BusinessDay

Why Nigeria must intensify efforts in blocking revenue losses in oil sector

Amidst growing debt profile and worsening fiscal outlook, series of reports by government-own agencies as well as the National Assembly have continued to decry leakages in revenue remittances and collection as stakeholders have insisted that unless urgent measures are taken the development may persist.

Recall that in March this year, the media reported how the 2019 Report of the Office of the Auditor General of the Federation (OAuGF) indicted the now defunct Nigerian National Petroleum Corporation (NNPC) – now Nigerian National Petroleum Company Ltd – for failing to account for 107 million barrels of crude oil in 2019.

This comes as the National Assembly had said loopholes in revenue collections and remittances to government accounts by Federal Government agencies resulted in over $1.3 billion (N540 billion) and another N670 billion unremitted revenue from the oil and gas sector alone.

Till now, it is not clear if there has been a cogent response from the concerned entity or any unraveling from the Public Accounts Committees (PAC) of either the Senate or House of Representatives which are expected to investigate the report and make a submission on the way forward.

Not only NNPC, PAC of the National Assembly and Nigerian Extractive Industries Transparency Initiative have had a running battle with agencies in the petroleum sector.

As a way to ensure efficiency, economy and effectiveness of public spending, the Auditor-General, as enshrined in section 85(5) of the 1999 constitution of the federal republic of Nigeria is expected to submit annual reports on the accounts of the Federation to the Parliament which then refers such reports to the Public Accounts Committee for review as to whether public funds utilised as approved in the yearly budget ensure that the integrity of such budget documents is not compromised.

Despite these unequivocal provisions, the parliament still struggles to carry out its oversight duties owing to non-compliance by some MDAs, NNPC and its subsidiaries. This is now worsened by the exclusion of the NNPC from the provisions of the Fiscal Responsibility Act (FRA).

Lapses by government agencies, lack of monitoring and undue advantage given to some companies operating in the country, especially in the free trade zones have been causes of worries for the Growth Initiatives for Fiscal Transparency (GIFT) even as the House of Representatives Committee on Public Accounts (PAC), Chairman, Busayo Oluwole Oke, had disclosed that the Nigerian National Petroleum Company (NNPC) Limited has questions to answer over oil and gas revenue hovering at $2.3 billion.

GIFT, a Nigeria Project, is an activity under the Strengthening Civic Advocacy and Local Engagement (SCALE) Project funded by USAID and implemented by Palladium in collaboration with Nigeria Resource Partners (RPs).

The SCALE Project was designed to enhance local civil society organisations’ ability to be positive and responsible change agents in Nigeria. The goal of the project is to “improve public accountability, transparency, and sustainable service delivery in Nigeria” by strengthening the managerial, financial, and advocacy capacity of civil society to engage citizens to influence the Government of Nigeria in key development reforms at national, state, and local levels.

By implication, the GIFT Nigeria activity is expected to catalyze reforms around Transparency, Accountability and Good Governance (TAGG) in relation to Public Finance Management (PM) especially relating to the Extractive Sector of the country. Currently, the project is ointly implemented by OrderPaper Advocacy Initiative (OAl), Centre for Transparency Advocacy (CTA), HipCity Innovation Centre, CLICE Foundation and Nigeria Institute of Quantity Surveyors (NIQS).

Like the Nigerian Extractive Industries Transparency Initiative (NEITI), the GIFT project has raised concerns on the revenue loopholes across sectors in Nigeria but the extent to which these challenges would be addressed by necessary authority remained a mirage.

Nigeria, a country rich in natural resource endowments, remained poor in development indices largely because of dysfunctional economic structure perpetuated by a rentier state.

While this persists, the level budget deficits, borrowing and debt servicing has gone from bad to worse in recent times.

A Revenue Remittance Compliance Index of Federal Government Ministries, Departments and Agencies designed under the GIFT sees the Fiscal Responsibility Act (FRA) as a leeway, especially the fact that it was enacted to ensure long term macro-economic stability of the nation’s economy, secure greater accountability, and transparency in fiscal operations within the Medium-Term Fiscal Policy Framework (MTEF) and to establish the Fiscal
Responsibility Commission (FRC).

But it however noted that the provisions of the act were being violated amidst the need to amend the provisions.

“Section 12(1) of the FRA, 2007 which provides that the deficit appropriated for in the budget should not exceed three percent of the estimated gross domestic product or any other “sustainable percentage as be determined by the National Assembly for each financial year,” Nigeria’s debt profile has continued to grow over the years.

Records show that while the 2019 and 2020 budget deficits were within the permitted range, the 2021 appropriation had a deficit amounting to 3.9 per cent of the nation’s GDP, as against the stipulated 3 per cent.

