How Nigeria Iost $11bn to vandalism, theft

Diezani Alison-Madueke 112 August 2013, Lagos – Stealing, cooking of figures, diversion and non-remittance of funds accruing from crude oil sales and other malpractices by officials in the extractive industry have led to loss of huge revenues that should have been channelled into the country’s development programmes, writes ADEKUNLE YUSUF

Despite its grim picture, a recent disclosure that Nigeria lost $11 billion to oil vandals within two years did not surprise the public. Rather than jolt the public, the damning audit report is hailed as yet another confirmation of the public’s fears about the goings on in the extractive industry. Therefore, standing on the armour of figures contained in the audit report of the Nigeria Extractive Industries Transparency Initiative, NEITI, an independent audit conducted on the extractive industry, not a few enthuse that it is no longer a matter of conjecture that the country’s oil and gas sector is, indeed, a cesspool of corruption.

A perusal of the comprehensive report, covering 2009 to 2011, shows how the mindboggling pilfering that is badly bruising the economy was carried out by various oil marauders in the period under review. Although it is an acknowledged fact that the oil and gas sector is enmeshed in corruption, the recent information has further exposed the extent of damage oil theft and pipeline vandalism is doing to the fragile economy.

Among other things, the report said over 2.5 billion barrels of crude oil were produced between 2009, 2010 and 2011. If the figure is further broken down, it means Nigeria produced 780.9 million barrels of oil in 2009, 894.5 million barrels in 2010 and 866.2 million barrels in 2011. And for this, Nigeria was richer by $143.5 billion, earned from crude sales, royalty, signature bonuses and taxes during the period. In itself, that is good news.

But that is not the whole news. According to the report, the real news is the unstated trouble with the economy, which the corruption virus swirling in the sector poses to the country’s development bid.

From the beginning to the end, the report is replete with ways and styles private businesses as well as agencies of government work hand in hand to shortchange the country. One of the avenues through which the economy is bled is non-remittance or under-remitting of oil sale proceeds to the coffers of government; the report said it is a crime being committed by all the relevant government agencies saddled with championing and protecting the collective interest of the country. However, these agencies often choose to look the other way after tacitly colluding with private pockets to fleece the country. Consequently, from oil theft to pipeline vandalism, the country’s economy is being dealt debilitating blows, as huge sums of money that could have been deployed into servicing the economy ended up in the deep pockets of unscrupulous elements. That is why, by allowing oil thieves a free reign in the creeks, the country lost over 136 million barrels of crude oil estimated at staggering $10.9 billion to crude oil theft and sabotage alone within the period, the report said.

Similarly, the report fingered illegal pipeline vandalism, a twin evil of oil stealing, as another ailment that constitutes a pain in the neck of the economy. As it turned out, the country lost $894 million as a result of this seemingly intractable virus , which lowered the country’s oil production capacity by 10 million barrels. With this, the report concluded that the monetary value of crude oil losses that arose from pilfering accounted for about 7.7 percent of revenue that accrued to the Federal Government between 2009 and 2011.
By the same token, the report said Shell lost an estimated 70 million barrels to oil theft during the period under investigation. Chevron’s fortune was reduced by 28 million barrels of crude oil.

The figures of who lost what could hardly be faulted given recent disclosures. Minister of Finance and Coordinating Minister for the Economy, Dr Ngozi Okonjo-Iweala also jolted the country recently when she disclosed that the Federal Government may soon start defaulting in the payment of salaries to workers if the economic outlook, especially the revenue generating prospect, remains the same. Her revelation sparked a media hoopla, which necessitated her to revise her statements more than twice, fact remains that a staggering 400,000 barrels of crude oil are being lost daily to oil vandals, a sad development, experts say, is threatening to rip the purse empty, if not even ground the economy any moment from now.

“We are losing revenue; 400,000 barrels of crude oil are lost on a daily basis due to illegal bunkering, vandalism and production shut-ins. I have to clarify that it is not as if the entire 400,000 barrels is stolen, no. What happens is that whenever the pipelines are attacked and oil is taken, there is a total shut down. All the quantity of oil produced for that day will be lost because it means government cannot sell it and it means a drop in revenue,” Dr. Okonjo-Iweala said.

