Audit-Report-on-NNPC

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Investigative Forensic audit of crude oil revenues and remittances by NNPC (January 2012 – July 2013) Product exchange (swap) transactions: These are transactions in which the NNPC contracts to supply the other party with crude oil in return for the other party supplying the NNPC with refined products for sale locally on a value-for-value basis. Offshore Processing Arrangements (OPA) Under Offshore Processing Agreements (OPA), the NNPC provides crude oil to another party who would refine the crude oil on behalf of the NNPC and return the refined products to the NNPC based on the yield slate of the party’s refinery. The NNPC provides the crude oil and pays the refining and other incidental costs. The products refined through the OPA are received by PPMC through import jetties, refinery jetties or refinery depots and distributed through pipelines to depots strategically located all over the country from where petroleum tankers lift the products to designated retail outlets. Allocation to local refineries This is the portion of Domestic Crude oil allocated to local refineries. The crude oil is pumped from the terminals to the four refineries situated at Warri, Kaduna and two in Port Harcourt. Unutilised domestic crude oil sales The domestic crude oil that is not utilized for Swaps, OPAs or local refining is ultimately sold by the NNPC. These sales are made to various trading companies. 4.1.1.4. FIRS Petroleum Profit Tax (PPT) portion of the Modified Carrying Arrangement (MCA) is payable in kind, that is, the Federal Inland Revenue Service gets crude oil as against payment of cash for Petroleum Profit Tax. Also, some companies involved in Production Sharing Contracts (PSC) pay their PPT in kind. The payment of PPT in kind was the result of an agreement in place between the NNPC and the FIRS. NNPC, through its Crude Oil Marketing Division (COMD), carries out the liftings on behalf of FIRS and subsequently advises FIRS on the total value and volume of crude oil. The allocation of crude to FIRS by COMD is done on a monthly basis at a reconciliation meeting involving all parties to the MCAs and PSCs. 4.1.1.5. DPR The Department of Petroleum Resources, the regulatory agency for the petroleum industry, is responsible for exercising statutory supervision and control of the industry. The department is responsible for collecting payments of rents, royalties and other revenues due to government. DPR receives royalty payments in kind (crude oil) from IOCs involved in MCAs and PSCs. Lifting of the crude oil is carried out by COMD on behalf of DPR. NNPC subsequently advises DPR of total liftings and value expected. The allocation of crude to DPR by COMD is done on a monthly basis at a reconciliation meeting. 4.1.1.6. Others In addition to equity and domestic crude, the Federation also receives crude oil revenue from the following sources: Modified Carry Arrangement (MCA) MCAs are funding agreements entered into between the NNPC and other oil companies (Joint Venture operators), where the operator/lender funds a portion of NNPC’s obligation of the Joint Venture. Vanguardngr Confidential information for the sole benefit and use of the <strong>Audit</strong>or-General for the Federation. PwC 44
Investigative Forensic audit of crude oil revenues and remittances by NNPC (January 2012 – July 2013) Other Third Party Financing arrangements (OTPF) Due to liquidity challenges, NNPC was funding Exploration and Production (Capex and Opex) using external lenders. In this instance, the NNPC and its Joint Venture (JV) partners form a Special Purpose Vehicle (SPV) which sources funds externally. The SPV repays the lender using crude oil from production. Nigeria Petroleum Development Company (NPDC) NPDC is a fully owned NNPC subsidiary. The company has carried out exploration and production operations since 1988 and has also been assigned assets by NNPC following the divestment by some JV partners between 2010 and 2011. NPDC pays the Federation, royalties and taxes on liftings from its oil and gas assets. 4.1.1.7. Senate submissions The Senate Committee set up to investigate the alleged unremitted crude oil revenue to the Federation Accounts requested submissions from relevant parties including CBN and NNPC. CBN stated in its initial submission that based on the information received from Pre-shipment Inspection Agencies (PIA), the revenue accruing to the Federal Government was a sum of $65 15 billion. The Ministry of Finance set up a Reconciliation Committee to align the differing figures that were being reported and a final reconciled revenue figure of $67 billion was agreed. S/N SOURCE AMOUNT ($bn) 1 Equity 14 2 Domestic Crude 15 3 FIRS 2 4 DPR 28 5 NPDC 6 6 Third Party Financing 2 TOTAL 67 Table A1 – Summary of crude oil revenue generated for the period of January 2012 to July 2013 as reported by NNPC 4.1.2. Procedures Performed 1. Reviewed Senate submissions from the various stakeholders to determine the agreed revenue from crude oil liftings. 2. Conducted interviews with relevant process owners to confirm our understanding of NNPC’s revenue management and reporting processes. Vanguardngr 3. Requested information on the volumes and prices of crude oil lifted during the period under review from COMD, DPR and PIAs in order to establish lifting volumes and values. 4. Compared the lifting volumes obtained from COMD and DPR during the period under review and highlighted any variances to ensure accuracy and completeness of data. 5. Reconciled prices of crude oil obtained from COMD with Platts quotations. 6. Reviewed discrepancies and variances by discussing with staff of COMD and PPMC to ensure integrity of the data used for conclusions. 7. Documented findings and conclusions. 15 CBN submission to the Senate Confidential information for the sole benefit and use of the <strong>Audit</strong>or-General for the Federation. PwC 45
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