nation0428

THE NATION TUESDAY, APRIL 28, 2015 3
frustrated forensic report on missing $20b, by PwC
* NNPC Towers, Abuja.
mittance/under-remittance can only be
arrived at if all revenues and all costs
of the Corporation and all its subsidiaries
are accounted for in a consolidated
position. A detailed review of this
was beyond the scope of our mandate.
We therefore recommend that
NNPC be required to disclose the consolidated
position of the Group and its
subsidiaries, and expected remittances
to the Federation accounts be determined
from the available consolidated
net revenues. Furthermore, the nature
of costs that are allowable should be
pre-determined by all relevant parties.
We also recommend that the NNPC
act be reviewed as the content contradicts
the requirement for NNPC to be
run as a commercially viable entity. It
appears the act has given the Corporation
a “Blank” cheque to spend money
without limit or control. This is untenable
and unsustainable and must be addressed
immediately. The Corporation
should be required to create value, and
meet its expenses entirely from the value
created. Proceeds from the FGN’s
crude oil sales should be remitted entirely
to the Federation accounts. Commisions
for the Corporation services
can then be paid based on agreed terms.
Comments
(I). We did not obtain any information
directly from NPDC, but in accordance
with NPDC former Managing
Director’s (Mr Briggs Victor) submission
to the Senate Committee hearing
on the subject matter, for the period,
NPDC generated $5.11billion (net of
royalties and petroleum profits tax
paid).
We have relied on the legal opinion
provided to the Senate Committee by
the Attorney-General (AG) on the subject
of the transfers of various NNPC
(55%) portion of Oil Leases (OMLs) involved
in the Shell (SPDC) Divestments
which impact crude oil flows in the
period. The AG’s opinion indicated that
these transfers were within the authority
of the Minister to make. Thus, these
assets were validly transferred to
NPDC. The same AG’s legal opinion
also indicated that NPDC was to make
payments for Net Revenue (dividend)
to NNPC, which should ultimately be
remitted to the Federation Account. A
sale will mean the following should be
due to be remitted to the Federation accounts
1. Petroleum Profit Taxes (PPT)
2. Royalties
3. Signature bonus payment
4. Dividend from profit for the period
(according to dividend declared in
line with NPDC’s dividend policy)
We have not obtained any information
that suggests that NPDC has been
assessed for PPT and Royalty for the
review period. However, as disclosed
by the former MD of NPDC at the senate
hearing, NPDC had done a self assessment
of PPT and Royalty and had
unpaid self assessed PPT and Royalty
to the tune of $0.47 billion related to the
review period.
In January 2015 (subsequent to our
initial reported conclusions), we were
availed with copies of Deeds of Assignment
for OML’s 26,30,40,42.We were
not provided with copies of Deeds of
Assignment for OML’s 4,38,41,34.We
were also provided with information
which indicated that the various NNPC
(55%) portion of Oil leases (OMLs) involved
in the Shell Divestments related
to the eight (8) OML’s aforestated,
were transferred to NPDC for an aggregate
Sum of US$1.85billion. So far,
only the amount of US$100m had been
remitted in relation to these assets. This
means that the amount of
US$1.75billion is yet to be remitted in
relation to this transfer. In addition, by
a comparison of the aggregate amount
of US$1.85billion determined by DPR
as the transfer value , and the (arm’s
length) commercial value paid for by
3rd parties for between 30% to 45% divested
by Shell, we arrive at an estimated
Alternative Commercial Valuation
of US$3.4 billion for the NNPC 55%.
The point here is that while we appreciate
that this is a government entity to
government entity transaction, we had
expected a transfer basis higher than
the US$1.85 billion commercial value
determined by DPR. We have not performed
a professional valuation and
therefore recommend that the valuation
done by DPR be re-assessed.
NNPC explained that these OML
transfers were in the bid to encourage
local participation in the Nigerian upstream
Oil and Gas Industry.
We also expect that NPDC should
remit dividends to NNPC and ultimately
the Federation Accounts, based on
NPDC’s dividend policy and declaration
of dividend for the review period.
