NEITI reveals revenue leakages in Nigeria’s extractive sector

The Nigerian Extractive Industries Transparency Initiative (NEITI), a transparency watchdog, has published its 2019 report on Nigeria’s extractive sector showing a disturbing pattern of poor practices fostering revenue leakage to the Federation.

NEITI observed that some companies reported crude losses due to metering error, theft and sabotage that were higher than the volume of production the government can tax.

For example, Shoreline Energy reported a crude loss of 7.474 million barrels (bbls) which is 153.12 percent of its fiscalised production of 4,881 mm bbls indicating it reported loss more crude than the volume that could be taxed.

“Companies reporting crude losses higher than fiscalised production implies that the Federation is losing benefits from the production arrangement,” NEITI observed.

The extractive sector transparency watchdog also identified wasteful subsidies as a drain on the economy. It reported that the Nigerian National Petroleum Corporation (NNPC) deducted N722 billion as an under-recovery cost in 2018.

Under recovery, the cost is incurred when the government augments the landing cost of petrol. Landing cost is the amount required to import a litre of petrol.

It is troubling to note the absence of checks on NNPC’s computation. The Petroleum Products Pricing Regulatory Agency (PPPRA), mandated by law and with the requisite capacity to participate in the under-recovery computations was excluded in the process by the NNPC.

“This collaboration provides a form of check and balance,” NEITI said.

The NNPC has confirmed to NEITI that under-recovery ended in March 2020 implying the risk is over. But since the Petroleum Industry Bill (PIB) passed by the National Assembly, confers on NNPC the supplier of last resort obligation, this concern is far from over.

Read also: Explainer: Who is the NNPC frontier exploration fund for?

NEITI revealed that the opportunity cost of delay in remitting net domestic crude sales proceeds to the Federation Account cost Nigeria N17.5billion.

“It is evident that NNPC consistently delayed in remitting sales proceeds from crude oil proceeds based on the terms of the sales of 90 days,” the report said,

NNPC claimed that the delay was due to the long-standing practice of bunding domestic sales proceeds remittances with the monthly Federation Accounts Allocation Committee (FAAC) remittances which are driven by the FAAC meeting schedule.

The Corporation further said that from March 2020, it transitioned to electronic remittance thereby reducing the payment circle.

Apart from revenue leakages, there are concerns over the management of the NNLG revenue. NEITI revealed that NLNG dividend and related payments are being warehoused in the NNPC designated bank accounts and not the Federation Accounts.

This practice is based on a directive by the President deduced from the argument that the Federal Government provided the initial NLNG investment funds and not the Federation hence the proceeds belong to it.

Many have disagreed with this provision on the grounds the constitution provides that revenue should be shared among the various tiers of government.

The NEITI report on the solid minerals industry paints a disturbing picture of poor coordination among the agencies in the ministry, irregular registration of operators, lax monitoring, weak compliance systems and poor accounting practices.

NEITI could not find evidence of royalty payments by 25 companies that exported minerals in 2019 costing the government over N482 million in revenue loss.

Seven companies including A.A.Y International Mining Company, Afdin Const. Co, Al’Sa’ab Quarry Multipurpose Cooperative Society, First Patriot Limited, Prossy Investment Limited, Kunlun Nigeria Ltd and Rock Waters Integrated Services Nig, Ltd, did not pay VAT, EDT and CIT according to NEITI.

Non-payment of taxes not only violates the law but starves the government of funds. NEITI said it could not calculate their liabilities because they did not submit an audited financial statement.

NEITI’s audit also uncovered 6 companies with multiple Tax Identification Numbers resulting in different tax clearances and various related payments in each TIN. The companies are Arab Contractors, CCECC Nig Ltd, China Zhonghao, CLC Tech Ltd, CGC Nig Ltd.

“The duplication of TINs by companies can make monitoring and tracking of payments due by companies difficult. It may lead to tax evasion and an avenue for revenue loss to the government,” NEITI said in the report, calling for a comprehensive tax audit.

Nigeria is not doing enough to regularise mineral titles and develop the minerals it classified as strategic. This poses a potential loss of future revenue to the government, the report stated.

NEITI’s 2019 report also shows an increase in revenue to the government. The solid minerals sector income rose from N69.47billion in 2018 to N79.96 billion in 2019. Oil and gas sector receipts grew from $32.6 billion in 2018 to $34.281 billion in 2019.

The report was unveiled in Lagos on July 13 by Orji Ogbonnaya Orji, the executive secretary/CEO of NEITI. He said the report for 2019 followed EITI guidelines and revealed payments by companies, taxes and remittance and details the process.

Orji said the goal of the report is to ensure that extractive sector revenues are used for national development, develop infrastructure and support human and social development.

Orji said the extractive sector audit report for 2020 will be ready in September this year.