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Missing $20 Billion Oil Money: FG Set To Undertake Forensic Audit Of NNPC

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To lay to rest the controversy over the exact amount the Nigerian National Petroleum Corporation (NNPC) is yet to remit into the Federation Account, the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, has recommended the setting up of a team of forensic auditors whose work will satisfy the yearnings of all Nigerians.

The minister, who disclosed this at a media briefing in Abuja yesterday, said this was her recommendation to the Senate Committee on Finance which is holding a public hearing with the aim of determining the exact amount that had not been remitted to the Federation Account by the state-run oil corporation.

Her recommendation notwithstanding, NNPC made a spirited defence during the senate hearing on what it insisted was the unremitted sum, maintaining that $10.8 billion was the sum in dispute, and not the $20 billion estimate presented to the committee by the Central Bank Governor, Mallam Sanusi Lamido Sanusi, last week.

It also provided clarification on the Strategic Alliance Agreement (SAA) its upstream subsidiary, the Nigerian Petroleum Development Company (NPDC), has with Atlantic Energy Concepts Limited, which was also fingered by Sanusi for diverting the resources of the federation.

But this did not stop the senate committee from querying the continued retention of the subsidy on kerosene by NNPC, which it declared illegal, since there was no appropriation in the budget for it by the National Assembly.

During her briefing, Okonjo-Iweala said the committee had already sanctioned the recommendation and asked that the first report should be turned in on March 22, 2014.

Going back memory lane, she said the impression should not be created that her ministry was not doing what it should do, as it was the painstaking work of the Finance Ministry that reconciled the initial $49.8 billion mentioned by Sanusi as the unaccounted funds to the $10.8 billion, which was accepted by all parties as the basis for further discussion.

She said the issue of unremitted funds by NNPC was not new, as it has been an ongoing issue at every Federation Account Allocation Committee (FAAC) meeting chaired by the Minister of State for Finance, as evidenced by reports from the monthly meetings.

“As of December 2013, the cumulative unreconciled figure of shortfalls from NNPC payments stood at N1.792 trillion (about $11 billion).

“Let us now focus on the original $10.8 billion which was the shortfall we had as at July 2013.  Another reconciliation meeting was held, during which NNPC presented data of how they utilised the balance of $10.8 billion; namely, amount withheld for subsidy ($8.766 billion); holding cost of strategic reserves ($0.4599 billion); crude oil and product losses ($0.761 billion); pipeline management cost ($0.905 billion), for a total of $10.89 billion.

“The data presented were all certified by PPPRA (Petroleum Products Pricing and Regulatory Agency) as being accepted. We asked to see the backup documentation to enable verification.

“Our judgment is that a proper examination of these documents requires technical expertise beyond the capacity of the reconciliation team, etc, and therefore we believe we should have an independent forensic audit, managed independently of these submissions,” she said.

Commenting, on the new sum of $20 billion thrown up by Sanusi, she said the NPDC and third party arrangements featured in the original reconciliation effort in the cascade presented by NNPC.

“However, at the reconvened meeting of this (senate) committee hearing last week, the CBN had re-presented these two aspects as the crux of the new $20 billion amount unaccounted for.

“These new figures include amounts deemed to be due to the Federation Account as proceeds from NPDC’s operation of oil fields previously owned by Shell Petroleum Development Company (SPDC), and unremitted amounts captured as third party financing.

“In looking at these elements, the reconciliation committee concluded that the issues are largely legal and require careful legal interpretation, which would need to be given more detailed attention by legal experts.

“For example, what is the legal status of NPDC and who owns the revenues earned by this entity? Is it the Federation Account or NNPC?  The NNPC and CBN have both indicated they will give expert legal opinion on these issues,” she said.

Also during yesterday’s hearing at the senate, the finance minister presented the report of the reconciliation exercise, which according to her was certified by PPPRA.

She submitted that of the $10.8 billion in dispute, $8.76 of it was spent on subsidy on petroleum products, thus confirming THISDAY’s exclusive report yesterday on NNPC’s subsidy claims for kerosene and petrol.

