Audit report details graft in NNPC’s handling of crude

[TGD]

 NNPC faults report, denies losing N700b through Kaduna refinery

Explains shortage, importation of crude

Controversy trails choice of extractive industries' auditors

THE sleaze, incompetence and sloppiness that are commonly cited as the bane of the management of the nation's cash cow, the Nigerian National Petroleum Corporation (NNPC), are well documented in an audit report released by the Nigeria Extractive Industries Transparency Initiative (NEITI).

It was also learnt at the weekend that the recent choice of auditors for the nation's extractive industries is now mired in controversy.

The controversy has even transcended the nation's borders as some foreign elements that are involved have enlisted Nigerian companies to help their case.

The NNPC has however faulted the audit report. The Group General Manager, Group Public Affairs Division of the NNPC, Dr. Levi Ajuonuma, told The Guardian that there was no time NEITI and NNPC undertook audit reconciliation meeting, which is one of the processes required for a comprehensive and an acceptable standard.             .

He also denied an allegation by the House of Representatives Committee on Downstream Sector that the Federal Government is losing about N700 billion due to the non-refining of crude oil by the Kaduna Refining and Petrochemicals Company (KRPC).

His words: "The NNPC is disturbed by the findings of the NEITI report for many reasons. The first is when an audit is carried on any organisation, the organisation is engaged with a view to reconciling the figures; smooth areas of disagreements and agreements. In these processes that are critical aspects of auditing, NEITI did not consult with the NNPC on any of these. We ask: Where did NEITI get its figures from when it is not present at any oil terminal or oil inflow station? All the information they got were voluntarily given and therefore there is the need to cross check their information before going to press."

Ajuonuma reiterated the readiness of the NNPC to cooperate with NEITI to midwife a transparent and accountable oil industry.

The NEITI 2011's report prepared by Hart Group of the United Kingdom and S.S. Afemikhe and Co. of Nigeria specifically indicted the NNPC for the mismanagement of the country's crude oil reserve.        .

The report, which has been presented to the Federal Executive Council (FEC), says that there is a rift between NNPC and some parties to the Production Sharing Contract (PSC), which resulted in the presentation of conflicting figures for quantity of oil being lifted.              .

"Production and lifting data reported by the Department of Petroleum Resources (DPR) and other companies (including NNPC) and terminal operators were inconsistent and therefore could not be fully reconciled. This prevented a coherent mass balance being presented by the audit. DPR reported 1.2m barrels less in 2006, 0.08m barrels more in 2007 and 1.4m barrels more in 2008 than was reported by companies'', the report said.            .

It added: "There is a long running dispute between NNPC and PSC operators as to the calculation of cost oil, tax oil, and royalty oil under the PSCs. This meant that the parties cannot agree on the entitlements to amounts being lifted by NNPC and the contractors. Amounts reported for this reconciliation revealed different interpretations for the same lifting transaction. This issue should be resolved speedily. In view of the values involved, the FEC is advised to request the Hon. Minister of Petroleum Resources to bring the parties to reach a settlement quickly and to agree upon the procedure to be applied in the future."              .

The reported further said: "The PSCs signed do not make any provision for how the parties should treat the gas available for commercial exploitation, except to require that the parties define a separate agreement. No such agreement has been concluded. Where gas is already used in commercial production, such as in Bonga, the absence of an agreement may result in a misstatement of the Federation's income.''               .

According to the report, crude oil from newly producing fields is subject to trial marketing. Cargoes are lifted by both NNPC and the operators. After the trial marketing, NNPC and the operators meet to agree on the pricing formula for the crude. As there appears to be different practices between the PSCs on how the proceeds of sale during the TMP are managed, it is advised that the NNPC should specify a uniform methodology for managing crude sales proceeds during any trial marketing period.

The report says that some data were presented by NNPC and Pipelines Product Marketing Company (PPMC) but there were many inadequacies in them.  "NNPC, PPMC provided data on importation and inland distribution but it was not possible to confirm the overall mass balance because of a number of inadequacies in that data," it said.

The report added: "Despite extensive reconciliation work, differences remain between receipts reported by government agencies and payments reported by companies on royalties and signature bonuses.''

