PricewaterhouseCoopers’ Audit Report Clears NNPC

Fri, Feb 13, 2015

By publisher

6 MIN READ

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The PricewaterhouseCoopers audit report absolves the Nigerian National Petroleum Corporation of not remitting the $20 billion into the federation account

|  By Anayo Ezugwu  |  Feb. 23, 2015 @ 01:00 GMT  |

THE highlights of the forensic audit account of the Nigerian National Petroleum Corporation, NNPC, released on Thursday, February 5, by Samuel Ukura, auditor-general of the federation, shows that the corporation spent $20 billion between January 2012 and July 2013 on subsidy. The audit conducted by the PricewaterhouseCoopers, an international audit firm, to investigate the allegations that NNPC did not remit funds into the federation account, said the amount went into third party financing arrangements and equity crude processing, besides costs directly and indirectly linked to domestic crude.

Others include signature bonuses, petroleum profit tax and royalties which are yet to be paid by the Nigerian Petroleum Development Company, NPDC. It faulted the NNPC’s operational modalities which it noted is unsustainable, hence the need to urgently review and restructure the oil behemoth. It directed the NNPC and its upstream subsidiary, the NPDC to refund $1.48 billion to the federation account over un-reconciled transactions.

The report showed that only $100 million from the NNPC’s portion of eight oil leases worth $1.85 billion had been paid to the NPDC, faulting the transfer value which it says ought to be higher. According to the report, gross revenue from crude lifting during the period stood at $69.34 billion, more than the $67 billion by the Senate’s reconciliation committee earlier set up. And $50.81 billion was remitted to the federation account from crude oil lifting, instead of $47 billion reported by the committee.

A further breakdown showed that of the $69.34 billion, $28.22 billion was the value of domestic crude oil allocated to NNPC, adding that total amount spent on subsidy for Premium Motor Spirit amounted to $5.32 billion. It also noted that the sum of $3.38 billion which was not appropriated in the national budget was spent on kerosene subsidy.

It said although the Petroleum Products Pricing Regulatory Agency, PPPRA, and the NNPC relied on a presidential directive of June 15, 2009, to stop subsidy on kerosene, the directive was not gazetted, following which there was no legal instrument cancelling the subsidy on kerosene. “Total other third party financing arrangement and equity crude oil processing costs amounted to $1.19 billion. Total costs directly attributable to domestic crude oil amounted to $1.46 billion. Other costs incurred by the corporation not directly attributable to domestic crude are $2.81 billion. Revenue attributable to NPDC as submitted by the former managing director to the Senate hearing is $5.11 billion.

The PWC stated that this amount needs to be incorporated into the financial statements of NPDC from where dividend should be declared to the federation accounts. “Signature bonus, Petroleum Profit Tax and Royalty yet to be paid by NPDC is $2.22 billion. Total cash remitted into the Federation Account in relation to crude oil lifting was $50.81 billion and not $47 billion as earlier stated by the Senate Reconciliation Committee for the period January 2012 to July 2013. Based on the information available to PwC, and from the above analysis, the firm submitted that NNPC and NPDC should refund to the Federation Account a minimum of $1.48 billion.”

The report said the NNPC presented a transaction document representing additional costs of $2.81 billion related to the review period, stressing the need to clarify whether such deduction should be made by the corporation as a first line charge before remitting the net proceeds of domestic crude to the federation account. Consequently, PwC recommended that on the ownership of NPDC revenues, NPDC should remit dividend to NNPC and ultimately to the federation account, based on NPDC’s dividend policy and declaration of dividend for the review period.

Ukura said the report was based on three key areas NNPC costs, ownership of NPDC revenues and kerosene subsidy, noting that 46 percent of proceeds of domestic oil revenues for the review period were spent on operations and subsidies. “The corporation is unable to sustain monthly remittances to the Federation Accounts Allocation Committee, and also meet its operational costs entirely from proceed of domestic crude oil revenues, and have had to incur third party liabilities to bridge the funding gap,” he said.

Reacting to the report, the NNPC in a statement said the audit report vindicated its stand that $20 billion was not missing or unremitted. It said that the Diezani Alison-Madueke, minister of petroleum resources has directed that $1.48 billion should be remitted to the federation account, insisting that the amount is not part of the alleged unremitted revenues from crude lifting. The amount, it said was never in dispute as it is made up of statutory payments such as signature bonus, taxes and royalties which are statutory payments that come with assets acquisition. It noted that the delay in payment was due to the reconciliation processes between the Department of Petroleum Resources, DPR, and the NNPC.

The corporation stated that the forensic audit report and the Senate Committee on Finance report on the unremitted revenue all alluded to the fact that NPDC reported crude oil revenues of $5.11 billion. On the kerosene subsidy issue, the corporation said the audit report also clarified that subsidy on kerosene is still in force as the presidential directive of October 19, 2009, was not gazetted in line with provisions of Section 6 Subsection 1 of the Petroleum Act of 1969. “The Forensic Audit Report also acknowledged that Section 7 Subsection 4 of NNPC Act empowers the corporation to defray its costs and expenses including the costs of its subsidiaries from crude oil revenues, though it also recommended that the laws be reviewed to make the Corporation meet its costs and expenses entirely from the value it creates.”

President Goodluck Jonathan had on Monday, February 2, while receiving the report from the auditing firm requested the auditor-general of the federation to study the report and make the key highlights public. The federal government had last year appointed the PWC to examine the accounts of the NNPC, its subsidiary and other agencies of government operating in the oil and gas sector in a bid to clear the air over NNPC’s non-remittance of $49.8 billion into the federation account. The government said since conflicting figures were being mentioned by the Central Bank of Nigeria, CBN and the NNPC, the only way to establish the truth and reassure Nigerians was to set up an independent body to verify all claims made by the parties.

This was after Sanusi Lamido Sanusi, former CBN, governor, (now Emir of Kano), wrote a letter to the President over the non-remittance of $49.8 billion by the corporation between January 2012 and July 2013. The letter was leaked to the press and it generated a lot of controversy with the civil society calling for the head of the leadership of NNPC and minister of petroleum resources. It also led to the suspension of the CBN governor.

But Sanusi insisted on Thursday, February 13, 2013, while appearing before the Senate Committee on Finance and Inter-Agency Committee, that the NNPC didn’t account for $20 billion in oil sale proceeds and that the subsidy the corporation was removing on kerosene was illegal, null and void. He later revised the non-remitted amount by the NNPC from $49.8 billion to $10.8 billion and finally to $20 billion before leaving the CBN.

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