NNPC still withholding federation account funds says report

The revelation that the Nigerian National Petroleum Corporation (NNPC) withheld $4.2 billion from sales of export crude, domestic crude and from the Nigerian Petroleum Development Company (NPDC) oil fields in the second half of 2015 by the Natural Resources Governance Institute (NRGI) report makes a mockery of President’s Muhammadu Buhari’s reform plan for the national oil company.

A report that follows from an earlier study, titled “Inside NNPC oil sales”, by NRGI, observes that in the second half of 2015, NNPC sales of export crude, domestic crude and oil from its subsidiary NPDC totalled $6.3 billion. Of this amount, only $2.1 billion entered the Federation Account.”

The withheld revenues represented about 66 per cent of the total revenue – $1.4 billion earnings from Nigeria’s regular crude oil exports for the period; $3.4 billion from domestic crude oil sales, and $1.5 billion from oil sold from the corporation’s upstream subsidiary, the Nigerian Petroleum Development Company (NPDC) oil fields.

The report stated that $1.4 billion export sales of crude oil went to pay Joint Venture cash call liabilities, rather than entering the government budget.” This is in addition to the $1.1 billion worth of oil that NNPC routed through alternative finance arrangements during this period, to pay JV debts.”

“It makes some sense that operating expenses from the JVs now consume a larger relative share of NNPC’s oil sale proceeds, because operating costs have not dropped as precipitously as oil prices have over the last two years. However, the fact that operating costs consumed all the returns from an entire class of oil sales, dramatically illustrates the unaffordability of the JVs.”

NNPC was said to have sold an estimated $1.5 billion worth of NPDC-owned fields in the latter half of 2015 and claimed that some of this oil may have gone to the subsidiary’s strategic alliance partners, two companies that are paid in oil for purportedly shouldering some of NPDC’s financial burdens.

“NPDC may keep the rest, or transfer it to its parent, NNPC. The subsidiary produced a sizeable 110,000 barrels of oil per day in the last six months of 2015. But we have seen no evidence that proceeds from NPDC oil sales enter the treasury. Instead, they are spent in an unknown manner. In one especially questionable case, we found evidence that NNPC has retained all earnings from the offshore Oil Mining Lease (OML) 119, a field owned wholly by NPDC, that produces around 30,000 barrels per day of Okono grade crude. This stream of oil was worth an estimated $12.3 billion over the past decade.

The report further stated that of the $3.4 billion worth of domestic crude oil sales in 2015, NNPC used some for crude oil-for-petroleum product swap agreements and some to export buyers. Within the same period, NNPC claimed it transferred $2.1 billion from domestic sales to the Federation Account and withheld $1.3 billion or 46 percent of revenue in the first months of President Buhari’s administration. Thirty-five percent of was withheld in the quarter 1, 2015 according to the report.

When  BusinessDay   contacted  sources in NNPC,  they said there was a strong possibility the corporation would contest the report.

But an industry  operator  who spoke to BusinessaDay  said that revenue from crude oil sales by the Nigerian Petroleum  Development Company can only go to NNPC  because it is a subsidiary  to the corporation and   not  the  federation account.

He said NPDC is supposed  to pay dividend to NNPC to the proportion of its investment in the company,  after defraying its cost of operations, adding  that  the Federal  Government investment is not directly  into NPDC.

According to him, the revenue that goes to the federation account is that accruing from the joint venture operations and not from such subsidiary.

“NPDC is like any other business concern and so it runs its business with the aim of making profit and paying dividend to its shareholders,” he said.

Another industry operator who spoke in the same vein said people must not make the mistake of believing  that companies must be  subjected to the whims and caprices  of  government all the time. He said  the companies must  be allowed to operate without  interference from the  government.

In general, the report said despite the on-going reforms in the oil sector, the NNPC under the present administration was still retaining a major share of oil sale earnings and spending at will.

Some of the reforms by the Buhari government, the report noted, have cut the number of passive, well connected middlemen that pocketed billions of oil revenues, while the administration has cancelled costly, unbalanced NNPC swap contracts, and is seeking more efficient replacements.

The report lamented that recent announcements on NNPC reforms and the latest drafts of the Petroleum Industry Bill (PIB) by the Ministry of Petroleum Resources, failed to adequately address how NNPC and the government would share future oil revenues

“Until government establishes a clear, legally enforceable rule governing which revenues NNPC can keep and how they can be spent, oil sector corruption and waste could return to their prior devastating levels once the president (Buhari) leaves, or prices rise,” the report noted.

“The government should move to curb the corporation’s discretionary, unaccountable use of much-needed public funds. Until the government states clear rules for NNPC financing, both the controversies and the underlying revenue leakages will persist,” the report said.

NGRI recommended the model of Malaysia, Kazakhstan and Ghana, where there are legal clarifications of the financial relationships between national oil companies’ governments minimises public financial problems.

Malaysia’s Petronas, it observed, retains profits on earnings, but transfers royalties and export duties to the state, as well as paying a set tax rate on its own profits. This provides the government with some predictability in its revenue receipts and enables it to monitor Petronas’ performance, while narrowing the scope for debate on the year-to-year variation in dividend payments.

Buhari in January, raised an inter-ministerial committee to re-organise and reform the NNPC, stating that his administration was doing everything possible to boost national revenue, so that it can effectively implement its programme of change.

Olusola Bello, Patrick Atunya & Isaac Anyaogu