the detailed reporting demanded in the NEITI Audit processes.

There is recognition of the influence the Audits had on the contents of the Petroleum Industry Bill (PIB)”.

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  • I can bet that despite the weighty implications of this NEITI audit report, a statement from the NNPC will be issued dismissing the report and that as usual will be the end of the story. and this is so because the degree of government interference in the day to day operations of the corp[oration does not allow much, if at all any room for professional conduct.