Unabating Sleaze in the Oil Sector

Oil pipelines in the Niger Delta

The 2013 audit report of financial and process activities in Nigeria’s oil industry which the Nigeria Extractive Industries Transparency Initiative (NEITI) released last Monday shows nothing has really changed in the way Nigeria runs her oil industry. Chineme Okafor reviews the report

“It is important to re-state that these reports covered the year 2013. Clearly, a few things have or could have changed since then.

“But it is clear that despite the gap of three years, most of the issues raised in the reports are still relevant today and should guide us on the way forward,” said Minister of Solid Minerals and chairman of the board of NEITI, Dr. Kayode Fayemi.

Fayemi said this when he presented highlights of the 2013 oil and gas audit report of NEITI in Abuja.

While presenting the content of the report, he noted that Nigeria still had a lot of work to do if she must clean up years of corrupt management of operations in her oil and gas industry.

According to him, notwithstanding recent reform efforts at Nigerian National Petroleum Corporation (NNPC), and in the oil sector, the audit report underpins the importance of absolute dedication to changing the way Nigeria runs her hydrocarbons industry because it is still corrupt.

“We are also all aware about the ongoing reforms in NNPC and the oil sector in general. These report reinforce why such reforms are so important and why we cannot afford to take our eyes off the ball,” Fayemi explained.

In reading out the content of the report, the minister noted that NNPC and other oil companies who are the usual culprits on issues of reported misconduct in operations and financial activities in Nigeria’s oil sector, had committed the usual crime of having either underpaid, withheld and under-assessed government’s receipts from their operations in the country.

He said within the period, the activities of 41 oil companies and 16 relevant government agencies were assessed by NEITI’s audit team from which it was discovered that 800,488,000 barrels of oil were produced but 800,338,000 barrels lifted.

Fayemi also explained that despite the 150, 000 barrels that were not lifted within the period for some operational reasons, Nigeria earned $58.07 billion as revenues from crude oil sales, taxes, royalties and other incomes which the companies ought to have remitted to her national account.

But the transfer of this earning, according to the report was laced with elements of unwholesome practices which have inappropriately gone on for years and for which the NEITI stands against.

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

He listed the unremmited revenues to include: a sum of $3.8 billion and N358.3 billion as outstanding revenues from the NNPC and its sub-units in 2013 as payments due from unpaid consideration from its transfer of oil blocks to its subsidiary – the Nigerian Petroleum Development Company (NPDC), cashcall refunds from the Nigerian Petroleum Investment Management Services (NAPIMS), and NPDC’s liftings from its joint venture with Nigeria Agip Oil Company (NAOC).

Another $5.966 billion and N20.4 billion as revenue losses to the federation for engaging Offshore Processing Agreement (OPA), crude oil swap, and crude theft; as well as $599.98 million pinned as under-assessments or under-payments for petroleum profit taxes and royalties by oil and gas companies who use pricing methodology that differs with that of the government.

Also stated from the audit report was the fact that $1.289 billion which the Nigeria Liquefied Natural Gas (NLNG) paid to the NNPC as dividends, interest and loan repayment for 2013 was not remitted to the accounts of government.

Fayemi explained that the 2013 NLNG payment brought the total NLNG proceeds which the NNPC had not remitted to the government to $12.9 billion between 2005 and 2013.

While questioning the processes which the NNPC adopted in its transfer of the country’s equity stakes in various oil blocks to NPDC, Fayemi said the country lost considerably from the transactions, averring that such represented the characteristics of oil blocks transfers by the NNPC to NPDC.

“Between 2010 and 2011, NNPC divested 55 per cent federation 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 of which only $100 million was paid in April 2014, leaving a balance of $1.7 billion.

“Also, the audit discovered that NNPC assigned four OMLs (60, 61, 62 and 63) from the NAOC JV to NPDC in December 2012. 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,” added Fayemi.

He said the NNPC also lifted crude on behalf of NPDC and not the federation from these OMLs that were not fully paid for or were not even paid for at all but its benefits received only by the NPDC.

What has Changed?

Based on the recommendations of the report, significant changes on the processes employed by Nigeria, in managing its oil resources (most of which NEITI from its inauguration has pushed for) cannot be said to have taken place so far, neither has the country largely adopted NEITI’s past recommendations on transparent operations.

Clearly, the report repeated a number of recommendations that it had made in its previous versions, to suggest that the country has so far remained largely non-committal to improving on past identified anomalies.

Parts of the recommendations in the 2013 audit included asking the federal government to conduct a comprehensive investigation into the transfer of the federation’s oil blocks by NNPC to NPDC. Industry experts consider the controversy over the oil blocks transfer as an example of a recent discretionary award in the country’s oil industry.

Due to the huge impact of crude oil theft on Nigeria’s revenue from the sector, the report requested that a scientific technology such as finger-printing should be put in place to track Nigeria’s crude oil trade and from which oil theft could be checked – the audit had disclosed that the total value of crude oil losses to the federation as reported by three Joint Venture (JV) companies in 2013 was $4.7 billion.

In its highlights of what Nigeria had lost due to irregular production metering and pricing methodology in 2013, the report also endorsed that the government quickly resolve the issue of pricing methodology by enacting appropriate law to forestall under assessments of profit tax and royalties. It asked that NNPC and its sub-units should refund outstanding payments to the federation; while gas sales should be invoiced in dollars not Naira to avoid exchange losses which was put at $1.167 million.

Shine more light on NNPC

Traditionally, NEITI’s audit reports in the past had never spared NNPC from being condemned for inappropriate operational practices, and even though the corporation had always stated its innocence of such allegations, further prodding by independent audits has come to buttress NEITI’s positions.

The 2013 audit again highlighted these anomalies when it said: “NNPC should discontinue alternative importation arrangements and limit itself to export of crude and import of refined products; and NNPC should abide by federal government financial regulations and always comply with the 90-day credit period.”

“Government should investigate the status of NLNG dividends; NNPC, DPR, FIRS, OAGF and CBN should prioritise fixing remedial issues identified in their operations,” added the report which equally asked that pioneer status should not be granted to companies in the oil and gas sector, except a company that is actually pioneering an aspect of the industry.

A vital job for the National Assembly

As a statutory responsibility enshrined in the NEITI Act 2007, the National Assembly is expected to deliberate on its floors, outcomes of NEITI audit reports but the assembly has frequently ignored this responsibility, thus, compelling Fayemi to ask that the 2013 report be looked into by the legislators.

“Now that these reports are out, I will like to call on the legislature to take keen interest in the audit findings in designing legislations for the extractive sector and in carrying out their oversight functions,” said Fayemi.

He added: “Over the years, NEITI has provided vital data on revenues, volume and governance processes in the extractive sector.

“However, the challenge has always been in getting accountability actors, especially citizens and civic groups, to use such critical evidence to hold to account those who exercise power in trust for them and to make effective demand for a better society.”

According to him, “merely publishing information about the extractive sector will not do the trick.”