She also reported that NNPC spent $0.76 billion of the sum on crude oil and products losses; $0.46 billion on national strategic reserve; and $0.91 billion on pipeline maintenance and management.
Elucidating further on the figure, PPPRA’s Executive Secretary, Mr. Reginald Stanley, broke the $8.76 subsidy sum into $5.25 billion as petrol subsidy and $3.51 billion as subsidy on kerosene.

He affirmed the submission of Okonjo-Iweala that the sum had been certified by his agency.
Okonjo-Iweala, however, added that even though the NNPC data had been certified by PPPRA, there was still the need for a forensic examination of the documents to ascertain their authenticity.

On the allegation of non-remittance of $20 billion by Sanusi, which he said included $6 billion unremitted by NPDC, Okonjo-Iweala said the matter required legal expertise to determine the legal status of NPDC before the matter could be resolved.

According to her, both the Ministry of Finance and CBN lacked the expertise to know what NPDC actually owes the Federation Account, adding that such legal opinion would reveal whether $6 billion worth of crude oil allegedly lifted by NPDC, Atlantic Energy and Seven Energy, actually belonged to the companies or the Federation Account.

She added that despite the reservations expressed by Sanusi, Atlantic Energy’s SSA with NPDC could not be completely faulted, as the government cannot work without private sector synergy.

In reaction, the committee chairman, Senator Ahmed Makarfi, who had invited the Attorney General of the Federation (AGF) and Minister of Justice, Mr. Mohammed Adoke, asked him to respond.

But Adoke, who was represented by an official of the Ministry of Justice, said the AGF only got the invitation on February 11 and would therefore require one extra week to present an answer.

Makarfi therefore asked the AGF to return to the committee to present the required legal opinion on the matter next Thursday.

He also mandated the Ministry of Finance to assemble a team of forensic experts to verify NNPC’s claims and report the findings to the committee in one week.

Asked if he was satisfied with the breakdown of the spending of the disputed $10.8 billion, Sanusi said he had no cause to dispute the findings of PPPRA since it is the authorised body to certify NNPC’s data.

However, he insisted that continuous payment of subsidy on kerosene was illegal, recalling how former PPPRA boss, Abiodun Ibikunle, had written him a letter in December 2010 that the agency was no longer taking subsidy on kerosene following a presidential directive stopping it in 2009.

He described the  payment of kerosene subsidy as a violation of the presidential directive.

He further insisted that besides the $6 billion which he said the NPDC should remit to the Federation Account as well as $2 billion third party financing, $12 billion was still outstanding from the $20 billion that NNPC needed to remit to the Federation Account.

But in response, the Minister of Petroleum Resources, Mrs Diezani Alison-Madueke restated how at a meeting involving the Ministry of Finance, the parties had agreed that the presidential directive stopping the kerosene subsidy should be put on hold.

She said this was based on the agreement that observing the directive would further impoverish the masses of Nigerians who depend largely on kerosene for cooking.
She argued that the directive was not gazetted and therefore it was wrong to submit that the kerosene subsidy was illegal.

She added that if the kerosene subsidy was stopped, Nigerians would be left with no option than to pay three times the current cost of the pump price of the product.

On the forensic examination, Alison-Madueke who said the reconciliation of funds had been thoroughly carried out since 2004 without any problem by statutory bodies until last year, argued that the examination must cover the period of 10 years when the exercise had been on course.

But when asked if this year’s budget contained a subsidy provision for kerosene, Okonjo-Iweala responded in the negative.

Asked again if a supplementary budget would be raised for the purpose, both ministers kept mute.
This drew the ire of the senators who lamented that NNPC had been illegally paying to itself a subsidy for kerosene without appropriation, noting that no budget had been drawn for kerosene subsidy since the directive was given.

In this regard, Makarfi threatened that if they continued to spend money illegally, the senate would be left with no option than to allow the law to take its course and vehemently warned against spending without appropriation.

In his submission, NNPC Group Managing Director, Mr. Andrew Yakubu, again attempted to establish the legality of the kerosene subsidy when he said the corporation was left with no option than to embrace it since marketers withdrew from importing the product because of the uncertainty surrounding subsidy payment.