We did not have access to NPDC’s full
accounts and records and we have not
ascertained the amount of costs and
expenses which should be applied to
the US$5.11 billion crude oil revenue
(net of royalties and PPT paid) per the
NPDC submission to the Senate Committee
hearing in order to arrive at the
Net Revenue (in line with the AG’s
opinion), which should be subjected to
dividend remittance.We are also not
aware that NPDC declared dividend
for the review period.
These matters need to be followed
up for final resolution in terms of the
NPDC Net Revenue (dividend) for
crude oil relating to the transfers, PPT
and royalty unremitted, and the transfer
price valuation and remittance.
(II). We determined from information
obtained from PPPRA that $3.38
billion relating to DPK subsidy cost was
incurred by the NNPC for the review
period.We obtained a letter, dated 19
October 2009 written by the Principal
Secretary to the President, to the National
Security Adviser (The following
were in copy: Honourable Minister for
Petroleum Resources, Honourable
Minister of State for Petroleum Resources,
Group Managing Director
NNPC, and the Executive Secretary
PPPRA), confirming a Presidential directive
of 15 June 2009 instructing that
subsidy on DPK be stopped (Exhibit
D7).We also obtained a letter dated 16
December 2010 from the Executive Secretary
PPPRA to the CBN Governor
clarifying that PPPRA had ceased
granting subsidy on Kerosene since the
Presidential directive of 15 June 2009
(Exhibit D8).
Furthermore, Kerosene subsidy was
not appropriated for in the 2012 and
2013 FGN budget.
However, the Presidential directive
was not gazetted and there has been
no other legal instrument cancelling the
subsidy on DPK.
In a Presidential media chat on 24
February 2014, the President and Commander-in-Chief
of the Armed Forces
of the Federal Republic of Nigeria, President
Goodluck Ebele Jonathan, asserted
that kerosene subsidies have not
been disallowed.
We therefore recommend that an official
directive be written to support the
legality of the kerosene subsidy costs.
This should also be followed by adequate
budgeting and appropriation for
the costs.
Other Findings
• For the period reviewed, we identified
possible errors in the computation
of crude oil prices at the NNPC that
resulted in a $3.6 million shortfall in
incomes to the Federation account. The
major beneficiaries were Fujairah Refinery
- $805,545, NNPC (KRPC/
WRPC) – $697,995 and NNPC (COMD)
- $2,107,275. Subsequent to our identification
of this issue, NNPC has amended
the errors, and have reflected the
amendments in the remittances to
FAAC in October 2014.
• Our review of the DPK sales process
revealed that NNPC sells DPK to
bulk DPK marketers in Nigeria at
N40.90 per litre at a location on the
coastal waterways (off shore Lagos).
The expected/official regulated retail
price of DPK in Nigeria is N50 per litre.
This retail price of N50 comprises
the Ex-depot price of N34.51 and aMargin
of N15.49. NNPC should be required
to explain the reason for selling
DPK at N40.90, rather than the regulated
ex-depot price of N34.51. The
Corporation should also be required to
explain the reason for selling DPK to
bulk DPK marketers at a location on
the coastal waterways (off shore Lagos)
rather than at the in-country depots.
•The accounting and reconciliation
system for crude oil revenues used by
government agencies appear to be inaccurate
and weak.We noted significant
discrepancies in data from different
sources. The lack of independent
audit and reconciliation led to over reliance
on data produced from NNPC.
This matter is further compounded by
the lack of independence within NNPC
as the business has conflicting interests
of being a stand-alone self-funding entity
and also the main source of revenue
to the Federation account.
(2.2). Our approach to this mandate
• It is important to note that although
PwC has reviewed documents submitted
by the key stakeholders involved,
our work was conducted independently,
and our findings are based on the
review of documentation, analytical
reviews of data, and interviews conducted.
• Due to this approach, our findings
and the way we presented them in this
report may not necessarily reflect the
formats of the various submissions
made by the different stakeholders.
• In certain instances where we were
not provided with information or access
to key stakeholders (Section 6.3.2 )
we leveraged on external and available
sources of information to reach our
conclusions. These external and available
sources of information are clearly
highlighted in the relevant sections of
this report.