The report also showed tardiness in the way NNPC handles proceeds from crude sales, saying: "The credit line for domestic crude payments by NNPC is 90 days from the bill of lading date. However, payment to the Federation Account is delayed in most cases by NNPC. The arrears of payment beyond the authorised period sum up to N588 billion as at 31st December, 2008."                  .

The report further said: "No standard method of paying the Federation's share of gas proceeds is in place. Some are accounted for by Joint Venture (JV) operators; some are paid directly to NNPC and other equity owners by gas purchasers, while others share the proceeds in terms of equity share of operations. There is need to streamline and standardise the process to ensure that the Federation's gas income is properly accounted for."

As part of the efforts to address the matter, the report said: "The Office of the Accountant General of the Federation (OAGF) should make greater use of IT systems to improve controls, to eliminate inconsistencies and to improve transparency by making possible a wider sharing of data on a timeless basis."

Before now, the audits of the extractive industries have always gone the way of foreign firms which always turn around to sublet them to local accounting firms.            .

In most cases, these foreign firms cite insecurity as the reason they could not visit the country physically to execute the job that requires years to accomplish.

After the opening of the bid rounds, Sada Idris & Co emerged the company that was chosen to audit the next oil and gas industry audit (2009-2011) while Haruna Yahaya & Co was hired to audit the first solid minerals sector for the 2009-2010 period.

This is the first time that Nigeria will be auditing its solid minerals' sector.

The Gaurdian learnt in Abuja at the weekend that some foreign companies were working in tandem with their Nigerian counterparts with the help of some civil society groups to discredit the process so as to regain lost ground.            .

Indeed, it is not only in Nigeria that these foreign firms are battling to be awarded the right to conduct the audit of the oil and gas sector as there are similar squabbles in Ghana, Cameroun and Niger, Liberia and Sierra Leone where local firms have got the nod to carry out the auditing processes ahead of their foreign counterparts.

The NEITI has risen stoutly in defence of the processes that led to the emergence of the two local firms.               .

A source told The Guardian that the procurement process for the engagement of consultants to conduct the two industry audits began with advertisement in the national and international media including Daily Trust of June 30, 2010, ThisDay of June 28, 2010, Vanguard of June 29, 2010 and Financial Times of London of July 1 2010.  The advertisement was also on NEITI website as required by Nigeria Public Procurement law.

The source also said Publish What You Pay and Civil Society Legislative Advocacy Centre (CISLAC) were two civil society groups that witnessed the opening of the bids.               .

Others that were present on the occasion included Olusola Adekanola & Co, Sada Idris & Co, Moore Stephens, Haruna Yahaya & Co, J. K. Randle & Co and George Andrews & co.

The source also submitted that a Due Process Report explaining details of technical and financial scores, financial proposals, technical evaluation using the quality cost base selection method and all the steps taken by NEITI to adhere strictly to all BPP guidelines and the Procurement Act were in the Bureau of Public Procurement.

On why some of the big accounting firms in the country did not participate in the process, The Guardian learnt that they might have been dissuaded by some of the provisions of the section 4(5-6) of the NEITI Act 2007.

In a statement in Abuja yesterday, Ajuonuma said the report of the House Committee which portrayed the 32-year-old company as idle and a drain on government resources was misplaced and uninformed.

Ajuonuma insisted that the multi-billion naira complex remains a viable business unit of the corporation that is contributing immensely towards NNPC's operations in the oil and gas industry in Nigeria.

Ajuonuma said that though Kaduna Refinery had undergone a quasi-Turn Around Maintenance two years ago by some Nigerian engineers which was generally believed to be inadequate for the refinery, credit must go to the group of local engineers for running the refinery at 60 per cent installed production capacity amid artificially induced challenge of incessant pipeline vandalism.

The NNPC spokesman explained that if not for pipeline vandals, the company could run at 60 to 70 per cent capacity utilisation on a sustained basis, adding that due to incessant pipeline vandalism, the desired production level has remained unsustainable.

He dismissed reports that KRPC collects crude oil from PPMC "without proper costing" and stated that the business model KRPC operates is such that it receives crude oil from PPMC, refines it and hands over the products to PPMC for marketing while the refinery is funded based on cost recovery.



The Guardian