Recall that a total of 150 MDAs were captured in the data Compliance indexes, including most all agencies as well as other Scheduled and Non-scheduled corporations and agencies of the Federal Government.

Of most of the oil agencies captured, it is worthy of note that the Department of Petroleum Resources (Now Nigerian Upstream Petroleum Regulatory Commission, NUPRC); the Nigeria National Petroleum Corporation (now Nigerian National Petroleum Company Ltd); the Nigerian Maritime Administration and Safety Agency (NIMASA); the Petroleum Equalisation Fund (Management) Board (now Nigeria Midstream and Downstream Petroleum Regulatory Authority); the Petroleum Products Pricing Regulatory Agency, PPPRA (now Nigeria Midstream and Downstream Petroleum Regulatory Authority); and the Nigerian Ports Authority (NPA) posted Average performances.

The National Oil Spill Detection & Response Agency (NOSDRA); and the Oil & Gas Free Zone Authority posted Above Average performances.

However, Nigerian Content Development & Monitoring Board (NCDMB) stands alone as Below Average having not submitted AFS from 2017 till date.

Busayo Oluwole Oke, chairman, House of Representatives Committee on Public Accounts (PAC), had earlier stated that NNPC had failed to remit fund between 2014 and 2019 and included delayed payments by customers without evidence of any surcharge for the delays to the tune of $510,020,921.79.

He added that incomplete payments by customers stood at $6,203,863.68 and another outstanding payments by customers standing at $80,452,746.83.

Read also: NNPC, US corporation, Exim Bank in talks to finance gas projects

The PAC chairman, pointing to audited documents by the country, noted that $235,685,861.31 was transferred to an undisclosed escrow account – due from the sales of gas to NLNG, adding that there was unexplained shortfall on NLNG balances standing at $18,389,334.23 and payment for gas exports of $346,211,227.59 through NGL Funding Account instead of the Federation Account.

According to him, there was equally $2,664,047.64 unexplained and unsubstantiated foreign exchange losses on sums paid into the Federation Account while sales without payment status, payment details or payment confirmation from the national oil company stood at $9,389,105.80.

Disparities in billing price per unit used in billing and amount stated in sales invoice stood at $11,973,828.48 and discrepancies on the Amount Transferred to the Federation Account in the five year period stood at N663.8 billion, Oke noted, adding that a lot of companies are enjoying undue tax waivers as the country’s lax regulations and monitoring allow for infractions in the face of borrowing.

He noted that there was non production of complete information on Allocation of Crude Oil to Refineries in 2019; non-adherence to payment of all revenues to Federation Account while pumped products from refineries without evidence of receipt at depot stood at N7 billion.

“As at today, Saudi-Aramco is the largest company on the planet in terms of revenue with about $2.332 trillion, ahead of Apple, Tesla, Alphabet, Microsoft and Amazon.

The technology companies have dominated this space for a long while and we have not seen any oil and gas company making the list of top 10.
“Nigeria, as a country, has similar potential as Saudi Arabia, however, as at 2022, GDP Per Capita for Nigeria is $5,000, while that of Saudi Arabia is $24,224. The media has been reporting since the first quarter of 2022 that NNPC was failing in its ability to make remittance to the Federation Account, despite the current rise in price of crude oil.”

Orji Ogbonnaya, executive secretary of the Nigeria Extractive Industries Transparency Initiative (NEITI), recalled that the agency had raised an alarm that companies in the oil and gas sector owe government over N2. 6 trillion in unpaid taxes and other levies in 2019, stressing the need to close the gap in remittances.

He said there was a need to support the government in generating the needed revenues from the extractive sector that would be deployed to provide and upgrade existing infrastructure for citizens.

“For Oke Epia, Executive Director, OrderPaper Advocacy Initiative (OAI), it is not welcoming to read of the alert by the International Monetary Fund (IMF) that Nigeria may be spending 100 per cent of its revenues on debt servicing,” he said.

According to him, such prospect signposts the grim reality where Nigeria’s rich natural resource endowments have turned in very little or no benefits to its citizens. He said there was a need to amend the Fiscal Responsibility Act (2007).

For Epia, though the FRC has the mandate to intervene in addressing the leakages, a lack of power to cause compliance with provisions of the FRA has greatly impeded the performance of the Commission.

“It is important that MAs are properly acquainted with the provisions of the FRA and functions of the FRC.
The powers to enforce the FRA should be bestowed on the commission,” Epia said, adding that a speedy passage of the FRA (Amendment) bill currently before the National Assembly remained an urgent necessity.

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