By Oscarline Onwuemenyi
ABUJA – The Nigerian Extractive Industries Transparency Initiative, NEITI, has rapped the Nigerian National Petroleum Corporation’s method of paying itself subsidy for importation of petroleum products, before it remits monies from sale of domestic crude to the Federation account.

This infringement, NEITI noted in its latest reconciliation report posted on its website, was inimical to the principle of transparency and credibility in the measurement of revenue flows from exploration of oil and gas.

According to the report, “Subsidy payments should normally be made from the Central Bank of Nigeria (CBN) through the Petroleum Support Fund (PSF) on the approval of the Accountant General of the Federation based on claims approved by the Petroleum Products Pricing Regulatory Agency (PPPRA).

“However, we observed that the NNPC deducts the subsidy claims directly from the domestic crude proceeds before remitting to the Federation Account.”

The report therefore recommended that “the Corporation, like other petroleum product importers, should draw claims for subsidy from the PSF.”

The NEITI report, which covered activities in the oil and gas sector between 2006 and 2008, also revealed impropriety in the sale of tax and royalty oil by the Corporation.

It noted that, “NNPC receives crude oil from Production Sharing operations which it sells in order to settle Petroleum Profits Tax (PPT) and royalty liabilities. The method of accounting for the tax and royalty elements is unsophisticated and does not identify the relative proceeds separately from the sale of government equity crude.

“Improved accounting procedures are required to improve the transparency of NNPC’s handling of these components of the proceeds of crude sales.”

According to the report, the accounting system used by the NNPC for equity crude is still largely not automated “with consequent reconciliation and fund sweeping interface difficulties.”

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.”

Signature bonus is a negotiated amount agreed paid by a prospective investor or group of investors in a block. The bonus for a block is determined by a competitive process but must not be less than the minimum signature bonus benchmark assigned by the DPR to the block.

The Upstream and Revenue Units of the Department of Petroleum Resources, DPR, coordinates the tendering process and the signature bonuses arising from the bidding round. The Upstream Unit sets the procedures to be followed while the Revenue Unit is responsible for ensuring that companies pay the signature bonus to which they are committed.

It further noted that, “The legislation requires that signature bonuses should be paid to the Petroleum Training Development Fund PTDF, but in practice DPR has instructed companies to make payments to different accounts.

“For the 2006 round, the account details were notified to the companies after they had been successful, whereas for the 2007 round, the account details were set out in the guidance notes for prospective bidder as CBN/Accountant General FGN account’.”

The report further noted that in the 2007 licensing round, preference was given to bidders who offered to construct downstream processing projects and infrastructure.

“Significant commitments were offered, albeit mainly unquantified financially, and some bidders were accepted and signed a PSC. The timescale on which the infrastructure developments were to be provided was not clear.”

The report urged NEITI to aim to publish an annual reconciliation report within 8 months of the end of the year to which it relates.

“The report is of reduced relevance to stakeholders if it is unduly delayed. Reconciliation should be planned well in advance with a view to commencing around four months after the end of the year under reconciliation,” it said.

It added that NEITI should establish a database and collect all relevant data from the companies on a quarterly basis at least to facilitate the annual audit process.