Nigeria’s petroleum industry has been plagued by different allegations of improprieties and for years, the country’s main source of revenue generation has also been the biggest drainpipe through which Nigeria’s money is siphoned. It is an open secret that the corruption did not just start-it has been part of the system for years. Though Dr. Doyin Okupe, the President’s Special Assistant on Public Affairs has opined that the report is inconclusive and has not indicted anyone, the report of the Malam Nuhu Ribadu-led Petroleum Revenue Task Force has further confirmed the long spoken about rot in Nigeria’s petroleum sector.
His statement is however not enough to change some things about the oil industry as well as Nigerians’ perception about events in the industry. Back in 2011, The House of Representatives Joint Committee on Finance, Petroleum Upstream, Petroleum Downstream and Gas Resources was mandated to investigate the remittance of oil revenue into the Federation Account by the Nigerian National Petroleum Corporation (NNPC) and also ascertain the Corporation’s compliance with the constitution on the issue. In its report then, the House Joint Committee revealed that NNPC under-remitted funds to the tune of N 3.08 trillion between 2004 and 2011.
According to the House Joint Committee’s report, “in 2005, NNPC short-changed the federation by $193.645m through domestic crude sale at a discount of $1.211 per barrel on the 159,898,543 barrels of crude taken in 2005. The loss of $193.645m was an equivalent of N25.473bn based on the prevailing exchange rate then.
NNPC further compounded the federation’s woes by under-remitting the under-invoiced domestic crude revenue by N289bn in 2005. Out of the total revenue of N1.145tn accruable to the federation from domestic crude oil sales to NNPC in 2005, NNPC remitted only N0.856tn.”
The NNPC’s N 354 billion as subsidy for 2005 was described as a “false claim” in the report. The House Committee went further to state that instead of making such claim, it was the NNPC that owed the country the sum of N 687 billion through under remittances. It was also revealed in that report that “between 2006 and 2008, NNPC short-changed the federation by N1.214tn through unauthorized discount and under-remittance of under-invoiced domestic crude revenue.”
The report also stated that “NNPC in 2009 to June 2011 followed the same trend of taking unauthorized discount on domestic crude it allocated to itself and continued to underpay the under-invoiced domestic crude sales. While the federation lost N67bn on unauthorized discount between 2009 and June 2011, the loss through under-payment of under-invoiced value is N1.388tn, resulting in total loss to the federation of N1.455tn on domestic crude supplies to NNPC between 2009 and June 2011.”
Multinationals were not left out of the rot as the report added that based on NNPC’s audited accounts, it was clear that the nation lost over $3.675bn through false claims by multinational oil companies under dubious Carry Agreements. It was found out by the committee that such carry arrangements were the Joint Venture operators to confuse and create an avenue to short-change the nation.
Back then, the committee advised the Federal Government to review the concept of Carry Agreements with the international oil companies as it had become an avenue for wastage and corruption.
Shell, Elf, Mobil and Chevron were named as the Carry Partners whose over-bloated claims to reimbursement amounted to $3.675bn between 2004 and 2006.
It was recommended “that NNPC should refund the sum of N44.932bn, which it paid to itself as cash call in 2006. NNPC should refund the sum of $3.273bn, which accrued from 48 million barrels of crude, which the corporation concealed in 2006.”
The NNPC was also found to be operating an account which has been described as “illegal” in JP Morgan bank in the United States. Investigations revealed that instead of paying directly into the federation Account, proceeds from the sale of crude oil are first kept in that account before being transferred into the Federation Account.
The report of the Petroleum Revenue Task Force has also gone a long way to confirm that unless drastic steps are taken to sanitize the oil sector, Nigeria will continue to lose trillions to corrupt individuals who are making fortunes at the country’s expense.
In its submission about 10% of Nigeria’s crude oil production being stolen daily, the Ribadu-led Task Force revealed that “volumes stolen have risen dramatically in the past 12-18 months. The Royal Dutch Shell Company, Shell in its presentation to the Task Force stated that an estimated 150,000 barrels of crude oil are stolen per day (about 6% of Nigeria’s total annual production) causing a revenue loss of $13.5 million per day (at $100 per barrel) which amounts to $5billion per year of lost revenue. The Task Force also made it known that the theft is not limited to crude petroleum alone. Findings of the Task Force revealed that “organized theft of products has also spread far beyond the Niger Delta. PPMC recorded sizable losses on its Mosinmi-Ibadan-Lokoja line in 2011. The Jos-Gombe-Maiduguri line also saw theft, and pipeline sabotage around Atlas Cove in Lagos is chronic”.
To solve the problem, the Task Force pointed out that the Government has a lot of work to do. Its report stated that “legislation governing the industry and agreements with third parties are outdated, do not reflect current economic or legal realities; or include ambiguous clauses. Also, there are some provisions within the legislation that could significantly improve government’s revenue that the government is yet to take advantage of. Examples include a provision to ensure that the share of the Government of the Federation in the additional revenue shall be adjusted under the Production Sharing Contracts if the price of crude oil at any time exceeds $20 per barrel; and the requirement for a periodic review of provisions in specified time frames.
It was also observed that some traders lifted crude oil although they were not listed on the approved master list of customers who had a valid contract and were selected through an annual bidding process. The Task Force research also found that quite a number of traders did not demonstrate renowned expertise in the business of crude oil trading. Furthermore, the Task Force found that the use of crude oil traders was contrary to the global trend wherein national oil companies develop their own trading arms, such as the various NNPC trading subsidiaries which currently have limited capacity. The Task Force identified various concerns in this area with Nigeria being the world’s only major oil producer that sells 100 percent of its crude to private commodities traders, rather than directly to refineries.”
One of the observations made by the Task Force was that “NNPCs fiscal health has weakened dramatically in recent years. Between 2007 and 2009 the Corporations closing net balance sheet liabilities grew from N952bn to N1.36tn.
Gross margins turned to deficit, capital reserves shrunk by half and nearly all SBUs appeared to be running at growing losses. NNPCs asset base appears stagnant from age and absence of strategic investment.”
Incidentally, Street Journal had reported earlier that the fraud being perpetrated in Nigeria’s oil sector defies competent description. The whole structure has been eroded by corruption thereby leaving the Government at the mercy of corrupt marketers, fraudulent staff and even not so clean government officials.
Street Journal’s investigations also revealed that at times, marketers inflate the quantity of the products they imported, just to make extra cash, and where documentation is inadequate, it is easy to get away with such practices. Central Bank Governor, Sanusi Lamido Sanusi also confirmed recently that it is quite possible to “just forge documents and have them stamped without bringing in anything and collect the subsidy-PPPRA pays based on documents,” Sanusi stated. A startling revelation that indicted the government agencies was also made when the Customs Department disclosed that the NNPC imports petroleum products without valid documentation thereby making it easy for the products to be moved without being tracked. Where that happens, it is impossible to have accurate data on imported products.