Audit-Report-on-NNPC

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Investigative Forensic audit of crude oil revenues and remittances by NNPC (January 2012 – July 2013) 4.5.3. Limitations We encountered some limitations in the course of executing some aspects of our scope of work. The key limitations were: Unavailability of relevant NPDC personnel to provide information on the NPDC’s processes particularly around its operations, business objectives and internal accounting/financial reporting, etc. Change of management at NPDC during the course of the engagement which further contributed to our inability to successfully obtain responses to our request for information. Non-response of NPDC to our request letter which meant that we weren’t provided with the following requests: o Detailed breakdown of the crude oil assets transferred to NPDC. o Terms of divestment and contract documents involving the assets taken over. o Strategic Alliance agreements between NPDC and counterparties. o Monthly volume allocations to Strategic Alliance Partners per partner. o Monthly balance of NPDC crude over-lifts by Strategic Alliance partners. o List of receiving banks, account numbers and bank statements for NPDC crude proceeds. 4.5.4. Key Findings 4.5.4.1. Ownership of NPDC assets NPDC as an incorporated company has existed and carried out petroleum exploration activities since 1988. In 2010-2011, NNPC sold its interests in the divested oil fields by SPDC to NPDC. The legality of the sale from NNPC to NPDC was widely debated during the Senate Hearings. The Attorney- General and Minister of Justice, Mr Mohammed Bello Adoke, SAN, in his letter to the Senate Committee on 18 February 2014, stated that the sale was within NNPC’s authority. It was also clearly stated in the SAA with Septa Energy that the Federal Government had granted consent via a Deed of Assignment dated 16 September 2010 for NNPC to assign its interest in the contract area to NPDC. 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 (See exhibit I1). 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 afore stated, were transferred to NPDC for an aggregate Sum of US$1.85billion (See exhibit I2). So far, only the amount of US$100m had been remitted in relation to these assets (See exhibit I3). 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$3.4billion for the NNPC 55%. Vanguardngr See Table below for our estimation of the expected signature bonus required to have been paid by NPDC for the divested assets. (Please note that this is not a professional valuation, but an estimate based on publicly available information) Confidential information for the sole benefit and use of the <strong>Audit</strong>or-General for the Federation. PwC 82
Investigative Forensic audit of crude oil revenues and remittances by NNPC (January 2012 – July 2013) Estimation of signature bonus on divested assets Blocks Shell’s Expected Price/ NNPC’s equity % equity % Price/ Valuation before before Valuation ($ million) divestment divestment ($ million) [b] [c] [a] [b/a*c] OML 30 45 850 55 1039 OML 34 45 588 55 719 OML 40 45 154 55 188 OML 26 30 148 55 271 OML 42 45 600 55 733 OML 4 45 OML 38 45 55 386 OML 41 45 55 Total 2726 3422 PwC analysis 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 used. We have not performed a professional valuation and therefore recommend that the valuation done by DPR be reassessed. 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, (see section 4.5.5 below) 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 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. 4.5.4.2. Under-recognition of NPDC crude oil lifting by $0.82billion by Reconciliation Committee 55 Vanguardngr The Reconciliation Committee set up by the Ministry of Finance to look into the initial allegations of unremitted funds agreed the value of liftings in favour of NPDC to be $6billion. 472 We did not receive any supporting documentation from NPDC to validate this figure other than its submission to the Senate (summarized in Table E1 below) by its former MD, Mr Confidential information for the sole benefit and use of the <strong>Audit</strong>or-General for the Federation. PwC 83
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