Manifestation Of Towers of Fraud
It is no longer news that Nigeria generates over 80 per cent of her foreign earnings from the oil and gas industry, but the long term cry by some Nigerians that the management of the corporation charged with the responsibility of managing the sector, Nigerian National Petroleum Corporation (NNPC), is riddled with corruption is gradually been confirmed with recent revelations.
The four towers located along the Herbert Marculey in the Central Business District (CBD) in Abuja which serves as the headquarters of the NNPC was first tagged the tower of corruption by the crew of the popular radio program “Political Platform,” run by the nation’s premium private radio station, Ray Power FM.
It’s therefore not surprising to hear that almost every act of corrupt activity recently unveiled by the present government of Muhammadu Buhari is traceable to the NNPC or the Ministry of Petroleum Resources which is also housed within the four tower complex in Abuja.
Think of it, from the likes of former Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke with alleged $450 million misappropriated fund, to finding of a save containing over $9 billion in the home of the former Group Managing Director of the NNPC, Dr Andrew Yakubu to the retirement of the former Managing Director, NNPC Retails Limited, Mrs. Esther Nnamdi-Ogbue alongside Executive Director, Operations, NNPC Retail Limited, Mr. Alpha Mamza, and Manager, Distribution, NNPC Retails Limited, Mr. Oluwa Kayode Erinoso over their role in the MRS and Capital Oil fuel storage saga, it is stories of endemic corruption.
This is even as the Nigeria Extraction Initiative Transparency Initiative (NEITI) continues to unveil the high level corrupt activities perpetuated by various subsidiaries of the NNPC.
For instance, the Executive Secretary of NEITI, Mr. Waziri Adio while addressing journalists at a workshop organised for media practitioners on reporting the extraction sector recently attributed the corrupt act taking place in NNPC to be structural in nature.
According to him, there are some lapses built into the system operated by the Corporation that enhances corruption activities. These include poor institutional linkages between the technical and financial aspects of the industry; poor information system exemplified by much reliance paper – based data and information storing, retrieval and sharing system.
Others are inefficient system of financial management, poor metering infrastructure and grossly inefficient measurement system for crude oil production volumes for accounting. NEITI further stated that the NNPC has no clear basis for determining production volumes for royalty purpose and reliable fiscal regime.
The Department of Petroleum Resources (DPR) which is the sector regulator is not speared of blame by NEITI as the extraction industry watchdog agency revealed in its report of the inadequate capacity of the regulatory agencies to confidently verify royalty and petroleum profit tax computations prepared by companies.
“These deficiencies revealed by NEITI in all its audits have over the years cost the Nigerian federation dearly. They were key sources of waste, fraud and monumental corruption,” Mr. Adio stated.
By implication, NEITI is confirming that as the nation’s oil and gas industry is currently structured and operated, it can only breed corruption. Little wonder, the Dan Etete, Diezani, Yakubu, and almost every other person that has in one way or the other held sway at this tower has been accused of one form of corruption or the other.
To further buttress its argument that the NNPC is grossly engaged in corrupt acts, NEITI went a step further to reveal using audited data to charge the national oil company of failure to remit over $21 billion to the federation account.
While urging the federal government to urgently put machineries in motion to recover the said amount, NEITI noted that the said money could help the country recover from the present economic recession.
The question is how did NEITI arrive at this figures? According to the narrative of NEITI which is contained its latest, Policy Brief, which is focused on unremitted funds, economy recovery and oil sector reform, “Findings from a series of audits of the oil and gas sector carried out by the Nigeria Extractive Industries Transparency Initiative (NEITI) shows that NNPC and its upstream arm, Nigeria Petroleum Development Company (NPDC), have failed to remit $21.778 billion and N316.074 billion to the Federation Account. These are amounts due from three main sources: Federation assets divested to NPDC and NDPC’s legacy liabilities; payments for domestic crude allocation to NNPC; and dividends from investment in Nigerian Liquefied Natural Gas Company (NLNG) paid but withheld by NNPC.”
Recovery of these funds, NEITI stated, will significantly enhance government’s fiscal position in the short term.
A breakdown of the unremitted funds, according to the NEITI reports of the oil and gas industry over the years include outstanding payment of $1.7 billion arising from the transfer of eight OMLs from Shell Petroleum Development Corporation (SPDC) and the sum of $2.2 million from four OMLs from Agip Oil Company to the NPDC.
According to the report, NDPC is yet to pay for these major national assets that were transferred for its commercial operations. Also contained in the breakdown of unremitted funds is cash call paid on the transferred OMLs amounting to about $148.28 million. This is in addition to legacy liabilities amounting to the sum of $1.5 billion and the huge sum of $15.8 billion unremitted to the Federation Account from accrued NLNG dividends between 2000 and 2014.
NEITI further revealed that its report shows that the transfer of these national assets to NPDC shows that the decisions were not underpinned by sound economic judgement.
“Although NPDC was established to foster indigenous participation in the upstream sector, it is not really able to produce at substantial levels on its own,” the report noted.
The report noted that in the mid – 2006, total output from its wholly owned production was just 10,000 barrels per day (BPD). On the other hand, production from its services contract agreement with Agip was 65,000bpd. Reason given for NPDC’s disappointing performance, the report said includes: undue interference by NNPC, inadequate financial structure, inability to source project finance.
“These bottlenecks in indigenous production seem to have led to the current strategy of the NPDC entering into partnerships with both international and indigenous oil companies who do the actual exploration and production on NPDC assets. Despite NPDC’s clear operational and capacity deficiencies, the company continues to be allocated valuable concessions of Nigeria’s most productive OMLs,” NEITI stated.
