How Nigeria Loses Crude Oil Revenue


A report just released by the Nigeria Extractive Industries Transparency Initiative exposes how the NNPC and oil companies shortage Nigeria in revenue payment

By Anayo Ezugwu  |  Aug. 12, 2013 @ 01:00 GMT

THE Nigeria Extractive Industries Transparency Initiative, NEITI, on July 29, presented an audit report for the oil and gas sector from 2009 to 2011 and the solid minerals sector for 2007-2010. The report, which was carried out by NEITI auditors on the transaction and revenue flows between government agencies and international oil companies operating in Nigeria, highlighted that Nigeria lost over $11 billion to crude oil theft and pipeline vandalism between 2009 and 2011.

According to the report, more than 136 million barrels of crude oil estimated at $10.9 billion was lost to theft and sabotage during the period in review. The report said that the nation recorded over 2.5 billion barrels of crude oil production amounting to a total revenue of $143.5 billion from equity crude sales, royalty, signature bonuses and taxes within the period under review. A breakdown of the crude oil production given by the report shows that 780.9 million barrels were recorded in 2009, and 894.5 million barrels in 2010 while production went down to 866.2 million barrels in 2011.

The report said that crude production fell in 2011 due to the activities of vandals, and also decried the lack of agreed pricing methodology between the Nigerian National Petroleum Corporation, NNPC and the oil companies for the determination of fiscal values for royalty computations.


The NEITI report also disclosed that the federal government paid about N3 trillion as subsidy to petroleum marketers during the years under review. It added that payments to the NNPC alone accounted for N1.4 trillion of the total subsidy claims, while other marketers claimed the remaining N1.60 trillion. “From the findings of the report, the subsidy payments made through NNPC increased from N198 billion in 2009 to N416 billion in 2010, and nearly doubled in 2011 to N786 billion. During the same period, subsidy paid through the Petroleum Products Pricing Regulatory Agency, PPPRA increased from N208 billion in 2009 to N278 billion in 2010, and astronomically to N1.12 trillion in 2011.”

The report also uncovered a disparity of N175.9 billion between the subsidy claims paid from the federation account and the one made by the PPPRA. “The office of the accountant-general of the federation reported to NEITI auditors a total subsidy payment of N2, 825 trillion, while the PPPRA disbursed N3 trillion to marketers during the same period. Some marketers disagreed with the amount ascribed to them by the PPPRA, especially in 2010, where a marketer claimed N2.56billion as fuel subsidy. The PPPRA recorded payment of N1.5 billion, leaving an un-reconciled difference of N1.04 billion,” the report said.

Furthermore, the report said that the N4.423 billion being over-recovery collected from some marketers was yet to be remitted to the federation account, while the NNPC and two other companies were yet to refund N3.715 billion being over-recovery for the period under review.

NEITI has for the first time in its audit of Nigeria’s oil and gas sector, delved into identifying the impacts of crude oil theft and pipeline vandalism on the country’s petroleum sector following a rise in the trend. It, however, explained that it considered the figures to be very significant with respect to its needs by the Nigerian economy.

Ledum Mitee, chairman, NEITI, who presented the comprehensive report, stated that the document made salient findings on reasons for the decline in government crude oil production, crude lifting and revenues accruable to the federation. One of such reasons identified in the report is the issue of inadequate funding of Joint Venture operations.

Mitee said NEITI had, within the limits of its mandate examined the level of transparency over the actual value of the controversial Oil Prospecting Licence, OPL 245 and other transactions that might have occurred but could not get adequate information on the transaction from the Department of Petroleum Resources, DPR. “The goal was to place the whole transaction, as far as possible, on the scale of transparency, accountability and due process. This includes examination of the bid process; signature bonus paid (if any) and establishment of what was paid and credited to government and the amount swept to the federation account. The report established that Shell made a payment of $207 million which the company (Shell) claimed was a balance of payment as signature bonus on the said oil block OPL 245. From the report earlier published, the company had made an initial payment of USD $2.004 million. SPDC also provided evidence of the payment,” he said.

Ngozi Okonjo-Iweala, minister of finance, said at the presentation of the report that she would discuss the issues of alleged refusal to remit a total of $8.476 billion as pointed out by previous NEITI audit reports with Andrew Yakubu, group managing director, NNPC. She added that a robust discussion with the NNPC boss would be initiated. “GMD, you are welcome back. I missed you because I was citing some of the words from NEITI and I said some of us are assembled here because they pointed out some remittances from NLNG, amounting to over $8 billion for a period of time, 2006 to 2009 which we need to discuss. As the minister of finance, I don’t want it on the floor here. We need a very robust conversation about this money because I can depend on it as a minister of finance; that is additional revenue,” she said.

But the NNPC is said to have received $4.84 billion as dividends and repayment from the Nigerian Liquefied Natural Gas, NLNG, which it was yet to remit to the federation account. The report also revealed that the corporation received another $3.99 billion without remitting it to the federation account.


On its part, Yakubu reiterated the corporation’s commitment to work with NEITI in the pursuit of its mandate in ensuring transparency and accountability in the oil and gas industry in particular and the extractive industry in general. He said as a public entity, the corporation was committed to the cardinal objective of President Goodluck Jonathan’s transformation agenda, which is anchored on reforms, transparency and accountability. He added that the NNPC was excited to partner with NEITI because the agency’s concept is based on best practices that the extractive industry requires to carry out its functions.

This is not the first time NEITI report is indicting the NNPC for non-remittance of revenue to the federation account. The NEITI 2006 to 2008 audit report on oil and gas, presented in 2011, revealed that the NNPC received $3.789bn in dividends from Nigeria LNG venture, over the period but did not remit same into the federation account.

The audit discovered a discrepancy of $39.4 million between what the companies claimed to have paid and what the government said it received. The companies were found to have paid in $4,457.9 million while the government reported it had received $4,418.5 million. Highlights of the audit report shows that the total financial inflows to the federation account from the oil industry from 2006 to 2008 was $148.832 billion ($44.687 billion for 2006, $443.781 billion for 2007 and $60.364 billion for 2008).

According to the report, $540 million was missing from $1.675 billion in signature bonuses, which are advance payments to develop fields which a standard producer country demands, in addition to the 3.1 million barrels of oil missing from the NNPC declarations about its joint ventures compared with the figures released by NNPC’s international partners.  It points out that foreign firms also seemed to have underpaid petroleum profit tax by over $1 billion, and recommended a review of the tax returns of Chevron and Exxon Mobil.

A similar audit report presented by Nuhu Ribadu-led Petroleum Revenue Special Task Force committee in 2012, also indicted the NNPC for non-remittance of revenue to federation account. The committee revealed that about $1billion in signature bonuses, discrepancies in payment by the NNPC, and debts from oil companies were unaccounted for by the corporation. The committee also revealed how oil money in the custody of the NNPC were spent on extra-budgetary purposes such as the acquisition of a N2.23billion chopper for the president and a purported sponsorship of the World Cup.

The NNPC also gave out N700.5million in loan to Sao Tome & Principe based on instruction from the presidency. It also made a curious payment of N2.421billion to a foreign company, Royal Swaziland Sugar Company. The reason for the payment is unclear. The corporation also claimed to have underwritten a N521million expenses incurred by the Federal Ministry of Petroleum Resources. This is in addition to the N250million the agency told the committee that it spent on court cases involving the ministry.

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