Forensic audit implicates NNPC, corporation to return $1.48bn

The Nigerian National Petroleum Corporation and the Nigerian Petroleum
Development Company were on Thursday indicted by a firm of forensic
auditors, PriceWaterHouseCoopers, who investigated the allegation of
unremitted funds into the Federation Account levelled against them.
In the report, the auditors asked both organisations to refund to the
Federation Account "a minimum of $1.48bn," representing about
N274.54bn at the Central Bank of Nigeria's inter-bank exchange rate of
N185.50 to the dollar on Thursday.
The highlights of the report were released by the Auditor-General for
the Federation, Mr. Samuel Ukura, in Abuja.
PriceWaterHouseCoopers was last year hired by the Federal Government
to carry out the forensic audit of the NNPC following an allegation by
the former Governor of the Central Bank of Nigeria, Lamido Sanusi,
that $49bn was not remitted to the Federation Account by the
corporation.
Sanusi, who is now the Emir of Kano, had written a letter to Jonathan
that $49bn was not remitted to the Federation Account by the NNPC.
But following the controversy, which the letter generated, a committee
was set up to reconcile the account.
Sanusi later recanted and said the unremitted fund was $12bn and
changed the figure to $20bn.
The President had on Monday, while receiving the report from the
accounting firm, requested the Auditor-General of the Federation to
study it and make the key highlights public within the week.
In the report, PwC stated that while the total gross revenue generated
from crude oil lifting was $69.34bn between January 2012 and July 2013
and not $67bn as earlier stated by the Senate Reconciliation
Committee, what was remitted to the Federation Account was $50.81bn
and not $47bn.
Of the $69.34bn, the audit report stated that $28.22bn was the value
of domestic crude oil allocated to the NNPC, adding that the total
amount spent on subsidy for Premium Motor Spirit amounted to $5.32bn.
The report also concluded that an unappropriated amount of $3.38bn was
spent as subsidy on kerosene in the period.
The report stated in part, "Total other third party financing
arrangement and equity crude oil processing costs amounted to $1.19bn.
Total costs directly attributable to domestic crude oil amounted to
$1.46bn. Other costs incurred by the corporation not directly
attributable to domestic crude is $2.81bn. Revenue attributable to the
NPDC as submitted by the former managing director to the Senate
hearing was $5.11bn.
"PwC states that this amount needs to be incorporated into the
financial statements of the NPDC from where dividend should be
declared to the Federation Account. Signature bonus, Petroleum Profit
Tax and royalty yet to be paid by the NPDC is $2.22bn. Total cash
remitted into the Federation Account in relation to crude oil lifting
was $50.81bn and not $47bn as earlier stated by the Senate
Reconciliation Committee for the period January 2012 to July 2013.
"Based on the information available to PwC, and from the above
analysis, the firm submitted that the NNPC and NPDC should refund to
the Federation Account a minimum of $1.48bn."
In arriving at the conclusion, Ukura said the PwC report centred on
three key areas – NNPC costs, ownership of NPDC revenues and kerosene
subsidy.
On NNPC costs, the report stated, "The corporation operates an
unsustainable model. Forty-six per cent of proceeds of domestic oil
revenues for the review period was spent on operations and subsidies.
"The corporation is unable to sustain monthly remittances to the
Federation Account Allocation Committee and also meet its operational
costs entirely from the proceeds of domestic crude oil revenues, and
has had to incur third party liabilities to bridge the funding gap."
The report stated that while the NNPC provided transaction document,
representing additional cost of $2.81bn related to the review period,
there was a need to clarify whether such deduction should be made by
the corporation as a first line charge before remitting the net
proceeds of domestic crude to the Federation Account.
As a result of this, PwC recommends, "The NNPC model of operation must
be urgently reviewed and restructured, as the current model, which has
been in operation since the creation of the corporation, cannot be
sustained."
On the ownership of NPDC revenues, the PwC report stated that the
organisation should remit dividends to the NNPC and ultimately to the
Federation Account based on its dividend policy and declaration of
dividend for the review period.
On kerosene subsidy, the report stated that while the Petroleum
Products Pricing Regulatory Agency and the NNPC relied on a
presidential directive of June 15, 2009 to stop subsidy on kerosene,
the directive was not gazetted, and as such, there was no legal
instrument cancelling subsidy on the product.
The report, therefore, recommended that an official directive be
written to support the legality of the kerosene subsidy cost.
This, it noted, should be followed by adequate budgeting and
appropriation for the costs.
The NNPC incurred a total of $3.38bn as subsidy cost for kerosene
within the review period.
Meanwhile, the Federal Government has directed the NNPC to pay to the
Federation Account $1.48bn being outstanding signature bonus, taxes
and royalties of the NPDC.
The directive was given few hours after the report of the forensic
audit of the NNPC was made available to journalists.
The Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, in a
statement made available to journalists in Abuja, directed the
corporation "to defray the signature bonuses, taxes and royalties in
line with the recommendation of the forensic audit report."
But the NNPC argued that the report had absolved it of culpability
over the allegation of non- remittance of $20bn, adding that what was
due for remittance to the Federation Account was $1.48bn, being
signature bonus, taxes and royalties on the assets transferred to the
corporation's upstream subsidiary, the NPDC.
"The release of the forensic audit report has finally laid to rest the
controversy surrounding allegations of missing oil revenue or
non-remittance to the Federation Account," the corporation said.
The NNPC denied that it was indicted by the report as the $1.48bn
recommended for refund to the Federation Account was not part of the
alleged unremitted revenue from crude lifting.
It explained that the $1.48bn was never in dispute as it was made up
of statutory payments such as signature bonus, taxes and royalties,
which came with asset acquisition.
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It stated that the delay in payment of the fund was due to the
reconciliation processes between it and the Department of Petroleum
Resources.
The corporation stated that the forensic audit report and the report
of the Senate Committee on Finance on the unremitted revenue alluded
to the fact that the NPDC reported crude oil revenue of $5.11bn.
It further explained that the forensic audit acknowledged that the
total cash remitted into the Federation Account in relation to crude
lifting in the period under review was $50.81bn and not $47bn, and
that subsidy on PMS and Dual Purpose Kerosene stood at $8.7bn.
Expatiating further on the kerosene subsidy issue, the corporation
stated that the forensic audit report also clarified that subsidy on
DPK was still in force as the presidential directive of October 19,
2009 was not gazetted in line with provisions of Section 6, subsection
1 of the Petroleum Act of 1969.
"The forensic audit report also acknowledged that Section 7,
subsection 4 of the NNPC Act empowers the corporation to defray its
costs and expenses, including the costs of its subsidiaries, from
crude oil revenues, though it also recommended that the laws be
reviewed to make the corporation meet its costs and expenses entirely
from the value it creates," the NNPC added in the statement.
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