A Review of the Nigerian Energy Industry

Release of NNPC forensic audit report: What next?

Oscarline Onwuemenyi 07 January 2015, Sweetcrude, Abuja –  Following the release earlier this month of the much-awaited forensic audit report on the alleged mismanagement of about $20 billion by the Nigerian National Petroleum Corporation, NNPC, many Nigerians are left wondering if this is the end of all the rife speculations, allegations and counter-allegations that have been hurled from end to end; and if so, what’s next? Is anybody or group of people going to face prosecution for certain accounting infractions?

Mrs. Alison-Madueke

President Goodluck Jonathan had, while receiving the report from the accounting firm recently requested the Auditor-General of the Federation to study the report and make the key highlights public within a week.

The audit followed allegation in 2013 by the immediate-past Central Bank of Nigeria, CBN, Governor, Lamido Sanusi, now the Emir of Kano,  that about $20 billion oil money was missing from the NNPC, following the diversion of about $49 billion by the national corporation.

The amount was later scaled down to $20 billion, just as he called for investigations after writing to President Jonathan. But the government insisted at the time that no money was missing and promised a forensic probe.

The presentation of the report is coming almost 10 months after Finance Minister and co-ordinating Minister of the Economy, Dr. Ngozi Okonjo-Iweala, in April 2014, announced the appointment of PricewaterhouseCoopers, PwC, to conduct an investigation that was to last about 16 weeks.

President Jonathan had sought to downplay the enormity of the allegations, describing media reports on the issue as “ridiculous”.

“There has been so much of controversy over this NNPC and leakages or no leakages. I remember the Senate has also looked into it; it is also good that you professionals have also looked into it.

“What appears in the papers and the speculation is also very high, the figures that I cannot even imagine the country will make are being bandied in the newspapers. So, I am quite pleased that you have undertaken the forensic audit,” the President stated.

The audit report as unveiled in Abuja by the Accountant-General of the Federation, Mr. Samuel Ukura, had indicted the corporation and its upstream subsidiary, Nigerian Petroleum Development Company, NPDC, over unreconciled transactions, and ordered the refund of about $1.48 billion to the Federation Account.

The report further revealed that $20 billion was spent on petroleum products subsidy between January 2012 and July 2013.

The audit report said the  amount also went into third party financing arrangements and equity crude processing, besides costs directly and indirectly linked to domestic crude.

Others include signature bonuses, petroleum profit tax and royalties which are yet to be paid by the NPDC. The auditors faulted the NNPC’s operational modalities which it noted is unsustainable, hence the need to urgently review and restructure the oil behemoth.

The report also showed that only $100 million from the NNPC’s portion of eight oil leases worth $1.85 billion had been paid to the NPDC, faulting the transfer value which it said ought to be higher.

According to the report, gross revenue from crude lifting during the period stood at $69.34 billion, more than the $67 billion by the Senate’s reconciliation committee earlier set up.

Of this also, $50.81 billion was remitted to the Federation Account from crude oil lifting, instead of $47 billion reported by the committee.

A further breakdown showed that of the $69.34 billion, $28.22 billion was the value of domestic crude oil allocated to NNPC, adding that total amount spent on subsidy for petrol amounted to $5.32 billion.

It also noted that the sum of $3.38 billion which was not appropriated in the national budget was spent on Kerosene subsidy.

It said although the Petroleum Products Pricing Regulatory Agency and the NNPC relied on a presidential directive of June 15, 2009 to stop subsidy on kerosene, the directive was not gazetted, following which there was no legal instrument canceling the subsidy on kerosene.

Specifically, the PWC audit report said: “Total other third party financing arrangement and equity crude oil processing costs amounted to $1.19 billion. Total costs directly attributable to domestic crude oil amounted to $1.46 billion.

“Other costs incurred by the corporation not directly attributable to domestic crude is $2.81 billion. Revenue attributable to NPDC as submitted by the former Managing Director to the Senate hearing is $5.11 billion.

“PWC stated that this amount needs to be incorporated into the financial statements of NPDC from where dividend should be declared to the federation accounts.

“Signature bonus, Petroleum Profit Tax and Royalty yet to be paid by NPDC is $2.22 billion. Total cash remitted into the Federation Account in relation to crude oil liftings was $50.81 billion and not $47 billion as earlier stated by the Senate Reconciliation Committee for the period January 2012 to July 2013.

“Based on the information available to PwC, and from the above analysis, the firm submitted that NNPC and NPDC should refund to the Federation Account a minimum of $1.48 billion.”