However, the trouble with the economy is not entirely caused by oil pilfering. Besides the menace of oil stealing and pipeline vandalism, the controversial oil subsidy claims and payments also received copious mention in the NEITI report. During the period, a staggering N3 trillion went into shady oil subsidy payments, as a few highly-placed importers of refined petroleum products happily smiled to the bank for jobs not honestly executed.

Specifically, the report said fuel subsidy claims by the Nigerian National Petroleum Corporation, NNPC, gulped N1.4 trillion. N1.60 trillion was reported to have vanished into the cavernous pockets of independent marketers as subsidy payments. However, there is an observed disparity of N175.9 billion between claims paid from the Federation Account and that made by the Petroleum Products Pricing Regulatory Agency, PPPRA.

Overall subsidy payments increased by 71 per cent from N406 billion in 2009 to N695 billion in 2010and jumped by 174 per cent to N1.90 trillion in 2011. Going by the report, payments made by NNPC increased by 110 per cent from N198 billion in 2009 to N416 billion in 2010, and nearly doubled to N786 billion (89 per cent) in 2011.

Like the ones paid by NNPC, subsidy payments made through the PPPRA were also on the upward curve between 2009 and 2011. In 2009, subsidy payments through the PPRA jumped by 75 percent from N208 billion to N278 billion in 2010, and shot up exponentially by 301 percent to N1.12 trillion in 2011. It was also observed that there is an unrestrained admission of fuel marketers during the period under review, as the PPRA relaxed its guidelines, resulting from a mere 20 fuel importers in 2009 skyrocketing to 128 in 2011. Therefore, the PPPRA is advised to adhere strictly to policy guidelines on admittance of new applicants by making sure that successful applicants are experienced players in the industry who have verifiable financial and logistics wherewithal alongside other required documentations.

Yet, despite paying these huge sums, there are discrepancies in the payment figures being bandied about by the various agencies saddled with the responsibility of infusing sanity into the sector. For example, while the Accountant-General of the Federation (AGF) office documented N2.825 trillion as subsidy payment for the period under investigation, the PPPRA’s documents curiously revealed that N3 trillion was disbursed to marketers. There is even more to the conflicting figures, as some marketers picked holes in the payment figures, particularly the payments ascribed to them by the PPPRA. At least, a marketer claimed N2.56 billion as fuel subsidy while the PPRA’s records showed a payment of N1.5 billion, spewing a difference of N1.06 billion.

Still on oil subsidy, the report said N4.423 billion reported as over-recovery from some marketers is yet to be remitted into the Federation Account as at June this year.
In the same vein, NNPC and two other companies are yet to refund N3.715 billion being over-recovery for the 2009-2011.
However, PPPRA has disagreed with the recommendation that it (PPRA) should remit any money arising from “over-recovery” collected to the Federation Account for the period under review, saying the report verged heavily on secondary data. In his reaction, the Executive Secretary of the PPPRA, Reginald Stanley, said the report was “steeped in inaccuracies, gross misrepresentation of facts and misleading.”

He added: “We note with dismay, NEITI’s admission to the fact that it had no absolute control of its sources of data as they were derived from information and data provided through its own independent auditors as well as companies doing business in the sector. Such over-reliance on secondary data must have accounted for the glaringly flawed computations presented in the report.”

But, a statement by NEITI’s Director of Communication, Orji Ogbonaya Orji, said all the companies and government agencies covered by the independent audit, including the PPPRA, were fully involved and participated actively in the audit process from conception and design of audit templates to reconciliation and validation exercise.

“Besides all the companies and agencies, including the PPPRA ‘signed off’ on the report before it was published. The response by PPPRA is, therefore, strange, misplaced and unfortunate. We do not understand what PPPRA means by ‘secondary data.’ We doubt if the Executive Secretary of PPPRA received adequate briefing from his team who worked directly with NEITI on the project. I, therefore, think that the time has come for an important agency like the PPPRA to develop time and interest to ensure that its management understands how NEITI/EITI process works. The audit report is based on information and data primarily, voluntarily but mandatorily provided to NEITI by PPPRA during the audit exercise. NEITI does not manufacture either information or data,” Orji replied.

