Four years after the Nigerian National Petroleum Corporation (NNPC) began publishing its monthly financial and operations report, ISAAC ANYAOGU finds that the corporation has been unable to shake off the perception that it lacks transparency.
Since August 2015, the Nigerian National Petroleum Corporation (NNPC), Nigeria’s state-owned oil firm has published 42 monthly operations and financial reports as part of its claim to transparency. Yet a shroud of opacity covers the organisation.
The NNPC’s Monthly Operations and Financial report sheds light on Nigeria’s crude oil and natural gas production, lifting and utilisation, refinery operations, petroleum product supply and distribution, budget performance and scant details on oil and gas revenue.
The NNPC opens the report each month with a disclaimer. It cannot guarantee the report’s accuracy nor be held liable for errors it contains.
Findings show that financial reports of other national oil companies including Saudi Arabia’s Aramco, Russia’s Rosneft, Norway’s Equinox, Venezuela’s Petroleos de Venezuela and Kuwait’s Petroleum Corporation do not contain a disclaimer.
Unlike other financial reports from half a dozen national oil companies reviewed, only the NNPC’s reports are not signed by a company representative hence no one can be held accountable.
Analysts criticise the report because it contains unaudited figures. It is merely a record of the NNPC’s financial and operational activities that have not been subjected to the rigour of examination. This means that claims of crude oil lifting cannot be backed by records and transactions including oil sales are not supported by relevant documentation.
The report obscures while trying to tell. Though it reveals how much refined petroleum products are imported and volume of crude oil lifted, it does not disclose details on off-takers and the beneficial owners operating in commodity trading in Nigeria.
The report is also silent on the contentious issue of fuel subsidy operation including details about shipping and storage costs. It measures performance of refineries against previous month’s performance rather than output and often presents data with limited context.
Considering where Nigeria was coming from, however, industry observers say that it is a sea change in a review of NNPC’s monthly publications between 2015 and 2018.
“From being the poster-boy for opacity, NNPC is voluntarily embracing openness and providing near real-time information about the state of play of our oil and gas sector today,” said Waziri Adio, executive secretary of the Nigerian Extractive Industries Transparency Initiative, the Nigerian arm of the global Extractive Industries Transparency Initiative.
Adio further said, “This is commendable, but also deserving of close and critical examination. For example, what do the reports, looked at together, tell us about our petroleum sector today and what is the implication of that for the public, for public finance and for petroleum sector reforms? That is the rationale for this special report,”
NEITI in its first Occasional Paper Series, released in December 2016 however, cautioned, “The figures examined here do not represent the sum total of all revenues from the sector, as other payment streams like royalties and taxes from JVs, signature bonuses, transportation rental fees, NESS fees, penalties and others are not covered by the NNPC financial and operational reports.”
Analysts believe information omitted from NNPC reports is crucial to understanding how Nigeria’s oil and gas resources are managed. “The more things change, the more they remained the same,” said Olufola Wusu, energy lawyer at Lagos-based Megathos Law Practice.
Wusu also said that from the perspective of making an attempt, publishing these reports is commendable, but companies that attract investment and reduces losses are those that are transparent.
Publishing accurate details of crude oil management in Nigeria is critical because the oil and gas sector represents about 65% of government revenues. The total revenue flow to the Federation, other tiers of government and sub-national entities from all sources (including crude oil sales, taxes, royalties and other incomes) came to USD 17.055billion in 2016, a 31 percent decline in 2014 revenue figures of USD 24.791 billion according to NEITI’s report.
Poor oil sales affect budget funding and the possibilities of constructing roads, schools and hospitals. Without open, transparent data, lawmakers cannot hold the NNPC to account for how it manages the country’s revenue.
Under NEITI rules, the NNPC ought to disclose the identity of the beneficial owners of commodity traders operating in the Nigerian Oil & gas sector.
Nigeria is also required to develop a well-defined framework and suitable methodology for mainstreaming commodity trading reporting in the Nigerian Oil & gas sector.
Africa’s biggest oil producer is further obligated to design a detailed framework and structure for commodity trading reporting in accordance with the EITI requirements.
The NNPC’s monthly financial and operations report do not currently address these standards.
This compares poorly with other national oil companies who routinely publish audited financial statements. Norway’s Equinox and Saudi Arabia’s Aramco provide citizens and investors accurate information on their operations including details of income earned by their subsidiaries.
Recommendations
The Natural Resource Governance Institute (NRGI) in its 2017 study titled “Inside NNPC Oil Sales: A Case for Reform in Nigeria counselled that to reduce perceptions of impunity, the Federal Government should commission independent performance audits of critical areas including oil-for-product swaps; NPDC oil sales and related operations; NNPC’s oil trading subsidiaries; the refinery crude oil transport arrangement; and the JV cash call account.
“The government should require NNPC to regularly disclose detailed and prompt cargo-by-cargo data on all its crude oil liftings, and issue a 2015 annual report that includes its audited financial statements, operational data, the financial positions and earnings of its subsidiaries, and disclosures on quasi-fiscal spending. Independent audits should occur regularly, and NNPC should publish the resulting reports.
The NRGI also recommended that NNPC establish clear work programs and performance benchmarks, so that oversight actors like the National Assembly, auditor-general, and others can then assess whether it is living up to its obligations.
Nigeria’s president Muhammadu Buhari came into office saying fighting corruption was a major plank of his administration but even under him, the NNPC has not agreed to publish its petroleum contracts, a critical requirement to make the oil and gas sector transparent and end corruption in the sector.
Petroleum contracts set out the legal framework for oil and gas projects. When they are published, it allows for public scrutiny but previous governments have balked at disclosing them claiming it could expose company secrets, giving undue advantage to the competition and violate contract terms.
Ayodele Oni, partner at Bloomfield Law firm said there is a need to balance morality and Nigerian law. Oni cited section of 5 of the Petroleum Profits Tax Act, which states:
“Every person having possession of or control over any documents, information, returns or assessment lists or copies of such lists relating to tax or petroleum operations or the amount and value of chargeable oil won by any company, who at any time communicates or attempts to communicate such information or anything contained in such documents, returns, lists, or copies to any person- (a) other than a person to whom he is authorised by the Minister to communicate it; or (b) otherwise than for the purpose of this Act or of any Act or law, relating to a tax upon income, in force in any part of Nigeria, shall be guilty of an offence.
He further said, “But I agree, the people who own the oil have a right to know the terms of the contracts their government signs with oil companies.”
In 2017 Nigeria formally joined the Open Government Partnership—a multilateral initiative to strengthen governance. In the country’s first National Action Plan, Commitment 3 on fiscal transparency contains language committing to “disclose oil, gas and mining contracts in the area of exploration and production, exports, off taking and swap on a public access portal in both human and machine readable formats.”
Prodded by the World Bank, Nigeria began a framework for disclosing public private partnership projects on the Infrastructure Concession Regulatory Commission (ICRC) website to be accessed by the general public. It contains information about project title, type, government agency responsible; name of private concessionaire, contract sum and progress reports but petroleum contracts which Nigeria relies upon for fiscal planning was not included.
Contract disclosure however is becoming a best practice globally. African countries including Liberia and Ghana have opened up their contracts allowing citizens, parliamentarians and oversight actors to monitor and analyse the public benefit from contract deals.
