February 23, 2015

PwC’s Forensic audit report on NNPC: Matters Arising

THE long-awaited report of the forensic audit of the Nigerian National Petroleum Corporation (NNPC) which the Federal Government hired PricewaterhouseCoopers (PwC) to conduct has finally been released.

As with almost everything in these political times, the forensic audit was elevated into a campaign issue when some politicians began to raise questions about why it was taking so long for the report to be released, insinuating that it may have been swept under the carpet by an administration they believe has a proclivity for supporting corruption. The release of the report has defused all such impressions imagined or real.

The idea of a forensic audit of NNPC was the brainchild of the Coordinating Minister of the Economy and Minister of Finance, Dr.Ngozi Okonjo-Iweala, who suggested during the Senate probe of the allegation of non-remittance of $49.8bn oil revenue into the Federation Account levied by the former Governor of the Central Bank of Nigeria (CBN), Mallam Sanusi Lamido Sanusi, against NNPC. Dr.Okonjo-Iweala had submitted before the Senate Committee on Finance that considering the level of interest and controversy that the allegation had generated it was good to have a forensic audit carried out on NNPC’s books to get to the bottom of the issue once and for all.

In order to understand the issues raised and the recommendations made in the PwC forensic audit report, it is pertinent to note that the starting point of the issues that led to the audit was the allegation of unremitted $49.8bn revenue from crude oil sales between January 2012 and 31 July 2013. Though the former CBN Governor (now Emir of Kano) who made the allegation had variously changed the figures of alleged unremitted revenue to $10.8 and $20bn, it must not be forgotten that he started the allegation with $49.8bn.

The summary of the forensic audit report which the Auditor General of the Federation, Mr. Samuel Ukura, presented to the public recently indicated that the allegation of unremitted $49.8bn, $10.8bn or $20bn was false. The report was emphatic that the total amount that accrued from crude oil lifting was $67bn out of which a total of $50.81bn was remitted into the Federation Account. The balance, the report stated, was used for petrol and kerosene subsidies and NNPC operations expenses.This position as reflected in the forensic audit report is consistent with the position that NNPC has always canvassed regarding the alleged “missing oil revenue”.

The other issue thrown up in the forensic audit report is the $1.48bn which the audit firm recommends that NNPC should pay into the Federation Account. This is where there has been so much misunderstanding which led to the various screaming headlines that the report indicted NNPC. The $1.48bn, according to the report, is “unremitted NPDC signature bonus due for divested assets and taxes/royalties”.

It needs to be stated that signature bonus, taxes and royalties on the divested assets were not part of the crude oil lifting revenue which the original allegation of “missing $49.8bn oil revenue” was about. Signature bonus is the book value of oil assets. It is usually determined by the Department of Petroleum Resources (DPR) based on certain parameters. What happened in the case of the divested oil blocks by Shell and which were assigned to the Nigerian Petroleum Development Company (NPDC), the Exploration and Production subsidiary of NNPC, was that DPR estimated the book value of the oil blocks to be $1.847bn.

NNPC raised concerns with the parameters used for computing the book value of the assets. While the issues were being reconciled with the DPR, NNPC went ahead to pay over $300m as a token to indicate its interest in acquiring the blocks pending when the issues it raised over the parameters used in calculating the signature bonus were resolved. This much was explained by the Group Managing Director of NNPC, Dr. Joseph Dawha, at a press conference recently.

The point in the above explanation is that the $1.48bn is distinct from the revenues from oil lifting between 1st January 2012 and July 2013 which the allegation of unremitted $49.8bn was all about. This distinction helps to highlight the error in the interpretation of the recommendation of the forensic audit report with regard to the remittance of the $1.48bn made in some quarters that NNPC was indicted in the report. The recommendation that NNPC/NPDC should remit the outstanding signature bonus to the Federation Account does not amount to indictment in anyway as the amount is not part of the original amount alleged to be missing or unremitted. And the fact that NNPC had already commenced payment of the signature bonus as indicated in the PwC forensic audit report shows that it actually had the intention to pay the money as soon as the concerns it raised over the parameters deployed in calculating the bonus were resolved. In any case, the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, has directed NNPC to pay the outstanding $1.48bn forthwith.

The other issue which the report has thrown up has to do with the extant laws and business model which NNPC is constrained to run. The report recommends that the NNPC Act which “provisions contradict the requirement that NNPC be run as a commercially viable entity” must be reviewed as a matter of urgency. The report highlighted the fact that the issue of deduction of its operation costs and expenses from crude oil sales proceeds by NNPC for which the Corporation is pilloried daily is a legal issue made possible by the provisions of the NNPC Act which established the Corporation. The audit firm recognized and recommended that the way to go about correcting the anomaly is to review the legal framework and thereby the business model of the Corporation.

This once again underscores the need to urgently pass the Petroleum Industry Bill (PIB) which has been in the works in the National Assembly for upwards of five years. In fairness to NNPC, it has commenced a Transformation Programme aimed at retooling its structures and making it more commercially focused ahead of the post-PIB era. The duty of passing the Bill does not lie with the NNPC but with the National Assembly. It is in the interest of all Nigerians for the PIB to be passed expeditiously to free NNPC to run as a commercial entity as recommended in the PwC report.

Until the PIB is passed to provide a legal foundation for the reforms recommended in the PwC report the nation will not be completely rid of allegations of unremitted revenues, the type that led to the long inquisition that has been fortunately laid to rest with the forensic audit report conducted by PwC.

Mr.  Baridon Leton, a human rights activist, wrote from Port-Harcourt, Rivers  State.