Audit-Report-on-NNPC

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Investigative Forensic audit of crude oil revenues and remittances by NNPC (January 2012 – July 2013) S/N Source Amount $ 1 Credit note 11,388,184 2 Initial funding deposit 112,222,988 3 Technical cost 9,011,894 4 Debt servicing (1,999,975) 5 Bank charges 639 Total 130,623,730 Table B4 – Summary of variances in equity Source: COMD profile and JP Morgan statement We made enquiries from NNPC on the nature and use of these identified cost and the following explanations were given. 4.2.4.2.2. Credit notes NNPC sometimes gives credit notes to its customers who at one time or the other incurred demurrage or cargo losses upon lifting of equity crude. To compensate them for such expenses, the customers get credit notes. Such credit notes could be utilized by the customers at any time in the future upon liftings made. In utilizing the credit notes, the customers make remittances for subsequent liftings to the JP Morgan account less the value of the credit. We obtained the credit notes for the applicable transactions during the period and no exception was identified. 4.2.4.2.3. Initial funding deposit Initial deposits are sometimes required to be made by customers before the actual liftings are carried out. This has the effect of reducing the amount eventually remitted by the customers as the value of the lifting is reduced by the amount of initial deposit made. We verified these deposits by confirming from the JP Morgan statements that the amount had been remitted in the months prior to the customer lifting. No exceptions were noted. 4.2.4.2.4. Technical costs Technical cost, one of the items identified to have given rise to variances between amount remitted and amount due to have been remitted into the JP Morgan account, is made up of Unit development fee, Opex fee, Abandonment Tariff and Shared Facilities Tariff. These technical costs relate specifically to liftings with “Zafiro” as the crude type. On examination of the Utilization and Unit Operating Agreement, we noted that the technical cost to be applied on the total quantity of crude oil lifted per day for the period under review was $9.515. We performed a check to ascertain the reasonability of the technical charge and obtained contract agreement that relates to the charge and we noted no exceptions. 4.2.4.2.5. Debt servicing Debt servicing, another source of variance identified, relates to the amount owed by Duke Oil to NNPC from debt servicing arrangement with Pan Ocean. The debt was repaid by Duke Oil in addition to the value of the lifting which resulted in the receipt of a higher amount than what was expected to be paid to the Federal Government. We verified this arrangement by examining the invoice and payment instruction between NNPC and Duke Oil. The total debt being repaid by Duke Oil was $2 million. Vanguardngr Confidential information for the sole benefit and use of the <strong>Audit</strong>or-General for the Federation. PwC 56
Investigative Forensic audit of crude oil revenues and remittances by NNPC (January 2012 – July 2013) 4.2.4.2.6. Bank charges Charges deducted by the bank for certain transactions were identified as one of the reasons for the variances between amount due and amount traced to the JP Morgan statement. We traced the charges to the JP Morgan bank statement for the period under review. 4.2.4.3. Domestic revenue not remitted to the Federation The total amount remitted from sale of domestic crude amounted to $14.5 billion from our analysis. This is about half of the total revenue generated from domestic crude sales and $1.5 billion lower than the amount claimed by NNPC as shown in the table below; SOURCE Values ($) Total Revenue 28,215,731,691 Total remitted 14,542,654,329 Difference 13,673,077,362 Table B5– Difference between total domestic revenue generated and remittance Source – PwC analysis, CBN bank statements 4.2.4.3.1. About $800,000 not remitted due to wrong unit prices quoted on FAAC reports As explained in Section 4.1.4.2, while carrying out a recomputation of crude oil revenue generated during the review period, we observed four domestic liftings 30 with differences totaling $1,250,619 between the unit prices on the schedule received (which were reported to FAAC) from COMD and our recomputation. However, our investigation revealed that for one 31 of the liftings (amounting to $430 million), the amount reported to FAAC by NNPC was correct. The variance between our computation of the commercial value of the above lifting and that performed by COMD (NNPC) was due to the source information used for the computation 32 . For the remaining three liftings, COMD confirmed that a wrong provisional unit price was used to remit to FAAC. Subsequent to our identification of the issue, NNPC has corrected the errors in the October 2014 FAAC report. Vanguardngr 30 See liftings 10 – 13 on Appendix 6.1.2 31 Lifting 13 on Appendix 6.1.2 32 Please see Double Valuation issue discussed further in 4.2.6.1 Confidential information for the sole benefit and use of the <strong>Audit</strong>or-General for the Federation. PwC 57
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