A Review of the Nigerian Energy Industry

PwC Report: NNPC, NPDC to return $1.48bn to federation account

NNPC towers
NNPC towers

07 February 2015, Abuja — The forensic audit into the allegation of unremitted funds by the Nigerian National Petroleum Corporation (NNPC), which was carried out by PricewaterhouseCoopers (PwC), has revealed that the sum of $1.48 billion is yet to be remitted to the Federation Account by the corporation and its E&P subsidiary, Nigerian Petroleum Development Company (NPDC).

The amount, the report stated, must be remitted to the Federation Account.

The federal government had appointed PwC early last year to undertake a forensic audit of the finances of NNPC after the former Central Bank of Nigeria (CBN) Governor, (now Emir of Kano), Alhaji Muhammadu Sanusi II, had written a letter to President Goodluck Jonathan over the non-remittance of $49.8 billion to the Federation Account by the corporation between January 2012 and July 2013.

The revelation, which led to an uproar among Nigerians and Sanusi’s eventual suspension as the CBN governor, forced the federal government to appoint the audit firm to audit NNPC.

Before his ouster, however, Sanusi revised the amount which he said had not been remitted by NNPC from $49.8 billion to $10.8 billion and later to $20 billion.

According to highlights of the PwC report, which covered the period January 2012 to July 2013, and was released to the press on Thursday in Abuja by the Auditor-General for the Federation (AuGF), Mr. Samuel Ukura, the total gross revenues generated from crude oil liftings were valued at $69.34 billion as against $67 billion arrived at by the Senate Reconciliation Committee, which also probed the NNPC.

It stated that of the $69.34 billion, $28.22 billion represented the value of domestic crude oil allocated to NNPC, while the total amount spent on petrol and kerosene subsidy stood at $5.32 billion and $3.38 billion respectively.

The report, however, recommended that the NNPC’s model of operation be urgently reviewed and restructured, as the current model, which has been in operation since the creation of the corporation is unsustainable.

Nevertheless, the PwC audit report further said a total of $50.81 billion in crude oil liftings was remitted into the federation account within the period under review.

This was in contrast to the $47 billion released by the Senate committee for the same period.

The report further noted that the NPDC was yet to remit the sum of $2.22 billion in signature bonus, PPT (Petroleum Profit Tax) and royalties to the Federation Account.

It added that the total revenue submitted by the former Managing Director of NPDC, Mr. Victor Briggs, to the Senate hearing, with the exception of PPT and royalties paid, stood at $5.11 billion.

The PwC report said the amount needed to be incorporated into the financial statements of NPDC from where dividends should be declared and remitted to the Federation Accounts.

Furthermore, it put the total other third party financing agreement and equity crude oil processing costs at $1.19 billion, while total cost directly attributable to domestic crude oil was valued at $1.46 billion, as well as $2.81 billion, which was attributed to cost, which was not directly attributed to domestic crude oil.

Meanwhile, among the three key recommendations to the federal government, the reported noted: “The corporation operates an unsustainable model. Forty-six per cent of proceeds of domestic crude oil revenues for the review period was spent on operations and subsidies.”

It said NNPC was “currently unable to sustain monthly remittances to the Federation Account Allocation Committee (FAAC) and also meet its operational costs entirely from proceeds of domestic crude oil revenues and has had to incur third party liabilities to bridge the funding gap”.

Citing the NNPC Act LFN No 33, which allows such deductions, the report stated that NNPC had provided transaction documents representing additional costs of $2.81 billion, which related to the period under review.

But it said clarity was needed on whether such deductions should be made by the corporation as a first line charge before remitting the net proceeds of domestic crude to the Federation Account.

On the kerosene subsidy, the PwC report recommended that an official directive be written to support the legality of kerosene subsidy costs as well as adequate budgeting and appropriation for the costs.

The report determined from information obtained from the Petroleum Products Pricing Regulatory Agency (PPPRA) that $3.38 billion relating to kerosene subsidy cost was incurred by NNPC for the review period.

PwC obtained a letter dated 19 October 2009 written by the Principal Secretary to the President to the National Security Adviser, confirming a presidential directive of 15 June 2009 instructing that subsidy on kerosene be stopped.

PwC also obtained a letter dated 16 December 2010 from the Executive Secretary PPPRA to the CBN governor, clarifying that PPPRA had ceased granting subsidy on kerosene since the presidential directive of 15 June 2009.

Furthermore, kerosene subsidy was not appropriated in the 2012 and 2013 federal government budgets.

The report further held that NPDC should remit dividends to NNPC and ultimately to the Federation Account based on NPDC’s dividend policy and declaration of dividend for the period in question.

It noted that NNPC’s 55 per cent portion of oil mining leases (OMLs) involved in the Shell divestments relating to the eight OMLs were transferred to NPDC for an aggregated sum of $1.85 billion but pointed out that only the sum of $100 million had been remitted.

Nevertheless, PwC said it expected a transfer basis higher than the $1.85 billion transferred.

PwC also stressed that though NPDC appeared to have done a self-assessment of PPT and royalties, and put its unpaid obligations at $0.47 billion within the review period, there was no information to suggest the company had been assessed for PPT and royalties.

Commenting on the findings of the report, NNPC said the audit had absolved it of culpability over the allegation of non-remittance of $20 billion, adding that what was due for remittance to the Federation Account is $1.48 billion by NPDC, being signature bonus, taxes and royalties on the assets transferred to the company.

In a statement by NNPC’s Group General Manager, Public Affairs, Ohi Alegbe, the corporation said the release of the forensic audit report had finally laid to rest the controversy surrounding allegations of “missing oil revenue” or non-remittance to the Federation Account.

The corporation explained that it was not true that it was indicted in the report as being speculated in some quarters as the $1.48 billion that the audit firm recommended that the corporation should remit to the Federation Account was not part of the alleged unremitted revenues from crude lifting for the period under review.

It explained that the $1.48 billion was never in dispute as it is made up of statutory payments such as the signature bonus, taxes and royalties, which are statutory payments that come with assets acquisition.

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

Meanwhile, the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, has directed the NNPC to defray the signature bonuses, taxes and royalties in line with the recommendation of the forensic audit report.

Expatiating further on the kerosene subsidy issue, the corporation stated that the PwC report also clarified that subsidy on kerosene was still in force as the presidential directive of October 19th 2009, was not gazetted in line with the provisions of Section 6 Sub-section 1 of the Petroleum Act of 1969.
*James Emejo – Thisday

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