NEITI Uncovers Discrepancies in Oil Transactions

Nigerian Extractive Industries Transparency Initiative, NEITI, yesterday disclosed that it uncovered a number of questionable transactions in the oil and gas industry in 2005.
In its audit report for that year released yesterday, the organizations confirmed among others, that the management of signature bonus in 2005 was not transparent.
Further, it said the Department of Petroleum Resources, DPR; Office of the Accountant-General of Federation, OAGF; Central Bank of Nigeria, CBN; and Petroleum Technology Development Fund, PTDF; were not able to incontrovertibly confirm the signature bonus payable by the oil companies in 2005, and reconcile it with what was actually received.
According to the report obtained by THISDAY last night, the DPR did not rigorously verify the royalty returns computed by the companies, such as SPDC, Continental Oil, Phillips, among others.
In consequence, it said a comprehensive royalty validation could not be obtained by the auditors.
�Similarly, the FIRS accepted company self-assessment of PPT without adequate verification and validation,� the report stated. �As a result, shortfalls in the companies� liabilities to the Federation were estimated by the auditors at over US$242.9 million for royalty and US$309.9 million for PPT.� The report said these amounts had to be verified, confirmed and recovered.
It added that Mobil Producing Nigeria Limited and Chevron Nigeria Limited were not able to support their PPT return costs with their JV audited financial statements and underlying records.
�This needs to be investigated by the FIRS, in cooperation with NEITI, to ascertain how they compiled their PPT returns in the past and the steps that should be taken to address the situation in the future,� NEITI said. �In respect of NNPC payments for domestic crude, the audit established that NNPC owed the Federation the sum of $4.73 billion (N654.8 billion), which is N3.2 billion more than what was shown by NNPC records as at 31st December, 2005.�The NNPC says it is withholding the sum of N222.4 billion as outstanding subsidy payments due to it. The NNPC needs to upgrade its accounting systems to improve its handling of crude oil marketing. Also, NLNG reported having paid US$ 207 million in dividends, interest, and loan repayment to NNPC but NNPC has not confirmed having received this. As in the upstream, there are management challenges in the downstream as well. For instance, with respect to refined product importation and distribution, pipeline losses were estimated by the auditors at US$239 million.�The Petroleum Products Marketing Company (PPMC) did not offer an analysis of the causes in terms of vandalism, thefts, leaks, evaporation, etc. The system of measuring and recording refined product receipts and pipeline movements is not consistently applied and cannot be relied upon. It requires upgrading to international best practices.�NEITI�s audit report stated that in general, financial information systems in the sector are not adequate for the purpose of controlling financial flows from the sector, adding that the Accountant General of the Federation needs to exercise greater management and control over the revenue flows in the sector.�Among the other statutory recipients of oil revenue, the Niger Development Commission (NDDC) received due attention from the auditors. They stated that payments by companies, as reported by the Commission, summed up to US$135 million and N8.36 billion. However, the companies reported to the auditors, payments of US$120 million and N8.2 billion. Besides, the amount calculated by the companies as due to the Commission for 2005 was less than the amount arrived at from the calculation of the NEITI auditors, by US$50.615 million and N1.2 billion. The difference arises from misinterpretation of the NDDC Act. The companies will be asked to pay the difference. Also, the NDDC finances are to be audited. With respect to the Joint Development Zone, linking Nigeria with Sao Tome and Principe by treaty, Nigeria has a 60% stake in the zone. The EITI process is yet to be applied to the zone. NEITI has started dialogue with the STP counterpart to mainstream the EITIprocess in the JDZ.Among other highlights of the Audit Report showed that total production (terminal receipts) of crude oil in 2005 was 917.7 million barrels, approximately 2.5 millions barrels per day.It also put total crude lifted at 916.9 million barrels while the Nigerian National Petroleum Corporation (NNPC) lifted 456.4 million barrels, with the oil companies lifting 460.5 million barrels.�Of the NNPC share, export crude amounted to 295.5 million barrels while domestic crude was 159.9 million barrels,� NEITI said. �Total gas production was 2,190,447.1 million cubic feet, of which 795,981.8 million cubic feet (about 36%) was flared.�NEITI said financial inflows from oil and gas in 2005, as reported by the auditors, was US$37.871 billion and N19.669 billion naira, out of which investment in the form of cash calls of US$4.065 billion was made leaving a net balance of US$33.8 billion and N19.669 billion.�It should be noted that some of these figures are still to be finally reconciled,� the report said. �For instance, with respect to Petroleum Profit Tax, while the Central Bank of Nigeria (CBN) recorded US$10,396,176,000 as received, the companies claimed to have paid US$10,638,047,000, a difference of US$241.871 million.�Conversely, with respect to royalty, while CBN recorded US$4,679,468,000 as receipts, the companies claimed to have paid US$4,357,491,000, a difference of US$321.977 million. NEITI is working with all the parties concerned to reconcile these and other differences.�It is noteworthy that a much greater proportion of revenue from the industry derives from the sale of crude oil and gas than from royalty and taxes from the companies. In 2005, proceeds from export of crude oil and gas amounted to US$16.378 billion; in addition, proceeds from domestic crude oil and gas sales and related income totalled $5.626billion (N778.9 billion). In that year the CBN reported receiving US$15.225 billion as Petroleum Profit Tax, Royalty, Reserves Additional Bonus, Gas Flare Penalty and Company Income Tax.�By its Act of 2007, NEITI is mandated to obtain from any company in the extractive industry or from any relevant organ of the Federal, State or Local Government, an accurate account of money paid by and received from the company at any period as revenue accruing to the Government from such company for that period. It is also, as indicated earlier, mandated to identify lapses and undertake measures that shall enhance the capacity of any relevant organ of the Federal, Sate or Local Government that has statutory responsibility to monitor such revenue payments.�In this respect, the Audit Report stated that two companies, Cavendish and Express Oil,. did not cooperate with the audit.�The amount of oil produced (at the well head) is not reliably known,� it said. �In 2005, DPR had no system for measuring production other than monitoring terminal receipts. And in spite of gas flare penalty, gas flaring volumes were still significant (about 36% of production) but the trend of decline in flaring had continued.�The auditors could not confirm signature bonus payments in the year 2005; there was a difference of US$116 million between what the DPR reported and what the companies claimed.�One of the functions of NEITI is to ensure that all fiscal allocations and statutory disbursements due from the Federal Government to statutory recipients are duly made. However, although the auditors and the secretariat have some figures on disbursements and fiscal allocation, the data available so far are incomplete and unreliable. The figures on direct financial flows from the companies to the states compiled by the auditors and put at US24,628, 000 and N24.325billion were described by them as �not confirmed� and �incomplete�. The audit process started before the coming into force of the Act; hence the auditors mandate did not embrace this aspect of the NEITI mandate. This gap will be filled in the templates for the 2006-2008 audits.�The report of the audit of the oil and gas industry for the year 2005 has disclosed a lot of data and information that call for urgent attention and action by all stakeholders. It has been considered and approved by the NSWG, presented to the Federal Executive Council for noting and to get a Presidential and Ministerial buy-in for the implementation of the key recommendations, and disseminated to the National Assembly and Office of the Auditor-General for the Federation, as required by law,� NEITI said.