• Any information and/or documentation
which may come to our attention
subsequent to the date of this
report may alter our findings.
• We have also listed some of the limitations
to our scope in Section 3.2.
•The procedures performed and specific
limitations to scope are also discussed
under thevarious work stream
sections.
•Based on specific instructions from
the Auditor General for the Federation,
we returned to do additional work, after
NNPC had represented that our initial
process did not provide an opportunity
for formal discussions of our
findings with top management, in the
form of an exit interview.
• With the exception of the Deputy
Group Managing Director/Group Executive
Director Finance and Accounts
of NNPC, the Auditor-General for the
Federation, and the Honourable Minister
of Petroleum Resources, we have
not discussed the findings of this report
with any stakeholder.
•Our work was split into two work
streams as follows;
(1). We estimated how much revenue
is due to the FGN from crude oil
liftings; and (2). We reconciled the revenues
due to the FGN against the actual
cash received by the federation.
• Our findings and conclusions considered
the impact of some matters
which require legal opinion to be
sought by the FGN.
PwC estimated revenue from crude
oil lifting ($69.34 billion) This is the total
amount of revenue from crude oil
liftings during the review period, after
increasing A by the adjustments in B.
(D) Direct Costs ($2.65 billion)
This represents the total expenses
incurred and/deducted directly by
NNPC (from crude oil revenues) where
supporting documents were provided
to PwC.
Source: PPMC’s Schedule of Costs,
Reconciliations signed off by traders
and NNPC, PwC Analysis
These costs relate to amounts incurred
by NNPC (and its subsidiaries)
in executing its mandate. We observed
that there were documents supporting
these expenses.
For the purpose of this report, PwC
has included these expenses as verified,
andtreated them as legitimately incurred
in the process of the Corporation
executing its mandate.
(E) This represents the revenues due
to NPDC from crude oil sale for the
period from January 2012 to July 2013.
The balances used in this analysis were
obtained from the submissions made
by the former MD of NPDC Mr Victor
Briggs, during the Senate Committee
hearings.We could not find proof or
evidence that these revenues were remitted
by NPDC/NNPC into the Federation
Accounts Verified costs (NPDC
yet to complete payment for assigned
assets).
It is important to note that the relationship
between NNPC and NPDC as
itrelates to OMLs 30, 34, 40, 26, 4, 38,
41, 42 controlled by NPDC, is a key limitation
to our scope.We had no access
to NPDC management; our work relied
on discussions with NNPC management
(Section 6.3.2) and review of
submissions to the senate (Exhibit A1).
From our reviews of the NNPC Act
(section 6(1 c & d)), we noted that the
Corporation is empowered:
(c) to enter into contracts or partnerships
with any company, firm or person
which in the opinion of the Corporation
will facilitate the discharge of the said duties
under this Act;
(d) to establish and maintain subsidiaries
for the discharge of such functions as the
Corporation may determine;
Sections 6(1c & d) are critical to establishing
the nature of sale of these OMLs.
We have analysed these as follows:
Factors supporting a sale
(1). NPDC paid taxes and royalties
with a total of $1.7 billion.We have not
been able to establish the assets on
which these taxes and royalties were
paid. However, the practice of payment
of these statutory deductions suggests
that the revenues from the related assets
belong to the company. According
to NPDC’s submission at the senate
hearing, NPDC has not been assessed
for royalty and PPT for the review period
by DPR and FIRS respectively. The
Company made part payments based
on estimates.
(2). Existence of a Deed of Assignment:
As part of our work, we were informed
of a document (Deed of Assignment)
that transferred the assets from
NNPC to NPDC.We were availed with
copies of Deeds of Assignment for
OML’s 26,30,40,42.We were not provided
with copies of Deeds of Assignment
for OML’s 4,38,41,34.
(3). An outright sale to NPDC means
that NPDC would be expected to make
a payment to the Federation accounts
for procuring the asset.
DPR assigned a total value of $1.85
billion dollars as reasonable amounts
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