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Lack of accountability in oil & gas sector

The Nigerian Extractive Industries Transparency Initiative (NEITI), has called for a major technological revamp of the nation’s oil and gas industry in order to improve transparency in extraction of crude as well as in the receipts and payments among operators in the industry.

The Chairman of the National Stakeholders’ Working Group of NEITI, Professor Assisi Asobie, who stated this in an interview with our correspondent, noted that poor accounting and measurement of oil and gas production was a major challenge to the intiative.

He said, “We have been having problems with knowing exactly how much is produced, so we have commissioned a consultant to help us know the international best practices with regard to production accounting.

“It is so important because if you do not determine how much is lost, those companies that are producing benefit, and Nigeria is cheated. It is in the interest of producers that the status quo is maintained and that the nation never knows how much is lost and who is stealing the product.

“You know wherever, there is anarchy, some people take advantage of the situation, and the way Nigeria’s oil and gas industry is structured today has given so much room for stealing and corruption to go on.”

Asobie’s  was  speaking against the backdrop of the latest reconciliatory report released by NEITI, which covered 2006 to 2008 and published on the website of the extractive industries watch-dog, that disclosed several discrepancies in the operations of the conglomerate, especially with regard to its crude liftings and payments made into the Federation Account by the Nigerian National Petroleum Corporation (NNPC).

According to the report, there is a “conflict of interest” in the buying and selling of crude by the corporation on behalf of the Federal Government, and the concomitant financial corruption in the process, and called for a review of the system.

It stated, “NNPC should not both buy federation crude oil and sell the same crude on behalf of the federarion. NNPC obtains a financial benefit by delaying sales documentation until it can chose an advantageous pricing option and make additional profit with the benefit of hindsight.

“This is contrary to the spirit of the decision taken in 2002 that NNPC should pay the market price for crude. Restructuring of NNPC should ensure arm’s length dealing between the Federation and NNPC in relation to the sale of crude.”

It added that the corporation should pay for domestic crude in accordance with the correct credit period.
Export crude is marketed on behalf of the federation by the NNPC Crude Oil Marketing Division (COMD) while domestic crude is sold by the federation to NNPC.

According to the report, the accounting system used by NNPC for equity crude is still largely not automated “with consequent reconciliation and fund sweeping interface difficulties.” It added that, “As recommended in previous years, COMD  should maintain a timely sale ledger account for the sale of federation crude. This is, especially important as regards domestic crude where NNPC fails to make timely payment and the federation lacks the record to understand how is payable by NNPC at any time.”

The report further stressed that “the COMD lacks a system to manage and follow up on debts for crude sold, particularly to NNPC itself. The transaction system manages the single most significant source of income to the federation. The system should be urgently upgraded to best practices.”

According to Asobie, there is need, therefore, to use the latest electronic technology that can detect where these pipelines are sabotaged, and then capture the images, so that the perpetrators can be apprehended and made to face the wrath of the law.

He said, “Oftentimes, the Department of Petroleum Resources (DPR), has complained to us that they cannot do it (effective monitoring and measurement) that is why we got someone from abroad to help us identify these technologies that use sonic systems and then use cameras to capture those behind the theft.

“We know that there are bigger personalities behind all these pipeline sabotage than the so-called militants, so, it is important that we begin to do things differently to ensure that a few people do not benefit from the wealth that belongs to everyone.”

He added, “What we do in NEITI is to find out how much oil and gas are being produced in Nigeria, and, therefore, how much royalty and taxes also accrue to the country.

“Part of our responsibility is also to find out the deficiencies in the regulatory agencies like DPR, and help to remedy those deficiencies; we want to know what challenges they face in determining how much oil is produced and exported from the country.”

The NEITI report also raised some issues with the Production Sharing Contract, which is managed by NNPC. It noted that there were unresolved accounting issues in the area of PSC tax and royalty oil.

“There is a long-running dispute between NNPC and PSC operators as to the interpretation of the calculation of cost oil under PSC; this has the effect that the parties cannot agree on the amounts being lifted by NNPC.

“Amounts reported for this reconciliation revealed different interpretations of the same lifting transactions; the issue should be resolved speedily.

“In 2007, a new system of bank accounts was introduced to reflect the PSC provisions. That system did not work well in the period under review. The method for accounting for tax and royalty PSC oil should be systematised,” it noted.

It also noted that the volumes reported by NNPC for crude oil liftings differed from those reported by companies operating the terminals.

“Companies report higher liftings than government has accounted for. The difference between NNPC liftings, according to the records of NNPC and according to the information reported by companies, have not been explained,” the report noted.

On signature bonuses, the report noted that “the Department of Petroleum Resources, DPR, provided incorrect information to the Reconciler, resulting in the issue of templates to companies being significantly delayed because the entities liable to pay signature bonuses and contract details for these entities were not known.

“As a result, not all these additional companies have returned their templates on signature bonus paid.”


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