Recently the 2013 Audit Report of the Nigeria Extractive Industries Transparency Initiative (NEITI) on Oil, Gas and Solid Minerals was made public. The Executive Secretary of NEITI, Mr. Waziri Adio granted an interview to the Economic Confidential on issues arising from the report as part of efforts to remove corruption and entrench transparency in the sector for increased revenue to the federation. The Editor of Economic Confidential, Ewache Ajefu anchors the interview. Excerpts:
EC: Since assuming office, what have you met on the ground as the Executive Secretary of NEITI and your expectations?
Well I want you to understand that this is not about me but about our work most importantly about our country Nigeria. I want a situation where we will be able to take the organization to a higher level, because its mandate is very critical to the development of this country. As you are well aware, this agency is important to the survival of the nation either in terms export or revenue, issues of poverty, development and a whole lot of them. We want a situation whereby government gets value from the resources into which it has invested much and which nature has endowed our country with. And taking it to another level is the fact that when government gets this revenue, it will be used to better the lot of Nigerians. So when I came on board, one of the things we looked at was that there are certain things we assume should happen but are not happening. Remember our job is to do the audit and put it in the public domain. And when we do our audit and put it in public domain, the assumption is that people will ask questions, apart from the fact that other government agencies will use it to deepen their work.
EC: Based on your assessments, have there been responses from the public or civil society groups?
Over time, that has not happened. There is also the notion too that Civil Society groups will use it to sensitize the populace and hold government agencies accountable. But because these things have not happened, we decided to review what has happened over time and know where the gaps are and see how we can bridge the gaps, apart from improving on what we have done well. So, on that basis and after several consultations with stakeholders here and there, we came to the conclusion that we need to engage with some of the actors. The NEITI Act said that we should send a copy of our report to the National Assembly. We usually do that. The same Act said also that we should send a copy of the report to the Auditor-General of the Federation and we usually comply.
EC: Is that the reason you engage the National Assembly on the Audit reports?
In the past NEITI usually did a cover note on the copy and send to relevant agencies or bodies. And you can guess what will happen. It would be received and somebody would minute on it to others and finally would land on the shelf. So we decide that the legislature is very critical because of the job they do. They do three things. They are representatives of the people, make laws and perform oversight functions. So if these three things are for the good of the people, then we are on course. They could hold the Executive in check. And we believe that our own output can be an input into the work that they do. So on the basis of that we said that we won’t be sending them report like that again. We decided to do advocacy visit and engage them for them to realize that the report is very important. We sent letters to both the Senate President and the Speaker of the House of Representatives.
EC: Were you able to meet the two Chambers of the National Assembly?
Yes of course. We met with the House first. We met with the Deputy Speaker who represented the Speaker and we were well received. We made our presentations and requested that they should look into the report and use it for their work. Later, we met with the Senate President and the meeting was very well attended. In fact six Senators accompanied the Senate President. He said he had read the report and felt very sad. He made a pledge that this is the sole of the economy and we cannot continue to trifle with it. So, on the basis of that, he pledged that the report will be discussed in plenary and that we will be invited during live coverage so that all Nigerians can see this. So eventually they agreed to a date on June 15, 2016 and invited me to brief them on our work and I did. After I briefed them, they asked questions and they later decided to set up an Ad hoc committee to look at the issues arising from the report. So we are happy about the outcome. When we decided to engage them, we did not think we could come this far in our widest of dreams. We thought they will refer the report to the committee of the house and later give them back a feedback. The Senate President and indeed the Senate were magnanimous to give us that prime opportunity, not just to present the report to them but vicariously present it to Nigerians. And they agreed to investigate on all the issues raised through setting up an Ad-hoc Committee which has been inaugurated and when they come from recess they would commence the work.
EC: How soon are you expecting a feedback from the national Assembly?
The Ad-hoc Committee was however given a one-month deadline to complete their work. We expect that when they resume they will invite us and all the government agencies that are involved in our report to state their cases. We are very happy with this kind of response. One of the things we find frustrating is that we do this report at great expense to the country. And year-in year-out we come up with recommendations on what should be done and nothing happens. It’s quite frustrating. The country needs to get value for the money it is expending on this report.
EC: Who are the other stakeholders that can act on the report?
We have also met with the Acting Auditor-General for the Federation. The Act setting us up says we should submit our report to the Auditor-General and within one month to look at the findings. It has never happened. There was even a time we sent report and they told us they did not see anything and that even if the report were received, they would not know what to do! That is what we have been doing to create partnerships and deepen engagements with stakeholders in a way that should get better outcome.
EC: Why are you engaging the EFCC in your activities?
The NEITI Act of 2007 criminalizes some behaviour and even put sanctions either in terms of fines and jails terms or both but did not give us powers to prosecute. That is why we make recommendations and identify people with infractions and nothing happens. That is why we are engaging the EFCC. So if financial and economic crimes have been committed, it then falls within the ambit of the anti-graft agency. We met with the Economic and Financial Crimes Commission (EFCC). The Acting Chairman also pledged to set up a joint investigative team from both sides to come together and look at possible infractions.
EC: Does the report directly mention culprits that could be prosecuted by EFCC? If yes, how many are they?
Okay. Let us look at it this way. What are the issues that have been identified? We can now begin to say who is responsible. You see in this particular audit, most of the issues have to do with government agencies. We have been in existence for the past twelve years. We have done six oil and gas audit report and four solid minerals report including fiscal allocation and statutory audit. So over time most of the companies have gotten use to us and they comply more with what we do.
