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NEITI saves Nigeria $5 billion from 2005 till date Sa’eed

Luka Binniyat andYemie Adeoye
THE Nigerian Extractive Industry Transparency Initiative, NEITI, is empowered by the NEITI Act of 2007 to enforce revenue disclosures earned from oil, gas and mining sectors of Nigeria and how the funds are disbursed  with clearly spelt out penalty for defaulters.


In this exclusive interview with Luka Binniyat andYemie Adeoye of Sweet Crude, Mallam Haruna Sa’eed, the Executive Secretary of NEITI speaks on a wide range of issues concerning his mandate.

He says it’s, “wise and timely” for government to have backed NEITI by law and points out that since 2004, the pro-transparency agency has blocked leakages in computation of oil revenue that has save Nigeria losing $1 billion each year. He also speaks on the audit report of the 2005 oil and gas licensing round among other topical issues.

The Petroleum Industry Bill (PIB) is the front burner of the sector today, what is the input of NEITI to this important proposed legislation?

NEITI was part of the Steering Committee that finalised the draft Bill. And there after, NEITI invited Civil Society Groups for discussions. As you are aware, NEITI is made up of Civil Society, Government and the Industry. So what we did was to bring Civil Society Groups here to look at the Bill. And together we arrived at a summation, which we took to the National Assembly during the Public Hearing on the Bill. It is basically about transparency, accountability and good governance in the sector.

And, as you are aware, we have the finalised the 2005 Audit Report of the Oil and Gas industry. What we are now doing is to disseminate the information as much as we can. We have taken it to the Federal Executive Council; we have also forwarded copies of the report to the two chambers of the National Assembly; the Office Auditor General of the Federation has been forwarded copies as required under our Act; then we convened a stakeholders’ roundtable to look at the Report. We are now at the point of going round the country for roundtable discussions on the Audit and other issues as related to our mandate.

The Audit actually indicted some government agencies of not being able to account for some funds in their records, especially the Nigerian National Petroleum Corporation (NNPC), the Department of Petroleum Resources (DPR), the Federal Inland Revenue Service (FIRS) and the rest, what is NEITI doing about this?

Yes, the audit report actually found out some problems with the NNPC. The NNPC, as you know, is saddled with the responsibility of lifting oil on behalf of Nigeria, and equally, to buy for our local refineries  domestic crude, as they call it  In respect of the domestic crude, it was realised that the NNPC has not fully paid for the quantity of oil it has lifted. We are looking at a figure of N654 million. That was established under the audit. It is a fact and, we are now looking at full recovery. Even though the NNPC has given a proviso that the amount is being held because of some subsidy element from the importation of refined products they did on behalf of Nigeria. So, the issue is yet to be finalised.

There seemed to be a communication gap between NEITI and other relevant organs of government you interface with, including the National Assembly. For example, during the last investigation of activities of the Oil and Gas sector in the last ten years, carried by the House of Representatives, the Reps accused the NNPC of selling its daily Domestic Crude allocation of 450,000 barrels per day between 1999 and 2004 at a subsidised rate to a yet to be revealed company. That in the process Nigeria incurred a loss of $1.78 billion. The Reps said that NEITI is aware of this, but that there is a cover up from here. What is your take on this?

I have not closely monitored the activities of the National Assembly. However, I want to say again, that the NNPC has a mandate to do two things. One, is to sell Nigeria’s share of crude; two, to also buy for Nigerian, for domestic refining. Our duty in this respect is to ensure that these two legs are covered; that the amount of crude lifted by NNPC is fully paid for by any buyer..

But, the manner of the discount sell of that crude that you have mentioned never came up in our audit. However, we have discovered that the procedure used in going about the said sale might have led Nigeria lose some money, because the pricing may not be very competitive in that respect, but not in that bottom approach. When it comes to Domestic Crude there has been this long tradition where the NNPC was allowed to buy at subsidised rates. But for some time now, the government is saying that the NNPC has to buy at prevailing international price. So, this has been the practice. It hasn’t change.

Again, in that investigation, the House of Reps said that the NNPC has refused to release $5.4 billion, being dividend made by NLNG into the Federation account between 2004 and this year. I don’t know if NEITI is aware of this.

