Increasing relevance of NEITI’s audit reports

28 June 2016, Lagos – Ejiofor Alike writes on the increasing relevance of NEITI’s reports in enthroning good governance and accountability, as well as the need for the federal government to muster the political will to implement the agency’s recommendations

NEITI (1)After a careful analysis of the economic and political progress of countries in relation to the mineral resources available in such countries, political philosophers came up with the theory of resource curse to demonstrate that rather than being a blessing, abundance mineral resources represent a curse to countries.

However, most theorists believe resource curse is not universal but only applicable to third world countries in certain regions that are still at certain stages of their political and economic development.

Political scholars define resource curse, also known as the paradox of plenty, “as the paradox that countries with an abundance of natural resources such as oil, gas and minerals tend to have less economic growth, less democracy and worse economic development than countries with fewer natural resources”.

There is consensus among scholars that when a country abandons all other sectors of the economy and depends solely on a single industry or mineral resource, the country will suffer from resource curse.
With only one industry as the major focus of a country, there will be fierce competition among the few strong citizens and regions of the country for the control of that resources and the accrued revenue, thus fueling conflicts, corruption, bad governance and lack of respect for democratic ideals.

So, instead of using the country’s natural resources, such as oil, gas, metals and minerals, which belong to its citizens, for the benefits of the people, the revenue accruing from these resources tend to serve the interest of a few, who are able to grab the political power to control these resources.

Studies have shown that the top 10 countries ridden with corruption globally are very rich in mineral resources.
Also the top 10 crisis-prone countries have abundance mineral resources, which fueled the conflicts due to the competition among all the sections of the country for the control of the resources.

Having realised that poor natural resource governance often lead to corruption and conflict, there is an increased focus on more openness and public scrutiny of how wealth from a country’s extractive sector is used and managed to ensure that natural resources benefit all.

The Extractive Industries Transparency Initiative (EITI) is a global standard to promote transparent and accountable management of natural resources.
According to the global body, it seeks to strengthen government and company systems, inform public debate and promote understanding.

The organisation is supported by a coalition of government, companies, and civil society in each of the 49 implementing countries.
Nigeria as a compliant country, set up the Nigeria Extractive Industries Transparency Initiative (NEITI), which is mandated by law to promote transparency and accountability in the management of Nigeria’s oil, gas and mining revenues.

NEITI is a major component of the ongoing anti-corruption reform in Nigeria and the national version of the EITI, which is a global movement aimed at ensuring that extractive resources aid sustainable development.
NEITI was inaugurated in February 2004 by former President Olusegun Obasanjo when he set up the National Stakeholders Working Group (NSWG), under the then leadership of Mrs. Obiageli Ezekwesili.

The Minister of Solid Minerals, Dr. Kayode Fayemi is the current Chairman of the NSWG, which oversees the activities of NEITI with representatives of government, extractive companies and civil society.

The NEITI Act of 2007 mandates NEITI to promote due process and transparency in extractive revenues paid to and received by government as well ensure transparency and accountability in the application of extractive revenues.
The first audit report of NEITI uncovered over $46 million as missing money but in the latest report released in May 2016 for the 2013 audit, the figure of missing money has dropped below $500,000, and this represents a huge success for the organisation

Highlights of 2013 NEITI audit report
According to Fayemi, 49 oil and gas producing companies and 16 government agencies participated in the 2013 audit, which was released last month.

The report showed that the total crude oil production in 2013 was 800,488,000 barrels but the total volume of crude oil lifted through the different contract arrangements was 800,338,000 barrels. The difference of 150, 000 barrels was because not everything produced is always lifted.

The audit also showed that the total revenue flows to the Federation from all sources in 2013 was $58.07 billion, representing a decline of eight per cent when compared with the $62.9 billion realised in 2012. This decline was attributed to the drop in oil and gas sales following divestment of Federation equity in some OMLs, crude losses as a result of destruction of production facilities, pipeline vandalism, and crude oil theft.

According to the audit, some revenues that should have gone to the Federation in 2013 were not made or lost due to a number of reasons.

For instance, $8billion and N358.3billion were outstanding revenues from NNPC and its sub-units in 2013.
The sum of $5.966 billion and N20.4 billion were revenue losses to the Federation arising from the Offshore Processing Agreement, crude swap, crude theft etc.

Again, $599.98 million were uncovered as under-assessments/under-payments of petroleum profit taxes and royalties by oil and gas companies as a result of the use of different pricing methodology by the government and the companies because of absence a new fiscal regime.

NNPC acknowledged receipt of $1.289 billion as dividends, interest and loan repayment for 2013 from the NLNG but did not remit it to either the Federal Government or the Federation, thus bringing the total NLNG payments received by NNPC between 2005 and 2013 but not remitted by NNPC to the Federal Government or the Federation to $12.9 billion.

Also, between 2010 and 2011, NNPC divested 55 per cent equity in eight OMLs from the Shell JV to its subsidiary, NPDC. The eight OMLs – 4, 26, 30, 34, 38, 40, 41 and 42 were valued by DPR at $1.8 billion, out which only $100 million was paid in April 2014, leaving a balance of $1.7 billion. The audit further discovered that NNPC assigned four OMLs – 60, 61, 62 and 63 from the NAOC JV to NPDC in December 2012 but no amount had been paid on these four OMLs as at the conclusion of the 2013 audit, neither was the value of the consideration stated in the deed of assignment.
The 2013 audit report also uncovered other infractions by the NNPC and the companies, which are not reflected in this analysis.