Now we have discovered that NNPC and its subsidiaries withheld some of the monies that are due to government. For instance they withheld $3.8bn and N358bn respectively. Now let us break it down this way. If you remember NNPC divested some of its interests in Shell Joint venture about 8 Oil Mining Leases (OMLs) to Nigeria Petroleum development Company (NPDC), $1.29bn from NLNG; N354bn from unpaid domestic crude debt; N3.98bn from subsidy over-recovery in 2012 and N2.17bn from cash-call refunds.
EC: Can you give us an idea about the quantum of losses?
On losses the report discovered $4.7bn from theft and vandalism in 3 JVs—Shell, Agip and Chevron; and N20bn from not observing 90-day credit, time value of money at 12%. These issues captured still need further elaboration. Now NNPC Divested 55% in 8 assets (OMLs) in Shell JV: OMLs 4, 26, 30, 34, 38, 40, 41, and 42. They were valued by DPR at $1.8bn, but according to Price Waterhouse Coopers (PWC), they should have been valued at $3.4bn, given that Shell got $2.72bn for its 45% interest in those same assets. This then mean that Shell’s 45% valued at 47% higher than Federation’s 55%. Let us look at it another way. Given the disparity between $3.4bn and $1.8bn, assets valued at 47% loss or discount. But even with discount or loss, NPDC paid only $100m, leaving an outstanding of $1.7bn. This means that NPDC paid only 5.6% of the discounted value of $1.8bn, and 3% of actual value of $3.4bn and yet enjoyed all the benefits, as oil from those assets lifted on behalf of NPDC and not the Federation. Again look at another scenario. We have four assets under the Nigeria Agip Oil Company (NAOC) JV similarly divested. OMLs: 60, 61, 62, and 63; in this case no valuation was done on those 4 OMLs; neither consideration paid, nor yet oil was lifted on behalf of NPDC, not the federation.
EC: What about Cash-Calls paid on divested assets?
Now we go to cash-calls paid on divested assets. Despite the fact that 12 OMLs in the Shell and Agip JVs divested to NPDC, and not fully paid for or not paid for at all, NAPIMS paid cash-calls on some of these OMLs, namely, $536m paid as cash call on the 4 OMLs from Agip JV, $389m refunded to NAPIMS, but refund not remitted to Federation, apart from an outstanding of $147.8m not paid at all. There are also Cash-calls also paid on some the divested OMLs from the Shell JV, which include $35.12m refunded to NAPIMS, but refund not remitted to Federation. Records from NAPIMS showed request for refund of $414,000 and N249, 272, 000 on OML 25 apart from request for refund of $2.17bn on OML 42. You can’t imagine that these requested refunds were not made as at close of audits.
EC: What is the level of involvement of NLNG and also on Offshore Processing Agreements OPA?
Now let us look at the status of Nigerian Liquefied Natural Gas (NLNG) dividends. NLNG paid $1.28bn to NNPC, and NNPC acknowledged receipts, but money not remitted to the Federation Account. Again between 2005 and 2013, NLNG paid $12.9bn to NNPC, NNPC acknowledge receipts, but not remitted to Federation Account. On losses incurred during the period under review, the Federation lost $518m due to inefficiencies of SWAP and Offshore Processing Agreements (OPA), $211.88m lost to crude for product SWAP, and $306.16m of OPA. The current administration has cancelled Swap and OPAs to promote transparency in the oil sector.
We learn there are also cases of Under-assessment and under-payment…
Yes of course. If you consider losses to under-assessment/under-payments, you will discover $599.8m was lost due to contested pricing methodology. Out of this amount $432.5m was lost to under-assessment for royalties, and $168.3m was lost to under-assessment for Petroleum Profit Tax (PPT). From the report we discovered that N1.3 trillion was processed as petroleum subsidies for 2013. This you can see is 34% higher than the N970b appropriated for fuel subsidies in 2013. A careful look at the figures reveal that it is 26% of the N4.98 trillion of 2013 federal budget; 30% higher than total budget for education, health, water, and SUREP in 2013 budget.
EC: There is also concern about metering issues in the oil sector…
Now Metering is such a very big issue up till date. The report notes that absence of metering infrastructure at critical places flagged in the first NEITI Audit covering 1999 to 2004 is still with us today. As we speak the 2013 Oil and Gas audit, the sixth by NEITI, but no progress on metering. The Country knows what it exports, but not scientifically what it produces. We have seen that lack of metering has serious implication for revenue and even security.
EC: What can you say about the Solid mineral sector?
Let me speak briefly on solid minerals. The federation made N33.86 billion in 2013, an increase of 7 percent. 91% of 2013 production from solid mineral sector is from limestone, granite and laterite, and 5.8% of production of sand, eclipsing the others to arrive at 3%, while revenues from cement companies alone hit 88%. The sector is dominated by artisanal miners, as big mining giants like the Rio Tintos, Anglo American, BHP Biliton, Vale etc are not here. In this report five companies account for 93% of total payments: Dangote, 53%; WAPCO, 19%; Ashaka, 10%; UNICEM, 7% and Cement Company of Northern Nigeria (CCNN), 4%. Now five states accounted for 72% of payments. They are Ogun 25%; Kogi, 20%; FCT, 14%; Cross River, 9% and Oyo State, 4%. We have some teething issues in the sector and they include, but not limited to, inaccuracy of production data, lack of clarity on legal and tax regimes apart from transfer not being made to the respective states.