Nigeria missing $1.25bn oil income from undefined pricing MoU – NEITI

NEITI (1)07 June 2016, Abuja — Nigeria may be missing up to $1,250,883,843 ($1.25 billion) from its inability to clearly define the terms of a Memorandum of Understanding, MoU, it signed in 2000 with oil companies on how crude oil produced from her fields should be priced, the Nigeria Extractive Industries Transparency Initiative, NEITI, has said.

According to additional details received from NEITI’s 2013 financial and process audit report on Nigeria’s oil sector, the country’s failure to finely execute the 2000 MoU which replaced a 1991 pricing MoU meant that $1.25 billion cannot be accounted for now.

The income is now considered by the NEITI as under-assessed and or underpaid Petroleum Profit Tax, PPT, and royalties. NEITI from the recently published 2013 audit had flagged off the anomaly.

It specifically questioned the execution of the MoU on calculating the fiscal value of crude oil produced by oil companies between July 2010 and December 2012, for which that much of revenue is missing, and may now be advising the government on how to recover this fund.

It was gathered that the government, through the Nigerian National Petroleum Corporation, NNPC, signed the 2000 MoU with oil companies and it took effect on January 1, 2000, but subject to reviews.

It also learnt Monday, that the MoU was agreed to last for a minimum of three years and then extended or otherwise in the second year by mutual agreement of the parties.

Further investigations showed that upon termination, the incentives in the MoU which included using the Realisable Price, RP, to calculate the fiscal value of crude oil for the periods shall cease and then replaced by a new fiscal regime as greed by parties.

However, it was discovered that parts of the terms agreed in the 2000 MoU was ignored and the government in failing to force through a new fiscal regime could not earn $1.25 billion between July 2010 and December 2012 as PPT and royalties on oil produced.

It was learnt that this was made possible by the government’s sudden termination of the 2000 MoU in January 2008 without consulting other parties.

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In terminating the MoU, the government through the Department of Petroleum Resources, DPR, directed that the RP be jettisoned and replaced with the Official Selling Price, OSP, a new fiscal methodology the oil companies kicked against.

According to records of official exchanges between the government and the companies on this, the oil companies hinged their rejection of the new terms on the ground that the government did not meet the conditions required for the termination of the adopted MoU.

As it was also learnt, parts of the conditions required were that a one-year notice must be given by any of the parties for any termination to be effective.

It was likewise agreed that in the event that the government fails to provide the new fiscal regime, the MoU would continue to apply.

Hanging on this, the companies then refused to comply with the directive of the DPR to use the OSP in calculating government’s PPT and royalties.

However after both parties consulted and it was agreed that the RP should be used as fiscal price from January 2008 to June 2010, suggesting government’s concession of grounds to the oil companies, no agreement was then reached on the use of OSP from July 2010 to December 2012 as favoured by the government. This then left the uncertainty in pricing model for that period.

The NEITI by its estimate of this stated that the amount recoverable on the basis of an application of OSP from July 2010 to December 2012 was $705,830,501 as under assessed PPT and $545,053,342 as royalty.

However, it was not clear what the transparency agency intends to do in this regard, but its Executive Secretary, Mr Waziri Adio disclosed that the development was a clear case of government officials failing to do their jobs.

The paper also understands that the Oil Producers Trade Sector, OPTS, of the Lagos Chambers of Commerce and Industry, LCCI, had in July 2015 acknowledged to NEITI that an agreement on the pricing methodology with the government for 2010 to 2012 was still an outstanding issue.
*Chineme Okafor – Thisday

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