Economic Confidential, August 17, 2009

NATIONAL

More Scandals in the Oil Sector- NEITI Reports

As the government continues to wage war against corruption, corrupt practices go on unabated in the oil sector. In a new audit report of Nigeria Extractive Industries Transparency Initiative, NEITI, areas of leakage in the  sector have been discovered by the independent Auditors, the Hart Group.

The report indicates that $4.92billion could not be reconciled in its 2005 audit of revenue receipts by the Federal Government and payments supposedly made by the oil companies due to some payments discrepancies. The discrepancies arose largely from what the Central Bank of Nigeria recorded as receipts from transactions in the petroleum and what the companies operating in the sector claimed they paid to the relevant government agencies.

The Chairman of the National Stakeholders Working Group, NSWG of NEITI, an activists and university scholar Prof. Assisi Asobie, disclosed at a presentation of the report to the public that the 2005 audit was incisive and detailed pointing out that the quantum of crude oil recorded as receipts at the terminal was 917.7 million barrels, an average of 2.5 million barrels per day. This is in contrast to the first audit report that covered 1999 to 2004. He said total production, defined as terminal receipts, was 4.955 million barrels or about 826 million barrels per year on the average.

The report indicated some discrepancies in the accounting system due to inadequacies and weakness in the oil and gas regulatory bodies. The improper measuring process of the DPR and inherently suspicious data system by the PPMC had also resulted to the loss of about $239mn in refined products.

Prof. Asobie said that the revenue accruing to the Federation Account in 2005 was less than 50 per cent of total proceeds received from the sector in the year. According to him the key areas of possible loss of revenue were in underpaid royalty and taxes; non-remittance by the NNPC of what it received from the sale of domestic crude; underpayment to the Niger Delta Development Commission (NDDC) by oil companies; difference in lifted quantities of crude between the terminal operators and the companies lifting and poor record keeping on the part of the regulators.

He pointed out that the possible shortfall in the payments of royalty and PPT resulting from anomaly in the interpretation and application of the Memorandum of Understanding (MoU) clauses and the clauses of the relevant law was estimated at $309 million for PPT and N242.9 million for royalty. He regretted that while the oil companies established that the NNPC owed the Federation Account N654.8 billion, the company claims it owes N651.5 billion, but stressed that N222.3 billion was being withheld as part of the subsidy payments due to it from the Federal Government.

In his words: "The auditors are right in saying that the NNPC should first pay what it has accepted as owing and then demand the payment of the subsidy of N222.3 billion owed it. It should also pay the N3.24 billion over and above the total sum that the NNPC claimed it was owing the Federation Account. Another recoverable revenue is due to the NDDC arising from underpayment by companies. From the calculation of the auditor, NDDC should receive additional $50.6 million and N1.222 million for 2005.

"Clearly, Nigeria's take from the oil in terms of royalty taxes, penalty though a major source component of its source of revenue from oil and gas, was still much less than what Nigeria derives from the direct sale of its own share of crude petroleum. Therefore, we believe that the Petroleum Industry Bill (PIB) is very much in order when it pays a lot of attention to reforming the fiscal regime in the industry in a manner that will further secure revenue from that source."

The agencies that were adequately captured in the audit report included the Department of Petroleum Resources (DPR); the NNPC; the CBN; Products and Pipelines Marketing Companies (PPMC); the Federal Inland Revenues Services (FIRS) and the Office of the AGF.