NEITI would not know, for example what happened in 2005 and 2006, because the latest audit that we have is that of 2005. We are yet to commission that of 2006 through 2008. But, if indeed we have issues with payment which has flowed from the NLNG to the NNPC, which was never paid into the Federation Account, we will pick it up. The really purpose of that payment was not very determined as at the time of our last audit report. One, it was said that it was a loan repayment. But who gave the loan and to what extend?

If the Federation Account gave out that loan, then its payments ought to be to the Federation Account. In the report, the loan is $217 million. If the NNPC got that amount from the Federation Account, then that money must be paid back to the federation account. And if the money was given out from the Consolidated Revenue Fund, then the money must be returned to the Federal Government. But we are yet to confirm the real source of that money  whether it was dividend or loan repayment as claimed, we are yet to find the status of that money

In the stakeholders’ forum on the 2005 NEITI audit, it was established that government agencies gave conflicting accounts on proceeds of the Signature Bonus paid by oil companies in the period of the audit. Even the oil companies gave different figures of what they claimed to have paid. Have you been able to clear out these differences?

The issue of the Signature Bonus as relate to the 2005 bid rounds, as we and the auditors have said, has a lot of difficulty in getting to authenticate what has happened there, because there are so many varying opinions. The DPR has the mandate to determine the amount payable and to ensure that the amount is paid. But, sometimes that amount payable is after some activities which would only be determined by the NNPC. So there is this dual responsibility here.

But all the same, we have a real issue here. Because the amounts payable are not very clear. The number of applicants for the oil blocks that will form the basis, we have not been told. Secondly, we are given a figure of 114 or so, as the number of applicants who qualified. These are the companies that are supposed to pay a certain amount based on certain activities executed, and that can stager over time. We have an issue with the exact time that amount was paid fully.

Or the time a qualified company is expected to execute the PC agreement, or whatever agreement. So, the time limitations are not very clear. So the amount payable is very difficult to determine. The DPR was saying one thing, while the CBN has no clear data of what was paid. Some amount was actually paid into different accounts which we have not gotten to fully know. Like even in the CBN, there are four accounts….

All on the signature bonus?
Yes, yes… for the offshore blocks, there were used for opening LCs (Letters of Credits). We are yet to fully understand these transactions.
This was from the 2005 bid rounds, about five years gone. With the coming of NEITI in 2007, do you think that you have been able to whip these government agencies to have a balance capture, or balance reporting of the proceeds, from the industry today?

This thing is not really about balance reporting per say. It is all about disclosure of what actually transpired. When we talk about the EITI Process, we talk about, “who has paid what and who has received what”.

But in our own case in Nigeria we go further to ask “how has the amount received been utilised, who has received it”.  So here we try to see what amount has gone into the coffers of government agencies that do the collections of the Signature Bonus. But that has been very difficult to determine. There is no one agency that is saddled with that responsibility. Some amount were paid directly to the Accountant General of Federation account; some into the CBN account and others into some other accounts. The system does not look very transparent.

Does NEITI have personnel in all the wellheads offshore? If not so, how could NEITI be dead sure that the production data given it by these oil production firms are accurate?

One thing you have to understand about NEITI is that we don’t take away the supervisory roles of the regulating government agencies. They still have the overriding regulatory roles over these companies. So, when the DPR, for instance, does its job, NEITI does not interfere. All we do is to see that these government agencies do the right things in a transparent manner. So, we do not have our people at oil wellheads, nor are we likely to have in the nearest future.

The simple reason being that, the DPR is expected to do it. All we are concern with is whether things are going the way they ought to go. Incidentally, what we done of recent is to appoint a consultant that will examine whether the system of measurement is done in accordance with international best practice. The consultant will measure loses; measure the actual production. Because the amount of revenue payable is determined by the volume of oil or gas produced. So we are expecting a report that will tell us if things are done in the right manner or not.

