The Nigerian Extractive Industries Transparency Initiative (NEITI) has urged the Federal Government to compel the Nigerian National Petroleum Corporation and its upstream subsidiary- the Nigerian Petroleum Development Company (NPDC) to return $21.778bn and N316.074bn, being unremitted funds to the Federation Account.
NEITI, in its policy brief titled: “Unremitted Funds, Economic Recovery and Oil Sector Reform,’ of March, 2017, said the amount comes to N7.2tr at current exchange rate, and that by recovering just 20% of the sum the government “would completely eliminate the need to borrow to finance (the 2017) budget, (while a third of the computed unremitted revenues would completely eliminate the need to borrow to finance the budget,” with both short and long-term positive implications for the economy.
The report however warned that enforcing collection of the revenue arrears must come only after a ‘root-and-branch reform of the system that allowed the anomalies in the first place, thereby deepening efficiency, transparency and accountability.
The report noted that the amounts, which are due from the federation’s assets divested to NPDC and NPDC’s legacy liabilities; payments for domestic crude allocation to NNPC; and dividend from investment in the Nigerian Liquefied Natural Gas company (NLNG), should be collected to fund the N7.298tr 2017 budget, which has a proposed deficit of N2.32tr to be financed through borrowing, thereby raising the nation’s total debt liability by about 16%.
The amount, the agency added, was determined through a series of audits of Nigeria’s oil and gas sector, the recovery of which would “significantly enhance government’s fiscal position in the short term.”
Beyond recovering the funds, the government was also challenged to address the underlying causes of withheld revenues, while boosting its collection in the medium to long-terms.
This is expected to further enhance “government’s capacity to implement its infrastructure development programme, to successfully carry out its social intervention policies, and to put the economy on a sound and sustainable footing.
“It will also expand revenue options for the country at this critical period. In addition, the system and structure that allows funds to be withheld at discretion and with impunity point to an important area of reform in the oil and gas sector,” NEITI added.
In summary, the report accused the NPDC of owing the Federation $5.531bn and N72.435bn, even without factoring the interest elements that should have accrued over time on the funds.
Meanwhile, NEITI added that “beyond the issue of unremitted monies, there are two other concerns with the operations of NPDC: transparency and efficiency. Since 2005, NNPC has transferred 16 OMLs to NPDC. However, the process of transfer of these assets raises serious questions, as there appears to be no clear-cut criteria for transfer of oil mining assets to NPDC. The process for the transfer of Federation’s assets to NPDC does not seem to pass the transparency test.”
One of the upshots of this, it continued, “is the undervaluation of these assets, thereby depriving the Federation of optimal value for the assets. It has also created a situation where NPDC continues to be unaccountable to state institutions and the laws of the country. NPDC has consistently declined to give account of its operations and its management of national oil assets in its possession. NPDC failed to cooperate with the forensic audit ordered by the Auditor-General of the Federation in 2015. Similarly, the company failed to cooperate with NEITI for five audit cycles and only partially cooperated during the 2013 and 2014 audits. Consequently, the 2013 and 2014 audits have discovered significant sums of money that the NPDC has withheld from the Federation Account.”
NEITI stressed that although, the NNPC justifies granting of OMLs to NPDC on the grounds that it needs to develop local capacity, there is evidence showing “that the NPDC neither has the technical expertise nor the financial wherewithal to manage these assets,” a fact it said had been evident since the mid-2000s when the NPDC started engaging in service contracts with international oil companies.
This, the report continued, was made worse by NPDC’s lack of finances, “evident since the beginning of the 2010s, when the company resorted to Strategic Alliance Agreements (SAAs) with indigenous oil companies to carry out production on the fields in its possession. There are red flags around some of these SAAs too,” the report stressed further.