• Tuesday, March 05, 2024
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Nigeria to lose billions without oil sales reforms, report says

oil tankers

Nigeria must urgently reform the way it sells oil to prevent Africa’s biggest crude producer losing billions of dollars of revenue, according to a new report.

The approach of the national oil company, Nigerian National Petroleum Corp., “suffers from high corruption risks and fails to maximize returns for the nation,” the New York-based National Resource Governance Institute said in a 73-page report published on Tuesday.

The NNPC should end the practice of allocating about 445,000 barrels of oil a day to Nigeria’s four domestic refineries, which process less than a quarter of that total. The allocation has become the “main nexus of waste and revenue loss from NNPC oil sales,” according to the report.

Nigeria’s President Muhammadu Buhari said last month the U.S. will help trace and recover funds from the sale of about 250,000 barrels of oil that are stolen each day in the country. The oil industry, which contributes about two-thirds of government revenue, has come under pressure as the price of crude slumped 50 percent over the past year.

The National Resource Governance Institute said it sent couriered letters, faxes and e-mails to the NNPC and several of its subsidiaries, informing them of the report and asking detailed questions. The NNPC and its units didn’t respond, according to the non-governmental organization, which co-authored a report last year on the scale of African crude purchases by Swiss oil traders.

Revenue System

Calls to the mobile phone of NNPC spokesman Ohi Alegbe didn’t connect, and he didn’t immediately respond to an e-mail seeking comment.

The NNPC should be bound by a revenue-collection system that allows predictable financing for oil projects and reins in discretionary spending from sales, the report said. Nigeria’s former central bank governor Lamido Sanusi said in 2014 that as much as $20 billion in NNPC oil revenue had gone missing.

The report calls for changes to the practice of swapping refined products for crude oil, including the elimination of complex offshore processing agreements that are “open to abuse.” Nigeria may have lost as much as $381 million, or $16.09 a barrel, from one such agreement in a single year, the report said.

Buhari, who pledged during his election campaign to clamp down on graft, dissolved the board of the NNPC in June.

Nigeria is one of the world’s only major oil producers that sells most of its crude to traders rather than end users, according to the report, which recommends the NNPC stops selling to small, unqualified “briefcase companies.” These firms “pose especially high governance risks” as they could help oil buyers avoid taxes and channel payments through politically exposed persons, the report said.

“Nigeria can no longer afford to leave the NNPC’s dysfunctional and costly oil sales system as it is,” the report said, as the status quo is “characterized by convoluted, under-policed deals with weak commercial justifications.”