Is it the same Hart Group of London that has been doing the NEITI audit?
No, this is a different consultant. He is right now on the field and this project is being supported by and international organisation DFID.
The NNPC said that between March and July this year, Nigerian lost about N1 trillion in oil revenue as a result of oil theft, vandals blowing up oil facilities and force majeure. Don’t you think that oil firms would hide under this cover and under-declare their actual volume of production?

It is the quantity that is produced that would be accounted, not more or less. If there are loses, then that is unfortunate because that will affect each and every one of us. I am glad that the President is already addressing the issue of militancy, which is what leads to what you have mentioned. We hope we are seeing that end of that kind of unfortunate thing. However, our activities are such that you can easily reclaim the loss that has accrued over time.

That is through ensuring that everything is done transparently; that communities know how much government has collected. The issue of Resource Control was borne out from the feeling that government and oil companies do not give back to the communities what is expected of them.

So our activity is to ensure that all revenue accruing to government and communities are revealed to remove that level of suspicion. Because you hear all over the place that government has stolen huge sums of money. Sometimes in excess of what government ever generated within that said period.

So if that is the case, what do you do to make people understand? You put everything on the table for all to see, and even ask questions. That would largely eliminate that level of suspicion. Suspicion causes a lot of havoc.  Equally, when state governments receive their funds from the receipt of oil and actually disclose what their receipts and put such into their budgets and equally execute projects that would improve the living conditions of citizens in their areas there would be less crisis. That is part of our duty. You are equally aware of the creation of the Ministry of the Niger Delta.

When they properly come on stream, all these hues and cries will be a things of the past, because we will ensure that all extractive revenue allocated it is properly disclosed and used to the later so that militancy would be stemmed.

NEITI seemed to harp more on disclosures than actual implementation of these disclosed oil and gas proceeds. Why is NEITI lukewarm on ensuring actual execution of projects and programmes to the tunes of disclosures?

You must be aware that Nigeria is a federation. There are things that a federal agency can do, and there are some it cannot do. When we talk of NEITI, we are looking at issues regarding revenues as related to the extractive industry.  This revenue does not form the total revenue of federal, states and local governments. However, what we do is to ensure that what is collected is accounted for. So that is the first step. Then we ensue that what is collected is rightfully distributed to the true beneficiaries.

The third is to ensure that those who have collected actually use the money for the purpose of ensuring development in their areas. However, we have a problem in that respect, because as I said, Nigeria is a federation. While we can have direct intervention with the Federal agencies, we do not have with the states, because the states have their clear status in the Constitution which we cannot easily cross. But if we make information available to Civil Society Organisations (CSOs); to the community, to the people at the grassroots, then certain questions would be asked.

They would ask for what has been done with the disbursed money. They would then insist that government account for these monies. And, indeed, we have quite vibrant CSOs especially in the Niger Delta areas. There are some of them who are well trained in budget monitoring and there are a good number of them that are pursuing that course now. So, I would like to urge CSOs to ensure the rigorous implementation of budgets.

How do you penalise defaulting government agencies and firms in the extractive sector?
There are two things here: One, we talk of application; the other one is the collection. In terms of application, I have expressed our limitation. And, yes there are limitations and we can do nothing about that, because it is a constitutional matter. However, when it comes to collection, we have a mandate to ensure that things are done the right way.

That is to say that the NEITI Act provides that when a company defaults, there are procedures for dealing with that company. The FIRS, the DPR and so on have the primary responsibility for the collections. But when we realise that there is default, then we start the procedure of recovery. Of recent, the 2005 audit has unearthed not, default as such, but under-assessment based on usage of certain price templates which we are currently pursing to ensure the recovery of this so-called under-payments. If we not able to get recovery, we prosecute.

How many have been prosecuted so far?
Well, so far so good. There has been no prosecution yet. When we were finalising the 2005 Audit, there were some two companies that were not cooperating. Not that we didn’t want to steer the water and make a lot of issues, we felt at that time that the President needed to be carried alone. Our responsibility is such that we need to let the President know from time to time what we are doing. So we made him aware of these two companies, so he gave us the nod.

But, he said we should give them one more chance, which we did. Realising that they have no where to fall back on, realising that government is not ready to protect an erring company or anybody for that matter, they came forward and cooperated. So, there has been no prosecution. But now that we have a full audit before us, we may have to ask a company to come forward to explain certain findings. If it refuses, then we take appropriated actions.

