Audit-Report-on-NNPC

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Investigative Forensic audit of crude oil revenues and remittances by NNPC (January 2012 – July 2013) Comments remittance/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. 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) Vanguardngr 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 Confidential information for the sole benefit and use of the <strong>Audit</strong>or-General for the Federation. PwC 16
Investigative Forensic audit of crude oil revenues and remittances by NNPC (January 2012 – July 2013) II. 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$3.4billion 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$1.85billion 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$5.11billion 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. 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. Vanguardngr 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. Confidential information for the sole benefit and use of the <strong>Audit</strong>or-General for the Federation. PwC 17
Page 1 and 2: Forensic Services Audit</st
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