The attention of the Management of the Nigerian National Petroleum Corporation has been drawn to aspects of the NEITI oil and gas audit report for the years 2009 – 2011 currently in circulation.
The NEITI draft report was made available to NNPC on 17 January, 2013 and the Corporation was in the process of reviewing same for reconciliation when it was hurriedly made public and released to the press. Standard audit procedure requires close-out between the auditor and the auditee before it is finalized and put in the public domain.
The report contains fundamental inaccuracies which are misleading and constitutes misinformation to the generality of the public. Given that the NEITI audit report is expected to be factual in all respects, it has become necessary to make the following observations and clarifications.
NNPC Debt to the Federation
The report states that NNPC owes the Federation a total sum of
For the avoidance of doubt, the statement credited to NEITI is not correct and is misleading. The following is a detailed account of the N1.3trn:
Un-reconciled debt of N928bn
NNPC has 90 days moratorium for the payment of domestic crude. This implies that at every year end, the Corporation will have outstanding 3 months balances not yet due for payment. However, the debt portion of the N928bn had been paid in the first quarter of 2012 on the relevant due dates. This can be verified with the relevant authorities. One would have expected NEITI to take cognizance of this process in the report to avoid misrepresenting NNPC’s debt profile.
Outstanding debt of N377bn
The N377bn purported debt was a carry-over of 2004-2005 when NNPC was directed to buy crude oil for domestic consumption at International market price while the sale of petroleum products was at subsidized prices without appropriate instrument to recover the shortfall.
NEITI’s report ought to have identified the anomaly and vindicated NNPC of the N377bn imposed debt repayment.
The report questions both the process and NNPC’s right to re-imbursement under the subsidy scheme. This was amplified by the Media as “Illegal”, “cornered”, “took”etc, giving the impression that there is no due process and transparency in the payment of subsidies due to the NNPC.
All our subsidy claims are duly verified, approved and authorized for payment by relevant agencies. However subsidy claims due to NNPC are not “cash payments” as amounts duly approved are backed out from the Gross Domestic Oil revenue due to the Federation Account in any given month. This is the extant process for this transaction.
On the total amount of N1.4trn deducted, the report deliberately ignored and or omitted the factors responsible for the increasing amounts paid especially the price of crude oil which accounts for 82% of the price build-up for petroleum products.
Other factors include increase in volumes consumed, variations in exchange rates and increase in freight rates especially in 2011.
It should be noted that as a fall out of the subsidy crisis of 2012, other players that constitute over 50% of the market share in the downstream refused to import Petroleum Products from their supply obligation. NNPC being the supplier of last resort under the NNPC Act continued to supply the nation at huge cost while still maintaining the strategic reserve obligation. NNPC should be commended in this regard.
Domestic Crude - Exchange Rate Differential
The report asserted that the Corporation underpaid the Federation by
N98.30bn between 2009-2011 as a result of the application of wrong exchange rate in monetizing the value of crude lifted.
The above assertion is wrong in view of the fact that the 445,000 barrels per day Crude Oil purchased by NNPC for domestic consumption is a Naira denominated transaction and is paid in Naira based on the equivalent exchange rate on FAAC date in the Month of lifting. For the purpose of clarity, only export crude Oil & Gas sales are denominated in Dollars.
From the foregoing, NEITI without taking cognizance of the extant laws and regulations, guidelines and terms of relevant contracts in NNPC’s operations has continued to portray the Corporation to the public in bad light.
While we conclude our review of the draft NEITI report, we await formal engagement with NEITI to close out the report.
We remain committed to conducting our business in a transparent and accountable manner, in compliance with existing laws.