Response by companies
As a demonstration of the effectiveness and success of NEITI in its 12 years of existence, the report noted significant improvement in the response by companies to NEITI audit process.

For instance, the reconciliation difference between what the companies paid and receipts by government agencies reduced from $46.976 million in 2012 to $492, 000 in 2013, representing 98 per cent fall is attributable to improved record keeping by the entities.

Also gas flaring penalty reduced from $24.58 million in 2012 to $18.475million in 2013, representing 25 per cent decrease due to reduced gas flaring and increased gas utilisation.
The report also noted that under assessments in royalty payments decreased from $465million (30 companies) in 2012 to $168.3 million (16 companies) in 2013, representing a decrease of 64 per cent.

Recommendations
One of the key recommendations in the report was that the federal government should conduct a comprehensive investigation into the divestments of Federation assets by NNPC to NPDC.

The report also recommended a scientific technology such as finger-printing to track Nigeria’s crude oil trade to check oil theft, while government is also requested to quickly resolve the issue of pricing methodology by enacting appropriate law to forestall under assessments of PPT/Royalty.

NEITI also recommended that the NNPC and its sub-units should refund outstanding payments to the federation, while gas should be invoiced in dollars, not Naira, to avoid exchange losses.
NNPC should discontinue alternative importation arrangements and limit itself to export of crude and import of refined products; and also abide by Federal Government Financial Regulations and always comply with the 90-day credit period.

The report also seeks to abolish pioneer status granted to companies in the oil and gas sector, except a company is actually pioneering an aspect of the industry.
NEITI further recommended that the government should investigate the status of NLNG dividends; while the NNPC, DPR, FIRS, OAGF and CBN should prioritise fixing remedial issues identified in their operations.

Political will
Despite the huge success recorded by NEITI in its 12 years of existence, the agency would have recorded much more achievements if the government had mustered the full political will to implement the reports over the years.
NEITI’s Executive Secretary, Mr. Waziri Adio told THISDAY editors at the company’s Corporate Head Office recently in Lagos that the country would require a political will to implement the various audit reports and recommendations of the organisation.

Adio argued that though the agency has not attained perfection, it has published audit reports to enable the Nigerian people ask questions about the management of their natural resources.
Adio noted that what the country requires is the political will to implement the reports, adding that nothing will be achieved when audit reports and recommendations are presented to a government that is not interested in making a change.

He revealed that having conducted six audits in the oil and gas sector and four in solid minerals sector, NEITI has given Nigerians empirical data to hold government to account and solicited the cooperation of the media and the civil-society to ensure that everybody understands the issues in the agency’s reports.

“If you flash back to 2004, there was nothing to work with – no data to work with. You could only work with assumptions and companies because there was no empirical data done by an independent body that will tell you that this is the volume of oil lifted; this is the amount of money made; and this is money that was not remitted that should be remitted. So, a lot has happened in the last 12 years. At least, we have data to work with. We argue not on the basis that we got perfection but that at least, people can now ask questions using the reports by NEITI.

People can use NEITI reports to ask questions. That is number one. Number two is that if you have noticed, a number of things have also changed overtime. May be, they have not changed as we want them. But I don’t want to believe that we are exactly where we were in 2004, in terms of evidence that the citizens can use. Yes, I will agree with you that may be, we need to engage more with citizens; may be; we need to engage more with policy makers to bring about the change. But let us also look at it this way,” he explained.

He identified the recent unbundling of the NNPC, the reform in the Corporation, the removal of petrol subsidy and the introduction of Treasury Single Account (TSA) as some of the recommendations of NEITI in its previous reports.
“There are two ways you can change the world. One way is through a revolution – people go to the streets or somebody overthrows the present order and introduces a new order. The other way of changing the world is by increment – you make one progress, you build on it; you make another progress, you build on it. What I am trying to say is that in the last 12 years, a lot has happened in terms of people being more aware of what is going on and not relying only on NNPC to tell you what is going on. That is number one. Number two is that from issues we have been talking overtime, there are certain things that are wrong in the way we manage our resources. Some of them are aggregating together to the extent that now, we are seeing some changes. Also some money that would not have been recovered is being recovered. But has NEITI failed? The answer is No,” Adio said.

“What I am trying to say is that the work of changing the society is always work-in-progress. The only thing is that if you notice that you are not making progress- if you are retrogressing, you should worry. But what I am trying to say is that a lot of progress has been made,” Adio added.

Adio recalled that even in the last general elections, the issue of implementing NEITI reports was a campaign issue, adding that if there was no NEITI, nobody would have talked about NEITI reports.

He insisted that the country must have the political will to implement the reports, adding that the report will not be relevant when the government in power is not interested in change.

“We need to have the political will. If you have a government – let me give you an example: NNPC divested 55 per cent of its assets to its upstream subsidiary – the Nigerian Petroleum Development Company (NPDC) but the assets were not properly valued. They were valued at $1.8 billion and they paid only $100 million and the rest of the money was not paid and they were benefitting from it. So, if you raise such issue with a government that is interested in keeping it that way – if you have a government that is not interested in change- in making things work, then you are just wasting your time writing reports. So, what we need to do is to get the buy-in of the government,” Adio said.

He argued that the citizens should be on top of these issues and not regard them as NEITI issues because they border on the welfare of the people.

NEITI has justified its existence but what is left is for the federal government to develop the needed political will to implement the agency’s reports.

 

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