He also said the agency was propelled by a resolution of the House of Representatives, stating that the subsidy on kerosene should not be withdrawn as well as a federal high court judgment delivered on March 19, 2013 in a suit filed by Mr. Bamidele Aturu, restraining all stakeholders from deregulating petroleum products.

He further argued that till date, NNPC had never received any directive stopping the kerosene subsidy.
On how the subsidy on petroleum products was paid, Yakubu who recalled that the sums of N888 billion and N971 billion were respectively budgeted for subsidy in 2012 and 2013, added that it was common knowledge that the figures were not enough thus prompting the accumulation of $8.76 billion.

Also responding to a question on the volume of fuel consumed daily by Nigerians, Stanley put it at 39.6 million litres, explaining that the volume was part of the actual 50 million litres imported and discharged daily.

On the SAA between NPDC and Atlantic Energy in respect of some oil mining leases (OMLs), Yakubu said NNPC never transferred equity or operatorship from the NPDC to Atlantic Energy, contrary to Sanusi’s testimony last week.

He added that there was also no operation of the assets by the SAA counterparties, stressing that the NPDC is the operator of the blocks and thus, the party in production.

“As a matter of fact, CBN has admitted severally in the document its lack of understanding of the SAA, therefore it has no basis for the definitive conclusions it has arrived at in its report.

“To give clarity, we will explain in simple terms the structuring of the SAAs,” Yakubu said during his presentation before the committee.

He explained that the SAA was one of the third party funding arrangements similar to Modified Carry Arrangement (MCA) or other forms of Alternate Funding (AF) applicable in the Joint Venture operations.

According to him, the only difference between the SAA and the MCA, AF or Service Contract (SC) is that while the operator provides the financing in the case of the JV, a third party does that in the SAA.

“Mr. Chairman, it is noteworthy that similar Third Party Financing for projects and operations exist in our current JVs. As a matter of fact, the payment of $1.2 billion third party financing payments proceeds out of the $2 billion third party proceeds from third party financing of JV projects.

“This third party financing has been reported continuously at FAAC and CBN is fully aware of this type of financing,” he added.

The NNPC GMD stated that the SAA was introduced as part of the efforts to realise the new NPDC mandate of growing its crude oil and condensates production to 250,000 barrels of oil equivalent by year 2015.

He argued that this ambitious growth plan would be achieved by a combination of asset acquisition and organic growth of NPDC’s existing assets, adding that the strategic initiative to further strengthen NPDC to a medium-size upstream company with a new mandate was the fall-out of a directive given to the NNPC by President Goodluck Jonathan on April 22, 2009.

“This entailed to submit a concrete proposal for strengthening its financial position, which could include taking additional stakes in oil acreages, as well as an action plan for accelerated offshore refining of crude oil for domestic consumption,” Yakubu explained.

Between 2010 when NPDC executed its first SAA to date, the NNPC boss said NPDC had been able to ramp up its equity oil and gas sales from 60,000 barrels of oil equivalent per day (bopd) and no gas sales to 138,000bopd and 450 million standard cubic feet per day (mmscf/d) respectively, in addition to the attendant increase in reserve base.

Also commenting on Sanusi’s recommendation that all SAAs entered into by NPDC should be investigated for constitutionality, Yakubu termed the recommendation “strange” as the SAA had no link with the Constitution of the Federal Republic of Nigeria.

He reiterated that the SAA was only a financing instrument required to meet the aspirations of a national oil company (NOC), adding that it was similar to other funding models existing in Nigeria within the JV operations.

He pledged that the production numbers of NPDC would continuously be made available to all relevant government agencies as part of their statutory functions.

“Furthermore, NPDC is always open to audit and will continue to be transparent in all its operations. However, Mr. Chairman, all tax arrangements (CITA) in the SAA is a mandatory requirement by law as such NPDC has no powers to waive and never attempted to do so for Atlantic Energy,” he added.

In her remarks on the SSA, Alison-Madueke maintained that there was nothing untoward about the strategic partnership between NNPC and Atlantic.
“Instead of castigating those bringing resources to invest in the oil and gas sector, they should be encouraged to invest more so as to build NPDC’s reserves,” she said.


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