Are we expected to see a lot of recovery from underpayments based on the 2005 audit?
Yes. The Audit for 2005 has given a figure of $501 million. That is a lot of money and all that is from royalty and PPT alone (Petroleum Profit Tax).

When will the 2006 Audit report be ready?
We are in the process of awarding the contract and we have the blessing of the Board. We are now working with Bureau of Public Procurement to finalise the terms of reference before approval. But this time the audit will be more comprehensive than previous ones. Unlike previous ones, this one would cover “disbursement” aspect in its report. It would also capture to some extend, “applications”. These would be organisations that benefit directly from the proceeds of oil and gas. These are the NNDC, the PTDF, the PTF and others, including those saddled with their collections,

What about the Solid Mineral sector? Not much attention is paid it by NEITI
That is an interesting one. So far, we have failed in that aspect, because we have not covered the solid minerals sector as expected. But that will receive due attention. Already we have begun to a process of auditing that sector, but by 2010.

Government is trying hard to woe multinational oil firms to exploit the huge mineral wealth we have. And from what government has been saying, the response looks good. Don’t you think that NEITI ought to educate communities on their rights and obligations before actual miming starts, from the lessons derived from oil exploration in the Niger Delta?

We are on that already. For example, we just had a programme in Jos, Plateau State, with the people in the solid mineral sub-sector. In attendance were mining firms, mining experts, mining associations, mining communities and so on. They met under our umbrella and the deliberations were wonderful. I have been receiving calls ever since. Some of them cannot wait to for more. They have been asking for meetings with me to discuss more issues.

Do you think that the decision of the Federal Government to enact a legislation backing NEITI is a wise decision after all?
Certainly that decision is wise and timely. Of the many countries that have signed on to the EITI (Extractive Industries Transparency Initiative), now numbering about 30, Nigerian is the only country to create an enabling law that would govern the process of NEITI. There are quite a number of reasons that made it so.

A law would give a legal backing – it is no longer a voluntary issue when it comes to disclosures. Organisations are compelled to response accordingly. Even with government agencies, without a law, you cannot get the kind of compliance we get now. The law comes with certain provisions establishing its powers, listing punishments to serve as deterrents. This has made it possible for us to carry out our audits. For example, the first audit has led to the setting up of certain remediation against some lapses that have been identified. This would not have been easy without an enabling law. And that has made both government and the industry to cooperate for the betterment of all.

Has NEITI led to the savings of any revenue so far?
Yes, in the previous audit covering 1999 and 2004, it was realise that some things were done wrongly. Accurate computations done after the audit led to the recovery of $1 billion. Once you identify some problems and cure them, they will not re-occur. The fact that we have taken care of these problems means we have been enjoying cumulative savings, indirectly meaning inflow of revenue. Some of them are not measurable, but they enhance collection; they enhance the system, making it more transparent.

If for example, a company is to pay a tax of $1 billion, then it connives with an official of government and ended up paying only $5000 million. After an audit, if it comes to light that such underpayment exist, the company would have no choice that to pay. So a wise company would say rather than take a risk and bribe and get caught, for which it must pay, but cannot recover the bribe, isn’t it better to just pay? So NEITI has made the prospect of paying bribes bleak, and as such increasing the level of collection.

What does think is the most pressing problem confronting the operations of NEITI today?
First, it is the problem of staffing. We are so few here. We actually lack man power and capacity. And when I project out, I see a different picture entirely. I see some tendencies of the past still existing in the industry, particularly with the solid mineral sector. What we thought was only a problem in the oil sector, is also now pervasive in the solid mineral sector.

These are the two most difficult problems we face now. What creates the problem of the solid mineral is that while the distribution of resources from mineral revenue as required in the constitution is done for the oil and gas sector, there is no such thing from the solid mineral

You mean government does not have a means of measuring revenue from the solid mineral sector?
Nothing goes to states producing solid mineral as stated in the 13 per cent derivation principle, but oil producing states are enjoying it. That is an issue that we need to tackle as soon as possible.


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