Despite its prime of place as a major player in the industry, with all the benefits accruing to it because of its status, the NNPC is said to have no agreed pricing methodology between it and other companies for the determination of fiscal values for royalty and PPT computations. Also of concern is the cloud over existing Memorandum of Understanding, MOU, between the Federal Government and some Joint Venture Companies, JVCs. Although the MOU had been cancelled since December 2007 by the Minister of Petroleum because it is not enacted on a fair business template, it is still the one being used to transact business with JVCs. And for using an MOU that has been declared dead since January 2008 to transact business, it resulted in revenue loss of $1.7billion, being the difference between NNPC and other entities.

To arrest the unfairness in such business deals and stop their inherent leakages, the auditors recommended that a department be created in the NNPC to be saddled with the task of monitoring MOUs and keeping them alive so that all business deals will be fair to all parties, including the government which is often at the receiving end of all loose ends in any transaction that is not well spelt out.

“The situation whereby MOU with oil companies expires and little is done to put another one in place to close government revenue losses should not be tolerated in an economy that heavily depends on oil,” the report warned.

Even at the downstream operations, the metering devices at Mosimi, PPMC and Atlas Cove are ultrasonic meters, which the audit findings said are not reliable. To clear all doubts about their efficiency, the report recommended that the metering devices be replaced with turbine meters, automatic radar tank gauges and positive displacement meters. As the oil and gas industry has become a haven of corruption, so is the solid minerals subsector, which the report said, is steeped in malfeasance, paving the way for economic buccaneers to continue to scramble for a piece of the juicy pie of the country’s solid mineral resources. The report, which also audited the mining sector for a period of three years (covering 2009 and 2011), evidence abounds that the country is being helplessly shortchanged on many fronts. While the sector enjoyed a relative boom in activities over the period under review, there is little to show for it, as proceeds that should have enriched the coffers of government were diverted into private pockets.

As a matter of fact, between 2007 and 2010, the report said a total remittance of N55 billion on taxes, royalties and other levies was made, but quickly added that nothing less than N4 billion ended up being diverted. And if anyone feels that the diversion rate is huge, the report explained further that the N4 billion may amount to a small fraction of the amount that eventually got diverted, thus suggesting that the figure may be far higher than N4 billion cited in the audit findings. This is hinged on the discovery that most companies operating in the sector failed to submit their annual tax returns to the Federal Inland Service, FIRS, during the period under investigation, as mandated by the laws.
The report said miners with ut proper licence populate the subsector. And for those with licence to operate, auditors said most benchmarks for royalty computation are outdated, making it difficult to ascertain the true market value of many solid minerals, such as laterite, granite and sand.

While explaining the benefit of publishing the audit report, Ledum Mitee, chairman, National Stakeholders Working Group, which is the governing board of NEITI, said findings in the report show how extractive business is done in Nigeria. According to him, data for the report was generated by simply using what extractive industries said they paid into government coffers as taxes, levies, royalties, signature bonuses and rents and reconciling same with what government actually received from the companies.
Dr. Okonjo-Iweala admitted that the reports “point to some lapses by government agencies which we need to address,” and hinted that a subcommittee is already working in the ministry of mines to sanitise the mining industry.

But, in the past reports, NEITI audits have not only clearly identified financial, physical and process lapses, but also uncovered a loss of over billions of dollars from underpayments, under-assessments, poor judgment in the computations of volume of crude sales and other leakages only for teh recommendatiosn not to be acted on. Observers believe there is need to strengthen NEITI through necessary amendments to its enabling Act to give it the powers to implement the findings and recommendations in its audit reports.

NEITI, which is the Nigerian subset of EITI, has the mandate to promote due process, transparency and accountability in the management of Nigeria’s extractive industries revenues, but it lacks the power to assert its authority and realise this mandate over the years.
Having consistently fingered poor institutional linkages, systematic leakages, poor legal framework, governance and process lapses as factors that have characterised business ethics in the oil and gas industry over the years, is it not sad and counterproductive that NEITI lacks constitutional powers to enforce the recommendations contained in the four industry audits it has conducted since 1999 to date?

– The Nation

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