PwC Report: No $20bn Missing But Cites Several Infractions by NNPC
Other highlights: Absence of NPDC’s management during audit Sanusi’s correspondence with auditor Duplication of $64.79m petrol, kero subsidy claims
Anxious to debunk claims that he has something to hide in relation to the allegation that $20 billion was unaccounted for by the Nigerian National Petroleum Corporation (NNPC) during his tenure, President Goodluck Jonathan yesterday ordered that the full report of Pricewater house Coopers’ (PwC) forensic audit of the corporation be released immediately to the public so that all Nigerians will be properly informed on the matter.
But while the audit did not mention any missing funds, only requiring NNPC’s exploration and production (E&P) subsidiary – the Nigerian Petroleum Development Company – to remit $1.48 billion to be remitted to the Federation Account, the report did raise many pertinent questions.
Briefing State House correspondents on the president’s directive, presidential spokesman, Dr. Reuben Abati said the incoming administration of Buhari was free to review all actions and policies taken by the present administration which it deems necessary.
PwC was contracted by the federal government to carry out a forensic report into the finances of NNPC between January 2012 and July 2013.
This followed the allegation on the missing $20 billion made in January 2014 by the ousted Governor of the Central Bank of Nigeria (CBN), now Emir of Kano, Muhammad Sanusi II, who claimed at a Senate public probe that, among other allegations, NPDC failed to remit $6 billion; while another $3.38 billion was tied to the kerosene subsidy regime.
Prior to that he had alleged that the sum of $49.8 billion had not been remitted by NNPC to the Federation Account from crude oil sales between January 2012 and July 2013, but later revised the sum to $12 billion and/or $10.8 billion, before settling for $20 billion which was premised on allegations not connected to revenue arising from crude oil sales over a 19-month period.
Although the federal government responded by contracting PwC to undertake the forensic audit of NNPC, only highlights of the report were made public last February.
However, Abati stated yesterday that on assumption of office, Jonathan did review some actions and policies of his predecessor, which according to him were not out of place for the incoming government to do.
The presidency equally denied allegations by the All Progressives Congress (APC) that officials of the federal government were engaged in “last minute looting of the nation’s resources, rushed privatisation of key institutions and hurried recruitment into the public service”.
Abati, in a statement, said: “We consider as most unfortunate and uncharitable, the suggestion by Alhaji (Lai) Mohammed that the Jonathan administration is trying to ‘tie the hands’ of the incoming government merely by continuing to discharge its constitutional responsibilities until the end of its tenure.
“The Jonathan administration which continues to do its best to ensure a smooth and peaceful hand over of power to the President-elect, General Muhammadu Buhari, deeply regrets the unfairness and combative frame of mind reflected in Alhaji Mohammed’s statement.
“President Jonathan has done his best in the past five years to discharge his constitutional responsibilities for good governance and effective leadership of the nation.
“Without any prejudice whatsoever to the freedom of the incoming administration to do as it pleases, within the confines of extant laws when it assumes office, the Jonathan administration will continue to discharge its responsibility to govern until May 29, 2015.
“In continuing to fulfil the obligations of his office, however, President Jonathan has not, and will never condone any form of unscrupulous conduct on the part of state officials.
“President Jonathan will also never authorise any attempt to create any problems for the incoming administration as the APC spokesperson, who ought to know that the outcome of the March 28 presidential elections does not imply a cessation of governance, unjustly alleges.
“As Alhaji Mohammed threatened in his statement, the incoming administration will be perfectly within its rights to review all actions of the present government as it may deem fit.
“We see nothing wrong with that. After all, the present administration reviewed the actions of previous governments on assumption of office with resultant benefits for policy and project implementation.”
Abati added that the president was “deeply concerned” by the continuing suggestions that his administration still has anything to hide on the unproven allegation that about $20 billion has remained unaccounted for by NNPC during his tenure.
“To lay the matter to rest, President Jonathan in line with Section 7(2) of the NNPC Act, has directed that the full report of the PwC forensic audit of the NNPC accounts be released immediately to the public so that all Nigerians will be properly informed on the matter,” he said.
A review of the 199-page PwC report by THISDAY showed that it did not deviate from the highlights of the report released by the AuditorGeneral of the Federation (AuGF), Mr. Samuel Ukura on February 4, 2015 and the recommendation that NPDC should remit $1.48 billion to the Federation Account.
The highlights were as follow:
•That the alleged unremitted funds could be explained mainly by NNPC’s operational and subsidy expenses which were directly charged against domestic crude revenue resulting in potential excess remittances by NNPC. A review of the charges and proceeds by PwC further revealed some anomalies resulting in an updated expected refund by NNPC/ NPDC to the FGN of $1.48 billion, far from the $49.8 billion or $20 billion that created a stir.
•PwC, however, was unable to provide an opinion, or attestation to the numbers provided nor did it claim it had done an examination in accordance with generally accepted auditing standards. The review was in many ways limited and relied significantly on provided information.
•There are material differences in numbers (for both domestic crude oil revenues and cash remitted) between PwC’s report and the reconciliation committee suggesting unacceptably weak accounting systems, given the extremely high value of the transactions.
•NNPC was said to operate an unsustainable model of operation of which 46 per cent of proceeds were spent on sustaining its operations and subsidies ($9.9 billion). Monthly remittance expectations to FAAC cannot possibly be met if NNPC’s operational costs are to have a first line charge on oil receipts. The way NNPC works must be reviewed urgently.
•According to PwC, many costs not directly attributable to crude oil operations were also charged; NNPC believes the 1997 NNPC Act gives it a carte blanche to spend “without limit or control”.
