*Recommends unbundling of NNPC
24 May 2016, Sweetcrude, Lagos — Nigeria Extractive Industries Transparency Initiative, NEITI has urged the Federal Government to conduct a comprehensive investigation 1n the circumstances that led to the divestment, transactions and operations of all assets transferred by the Nigeria National Petroleum Corporation, NNPC to Nigeria Production Development Company, NPDC.
NEITI in its 2013 audit report released on Monday 23 May 2016 said the comprehensive investigation is based on information computed by Department of Petroleum Resources, DPR with respect to the eight Oil Mining Lease, OMLs assigned to NPDC from Shell Joint Ventures between 2010 and 2011 which worth $1.8 billion.
From the $1.8 billion NEITI said no consideration was paid from the dates of transfer up till April 2014 when the sum of $100 million was paid, leaving an outstanding balance of $1.7 Billion as at the time of reporting it audit.
“The assignments of the OMLs were not arm’s length transactions and were also adjudged to be undervalued,” NEITI’s audit report stated.
NEITI added that the 2014 Price Waterhouse Corp, PwC forensic audit report on NNPC estimated the value of NNPC’s 55 percent equity assigned to NPDC to be about $3.4 billion based on commercial value paid by third parties on the sale of Shell’s 45 percent equity in the same OMLs.
Aside from the Shell’s divestment, NEITI’s audit report stated that no consideration had also not been paid to the Federation till date with respect to the four OMLs in Nigeria Agip Oil Company, NAOC JV assigned to NPDC in December 2012 adding that neither was the value of the consideration stated in the deed of assignment.
“The assignments were not transparent and in the audit opinion, they were not in the interest of the Federation,” NEITI insisted.
The audit report claimed that NPDC has continuously enjoyed full rights and benefits accruing from the assets transferred as dictated by the terms of the deed of assignment i.e. Oil and Gas revenues from the assigned fields have been paid to the account of NPDC, stating that NNPC did not declare any surplus to the Federation from the operations of the group since these OMLs were assigned to its subsidiary.
“No justification has been provided by NNPC for the transfer, other than the minister’s legal authority to assign and the need for NPDC to develop upstream capacity,” the audit report states.
To this end, NEITI recommends that the Federal Government should conduct a comprehensive investigation in the circumstances that led to the divestments, transactions and operations of all assets transferred by NNPC to NPDC.
“Federal Government should consider unbundling NNPC and review the current structure and model of operations of the group in order to separate policy from oil and gas operations.”
In response to NEITI’s claims, NNPC said divested its interest in the NNPC/SPDC JV in OMLs 26, 30, 34, 40, and 42 to the NPDC in 2011.
“The divestment was consented to by the Honorable Minister of Petroleum Resources pursuant to the rights of the Minister prescribed in the Petroleum Act.
“By virtue of the assignment, NPDC assumed responsibility for capital and operating expenses with respect to erstwhile JV Assets.
“This entitles NPDC to lift corresponding production volumes from the assets and to discharge royalty, Petroleum Profit Tax, PPT and other obligations to the Government.
“The Federation no longer pays cash call for NPDC operations for the divested assets. Therefore, NPDC lifting proceeds are not subject to remittance to the Federation Account.”
NNPC Cash Call
NEITI audit report states that the sum of $536.922 million was the total amount of cash calls paid in 2013 (Naira and Dollar) by National Petroleum Investment Management Service, NAPIMS with respect to OMLs in NAOC JV that had been assigned to NPDC in December 2012.
The report added that crude oil lifted by NNPC from the OMLs concerned were paid into the account of NPDC.
Meanwhile, NEITI explained that NAOC under the Joint Oil Agreement, JOA for OMLs 60, 61, 62 and 63, stated that it has not signed or endorsed any novation agreement from NNPC/NAPIMS to NPDC and has never interfaced with NPDC as partner in the OMLs.
“NAPIMS provided evidence of a refund of the sum of $389.058 Million by NPDC in 2014 from the $536.922 million, leaving an outstanding balance of $147.864 Million. There was however no evidence of any transfer of the refund to the Federation Account,” the audit report states.
The audit evidence also revealed that cash calls were paid on assets (OMLs 4, 26, 30, 34, 38, 40, 41 & 42) divested by NNPC to NPDC from SPDC JV between September 2010 and April 2011. The sum of $35.127 million was refunded by NPDC into JPMorgan Chase Cash Call Dollar Account in July 2013 with respect to Cash Calls paid for the period April to November 2011 on OML 42.
However, the audit report revealed that no evidence of any transfer of the refund was made to the Federation Account.
The audit report also discovered during a review of NAPIMS documents which indicate that there is an outstanding refund request by NAPIMS on OML 26 ($414,000 and N249,272,000) and OML 42 (N2,171,235,000) for the same period.
NEITI recommended that the sum of $389,058,000 refunded by NPDC to NAPIMS should have been paid into the Federation Account.
“NAPIMS should therefore account for the utilisation of the refund. NAPIMS being the custodian of NNPC’s investment should have records of cash calls paid/refunded on each OML and Federal Government to ensure that these records are produced for audit review of cash calls paid to JV operators with respect to OMLs assigned to NPDC by NNPC for the verification of expenditure incurred with the refunds.”