The report, which release many link to the ongoing brick-a-bat between another former CBN Governor, Prof. Chukwuma Soludo and members of the National Economic Management Team led by Dr. Okonjo-Iweala, noted that the NNPC is unable to sustain remittances to the Federation Account and meet operational costs from crude oil revenue, hence the resort to third party liabilities to bridge the funding gap.

Ukura said the report was based on three key areas – NNPC costs, ownership of NPDC revenues and kerosene subsidy – noting that 46 per cent of proceeds of domestic oil revenues for the review period was spent on operations and subsidies.

“The corporation is unable to sustain monthly remittances to the Federation Accounts Allocation Committee, and also meet its operational costs entirely from proceed of domestic crude oil revenues, and have had to incur third party liabilities to bridge the funding gap,” it added.

The report said although the NNPC presented a transaction document representing additional costs of $2.81 billion related to the review period, stressing the need to clarify whether such deduction should be made by the corporation as a first line charge before remitting the net proceeds of domestic crude to the federation account.

Consequently, PwC recommended that on the ownership of NPDC revenues, NPDC should remit dividend to NNPC and ultimately to the federation account, based on NPDC’s dividend policy and declaration of dividend for the review period.

Meanwhile, reacting to the release of the report, a statement by the NNPC signed by the Group General Manager, Group Public Affairs Division, Mr. Ohi Alegbe said the audit report vindicated its stand that $20 billion was not missing or unremitted.

It said the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke has directed that $1.48 billion should be remitted to the Federation Account, insisting that the amount is “not part of the alleged unremitted revenues from crude lifting.”

According to the NNPC, the amount was never in dispute as it is made up of statutory payments such as signature bonus, taxes and royalties which are statutory payments that come with assets acquisition.

It said the delay in payment was due to the reconciliation processes between the Department of Petroleum Resources (DPR) and the NNPC.

The corporation stated that the forensic audit report and the Senate Committee on Finance report on the unremitted revenue all alluded to the fact that NPDC reported crude oil revenues of $5.11 billion.

Expatiating further on the kerosene subsidy issue, the corporation said the audit report also clarified that subsidy on “DPK is still in force as the presidential directive of 19th October, 2009, was not gazetted in line with provisions of Section 6 Subsection 1 of the Petroleum Act of 1969.

“The Forensic Audit Report also acknowledged that Section 7 Subsection 4 of NNPC Act empowers the corporation to defray its costs and expenses including the costs of its subsidiaries from crude oil revenues, though it also recommended that the laws be reviewed to make the Corporation meet its costs and expenses entirely from the value it creates.”

In a recent piece entitled, “Ngozi Okonjo-Iweala and the Missing Trillions (1),” which was written in reaction to an earlier piece by the Finance Minister describing him (Soludo) as Nigeria’s worst CBN governor, Soludo regretted that Nigeria continues to bleed uncontrollably under Okonjo-Iweala’s watch as coordinating Minister of its Economy.

Soludo noted that “our public finance is haemorrhaging to the point that estimated over N30 trillion is missing or stolen or unaccounted for, or simply mismanaged- under your watch!”

He said: “My estimate, Madam, is that probably more than N30 trillion has either been stolen or lost or unaccounted for or simply mismanaged under your watchful eyes in the past four years. Since you claim to be in charge, Nigerians are right to ask you to account. Think about what this amount could mean for the 112 million poor Nigerians or for our schools, hospitals, roads, etc. Soon, you will start asking the citizens to pay this or that tax, while some faceless “thieves” were pocketing over $40 million per day from oil alone.”

President Jonathan has admitted that the nation’s petroleum sector needs to be reformed.

He expressed the hope that most of the lapses being noticed in the sector would be corrected by the time the Petroleum Industry Bill was passed into law.

While promising to handle the recommendations of the report decisively, Jonathan expressed the belief that the forensic report would help the nation move forward.

The President said, “Nigerians don’t need to be scared, this is something that Nigerians are interested in. They (the audit firm) wanted to submit an interim report, but I said no, they must conclude this matter, because it is a forensic audit and there is no room for interim report so they must go back and conclude it and luckily they have concluded it.

“I hope we will not call them back, but where need be, we will call them back if there are issues that are not so clear, but we are happy with what we have done so far.

“I assure you that this is a precious document that the Accountant-General will keep and I will have my own copy, because even if I leave office, maybe when I write my memoir, I will use some part of it.

“But the kind of figure people bandy in the papers look so ridiculous,” he added.

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