A Review of the Nigerian Energy Industry

Non-remittance of $49.8bn: No reason to deceive Nigerians – NNPC

NNPC GMD Andrew Yakubu

13 December 2013, Abuja – The Nigerian National Petroleum Corporation (NNPC) has stated that there is no reason whatsoever for it to deceive or mislead the citizenry about its operations especially on crude oil sales that generate over 70 per cent of revenue for the nation.

In a statement yesterday by the General Manager, Media Relations Department, Dr. Omar Farouk Ibrahim, the corporation explained that the report of alleged non-remittance of funds into the Federation Account, stemmed from a lack of understanding of how proceeds from crude oil sales are calculated.

The corporation clarified that the allegation was borne out of a misunderstanding of the workings of the oil and gas industry and the modality for remitting crude oil sales revenue into the Federation Account by the Governor of Central Bank, Mallam Sanusi Lamido Sanusi.

Ibrahim said: “For the avoidance of doubt, it is a well-known fact that revenue generation from the crude oil sales is based on four critical fiscal terms; which are royalty, cost oil (cost of running the business), Petroleum Profit Tax, PPT and profit of the investor. Out of these four critical elements, NNPC is responsible for the payment of the profit oil after removing the cost of running the business into the Federation Account while the Department of Petroleum Resources, DPR and the Federal Inland Revenue Services (FIRS) is saddled with the responsibility for the royalty and PPT respectively. Revenues from each of these categories are statutorily collected by the different agencies of the government and paid into the Federation Account. The sum total of these proceeds make up the total revenue accruable to the Federation Account.

He added: “As you may be aware, royalty which is a first line charge accounts for between 0 per cent (Production Sharing Contract, PSC) to 20 per cent in the traditional Joint Venture, JV operations while PPT ranges from 50 per cent (PSC) to 85 per cent in the JV. Thereafter profit oil which ranges from 7 – 18 per cent. Based on the foregoing, the major contributor of revenue into the federation from crude oil sales is royalty and PPT. As such, a significant percentage of the revenue generated from crude oil sales is expected to be paid into the federation account through the DPR and FIRS respectively. It is an established fact globally that royalty and PPT contribute over 75 per cent of the total government revenue (especially in the JV arrangements in all jurisdictions) derived from the proceeds of crude oil sales while the balance represents cost of production and profit oil.

He clarified that the 24 per cent of total crude oil revenue receipts, which the publication acknowledged as a partial remittance represents the proceeds from the equity lifting which NNPC was directly responsible for in line with global trends.

“The alleged unremitted 76 per cent was paid through the agencies that are statutorily empowered to receive them for onward remittance into the federation account.
“While the CBN said its computation, based on pre-shipment details, showed that Nigeria sold N10.3 trillion worth of oil in 19 months, some online publications further alleged that Nigeria should rather realise N10.6 trillion in the first 10 months of 2013 based on average daily production of 2.11 million barrels of crude oil sold at $105.84 per barrel,” he added.

He said: “The entire federation equity in JV is about 58 per cent, hence only such equity and revenue derived from crude oil sales belongs to the Federation. As such, the alleged average daily 2.11 million barrels of oil converted to revenue for the federation account is an aberration as the online publication did not recognise equity holdings of the International and Indigenous Oil companies in the case of the JV and the economic interest of the Investors in the PSC in the entire value (revenue) chain.

“NNPC believes the alleged publication is a clear demonstration of lack of understanding of the Petroleum industry operations and/or a well-orchestrated attempt to tarnish the image of the of NNPC and the present administration and most importantly a calculated attempt to deceive the Nigerian public as about 40 per cent (representing about 900,000 barrels of oil per day) of the 2.11million barrels daily production is under the PSC regime that contributes less than 15 per cent of the total revenue to the federation account annually. The low revenue generated from the PSC arrangement is due a significant portion of the revenue from the crude oil sales is used for cost recovery consequently contributing a small portion of the revenue into the Federation Account as profit oil which is barely less than seven per cent.

The General Manager further stated that the balance of about 1.4 million barrels of daily production out of the 2.11 million barrels of daily production consists of about 58 per cent of federal government equity and 42 per cent for the other JV partners.

“As such, the total crude oil receipts cannot be as stated by the online publication rather reconfirms data provided by the Office of the Accountant General of the Federation of N5.8 trillion between January and October, 2013.

He further stated that there is no reason whatsoever for NNPC to deceive or mislead the citizenry about its operations especially on crude oil sales that generate over 70 per cent of revenue for the nation.

“However, the corporation will continue to advocate that all stakeholders especially the Media to verify information before going to the press.”
He expressed NNPC’s availability at all times to meet and share with all relevant stakeholders including the media to clarify issues.

– This Day

In this article

Join the Conversation