On the NLNG, the report said, “NLNG operates as a private company run by its private partners. Despite owning majority shares, the government of Nigeria is not involved in its management but earns revenues from its investment in the enterprise in form of dividends, interests and loan repayments. Since the Federation’s shareholding in NLNG is held through NNPC, dividends are paid to NNPC, which should remit same to the Federation.”
However, NEITI audits have revealed that as at 2015, NNPC has failed to remit the interests and dividends from NLNG to the Federation Account. For the period between 2000 and 2014 NLNG paid a total of $15.8 billion to NNPC, which NNPC acknowledged receiving but failed to remit to the Federation Accounts,” the report stated.
NEITI therefore recommended that urgent measures be taken to recover the funds, saying, “Total unremitted revenues to government’s treasury amounted to $21.778 billion and N316.074 billion. At current exchange rate, this comes to about N7.2 trillion. Achieving a recovery rate of just 20 per cent would significantly offset the projected deficit from the 2017 budget. A third of the computed unremitted revenues would completely eliminate the need to borrow to finance the budget,” NEITI submitted.
The issue of corruption within the sector and especially involving transactions engaged upon by the NNPC is not limited to its upstream sector activities. In the downstream, some observers say the corruption rate is higher.
Remember the fuel subsidy saga where over N7 billion was reported to have been paid to imaginary companies, the NNPC supervised the transactions.
Recently, the Corporation came out publicly to affirmed the unscrupulous activities that surround the now abandoned Crude Oil Swap transactions claiming that three companies namely AITEO Energy Resource Limited, Ontario Oil and Gas Limited and Televaras Group of Companies under delivered products worth $184 million.
A statement signed by the NNPC spokesperson Ndu Ughamadu said NNPC, is set to recover over $184 million in product under-deliveries recorded against three oil companies in the course of reconciliation of transactions executed during the defunct crude for product swap regime.
NNPC’s Monthly Financials Report
No doubt the Corporation has tried to prove to Nigerians that it is doing its best to bring reform into its activities; one of such that has received commendation is the NNPC Monthly Financial Report.
However, critical analysis of these reports has continued to show that corruption is a million miles away from the operations of the state owned Oil Company.
For instance a review of the November 2016 report shows the organization is struggling with its finances due basically to the refusal to keep to globally accepted accounting standards. The report for the period showed that the NNPC group had a deficit of N180 billion.
Details of the report show that apart from the month of May 2016, NNPC has consistently reported an increasingly operating loss for every other month between January 2016 and November 2016. The monthly loss went 6 folds from a deficit of 3.55 billion naira in January 2016 to N 18.72 billion in November 2016.
Refinery Post Losses
According to the report, the losses were incurred at the three government-owned refineries and at the corporation’s headquarters. The Warri Refinery made a loss of N16.8 billion naira for the 11 months ended in November 2016. The Port-Harcourt and Kaduna refineries made losses of N24.9 billion and 28.3 billion respectively. In total, all the refineries posted a loss of over N70 billion.
According to NNPC, for the month of November 2016, the three refineries produced 178,107MT of finished Petroleum Products and 24,599MT of intermediate products out of 232,768MT of Crude processed at a combined capacity utilization of 12.78% compared to 23.53% combined capacity utilization achieved in the month of October 2016. The adverse performance was due to crude pipeline vandalism in the Niger Delta region coupled with ongoing refineries revamp; however the three refineries continue to operate at minimal capacity, only PHRC processed crude during the month.
The lion share of the loss was incurred by the Corporate Headquarters (CHQ) which incurred a loss of N121.8 billion between January-November 2016. Though the report does not state the exact nature of expenditure by the Corporate Headquarters and only provided the following reasons;
Overall, a trading deficit of ₦18.72billion was recorded for the month under review as against the reported October, 2016 trading deficit of ₦16.85billion. The deficit in the month of November 2016 increased by ₦1.87billion or 11.06 per cent due to upsurge in the Group operating cost despite an improved revenue generation and enhanced cost control across the group. In particular, IDSL Operating costs has increased as a result of the ongoing mobilization activities in both Benue Trough seismic data project located in Bauchi and Party 05 in Elele, Rivers state.
The report further revealed that NNPC’s corporate headquarters cost in Nov 2016 rose 17 per cent to N17.3bn, continuing a trend of increase in June when it was N8bn. Even though the annualized headquarter cost represents a major decline from the 2015 numbers, the leap in November is largely unaccounted for and represents the highest level spent in 2016. NNPC headquarters spent a total of N164bn in 2015 and is likely to spend about N132bn in 2016. As the main operational centre for the country’s oil operations, it generates no real revenues leading analysts to wonder why a purely administrative arm is incurring such a huge expense.
Petrobras, the Brazilian Example
Meanwhile, corruption in national oil corporations is not limited to Nigeria but the difference is in the altitude towards taking corrective measures when they occur. For instance, the Brazilian equivalent of the NNPC has been engulfed in similar corruption case but the way it has been handled is different.
For instance the former Brazilian President Luiz Inacio Lula da Silva was taken in for questioning last year for his alleged connection to the Lava Jato scandal involving Petrobras
The Petróleo Brasileiro SA (Petrobras) has been engaged in one form of scandal or the other over the past two years, with more than 100 people having been arrested for their alleged involvement, including senators and top executives at Petrobras.
But the question now is can Nigeria under this present administration toe the line of the Brazilian government that is courageous enough to take the bull by the horns? Only time will tell.