•The make up of the $1.48 billion to be refunded poses even more questions, even as much as $1.29 billion was attributed to “duplicated subsidy claims, computation errors, over-claim of subsides, etc. Again, this suggests very weak controls over the subsidy
process during the period under review.
•NNPC needs to be more accountable and to disclose the consolidated position of the group including all its subsidiaries and then the costs that are allowable should be pre-agreed by all relevant parties. The situation where NNPC seems to have a blank cheque should be discontinued.
•PwC recommended that proceeds from FGN crude oil sales should be remitted intact to the Federation Account. Commissions for the corporation’s services can then be paid based on agreed terms.
•Errors in computation of crude oil prices also led to shortfalls of $3.6 million to the Federation Account.
•PwC recommended that the accounting and reconciliation systems for crude oil revenues used by government agencies be significantly overhauled.
•PwC auditors were unable to meet with the management of NPDC and had to rely on information made available to them by NNPC officials, thus raising questions about the legitimacy of the information provided on operations and remittances or lack thereof by the E&P subsidiary to the government treasury.
The report also annexed the correspondence via email between Sanusi and PwC, when the latter met with him to discuss their audit of NNPC.
Following the meeting, PwC summarised their discussions and wrote to Sanusi asking him to review and confirm what was discussed at the meeting, which focused primarily on kerosene and petrol subsidy deductions at source by NNPC as being illegal and in contravention of the Act establishing the Petroleum Products Pricing Regulatory Agency (PPPRA); and questioned why NNPC had been concealing these deductions from the Federation Account Allocation Committee (FAAC).
Other highlights of his meeting with PwC included the emir’s comments that there was little transparency on business transactions between NNPC and NPDC, taking into account that these are revenue generation assets belonging to the federation. He felt that the lack of transparency should not exist.
The Emir of Kano had also stressed that his primary concern remained the need for transparency and accountability by NNPC, quantifying unremitted balances withheld by the corporation and facilitating processes for NNPC to remit same.
Responding via an email dated March 11, 2014, Sanusi confirmed that PwC’s summary of their meeting, factually represented their discussions, and accurately reflected his views, conclusions and recommendations.
He, however, added a caveat: “Please note that these views, conclusions and recommendations were based on information available to me in my capacity as the Central Bank Governor and is likely to that the provision of any additional information may change these conclusions.”
The report also listed a valuation of all the crude oil lifting by local and international oil traders during the period under review.
The list showed that the valuation provided by the Crude Oil Marketing Department (COMD) of NNPC tied with the valuation done by PwC for all the crude oil lifted by the trading firms.
Yet, another table produced by PwC showed that 13 firms had some valuation differentials amounting to about $33 million.
On subsidy claims made by NNPC for petrol and kerosene, the PwC report further showed that the PMS (petrol) and DPK (kerosene) imports verified by PPPRA revealed that some discharges were apparently verified and subsidy advised to NNPC more than once.
The repeated subsidy for PMS amounted to $23,954,796 (N3,709,879,190) while for DPK it amounted to $39,836,652 (N6,169,502,266).
In addition, there was an overstatement of the subsidy payment advise sent by PPPRA to NNPC for discharges between January 2012 and July 2013, because PPPRA applied the pre-2012 ex-depot price of N49.51 on some discharges in 2012 instead of the approved ex-depot price of N85.51.
Owing to this, the report shoed that a total of 174,449,778 litres of PMS was affected in the PPPRA computation, resulting in an over-statement of PMS subsidy of $35.05 million (N5.6 billion).
Commenting on the forensic audit, an oil industry expert, who preferred not to be named, informed THISDAY last night that the report did not discover evidence of missing or significant unremitted funds, “but cast NNPC as a major source of potential financial risk and loss to public funds, given that it had been empowered over the decades to handle very significant funds for which it did not have the requisite systems and accountability oversight”.
He said the report drew attention to the huge amounts spent on subsidies in the period and over $1 billion, which could have been potentially lost due to “yet to be fully understood” error/ loss factors.
On the implications for the oil and gas industry, the expert said: “Various governments have envisioned a commercialised NNPC, but it has proved unworkable given the realities of the nature of government participation and meddlesomeness.
“This report makes it more obvious that government (especially in the context of how it is run in Nigeria) needs to accelerate the privatisation of NNPC and restructuring of the industry to plug the many system leakages.
“The loss to Nigeria in inefficiency and fraud must be in the tens of billions of dollars annually when you consider that over 40 per cent of crude proceeds are charged as costs.
“The industry has the opportunity to use the period of low oil prices to eliminate subsidies once and for all and liberalise downstream pricing rather than pretend it can monitor all the points of ambiguity that makes losses inevitable.”
He added that the PIB (Petroleum Industry Bill) also needs urgent attention to be passed after an accelerated review/update is concluded to reflect all inputs.
“Implementation should involve a strengthening of the systems and capabilities of the petroleum oversight role in whatever form it emerges. The Ministry of Finance should be directly involved in handling and managing government funds, even petroleum proceeds …this would require some reengineering of the process and roles.
“Other reports like the KPMG report did some good work on the crude oil revenues cycle reforms in the sector and should also be integrated in implementing reforms.
“In summary, the PWC report did not discover stolen or missing funds and almost all the issues raised are indeed legacy institutional problems that have plagued the industry for decades waiting for the initiative with the courage to do the right thing, once and for all.
“The report however raises questions on a colossal level of the inefficiency and potential leakages that PwC cannot possibly estimate,” he said.