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NEITI carpets NNPC over subsidy payments

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ABUJA – The Nigerian Extractive Industries Transparency Initiative, NEITI, has rapped the Nigerian National Petroleum Corporation, NNPC’s method of paying itself subsidy for the importation of petroleum products, before it remits monies from the sale of domestic crude oil 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 lifting differed from those reported by companies operating the terminals.

“Companies report higher lifting than government has accounted for. The difference between NNPC lifting, 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 said 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 bonuses paid.”
Signature bonus is a negotiated amount agreed paid by a prospective investor or group of investors for an oil 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 DPR, coordinates the tendering process and the signature bonuses during the bidding rounds. The Upstream Unit sets the procedures to be followed while the Revenue Unit is responsible for ensuring that companies pay the signature bonuses 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.

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