THE 2011 report of the Nigeria Extractive Industries Transparency Initiatives (NEITI), prepared by Hart Group of the United Kingdom and S.S. Afemikhe and Co. of Nigeria, has indicted the Nigerian National Petroleum Corporation (NNPC) over its management of the country’s crude oil reserve.
The report, already presented to the Federal Executive Council (FEC) says there is a rift between NNPC and some parties to the Production Sharing Contract (PSC), which resulted in presentation of conflicting figures for the volume of oil lifted.
“Production and lifting data reported by the Department of Petroleum Resources (DPR) and other companies (including NNPC) and terminal operators were inconsistent and therefore could not be fully reconciled. This prevented a coherent mass balance being presented by the audit.
“DPR reported 1.2m barrels less in 2006; 0.08m barrels more in 2007 and 1.4m barrels more in 2008 than was reported by companies”, the report says.
It added: “There is a long running dispute between NNPC and PSC operators as to the calculation of cost of oil, tax oil, and royalty oil under the PSCs. This means that the parties could not agree on the entitlements and amounts being lifted by NNPC and the contractors. Amounts reported for this reconciliation revealed different interpretations for the same lifting transaction. This issue should be resolved speedily. In view of the value involved, the FEC is advised to request Minister of Petroleum Resources to bring the parties to reach a settlement quickly and agree upon the procedure to be applied in the future.
“The PSCs signed do not make any provision for how the parties should treat the gas available for commercial exploitation, except to require that the parties define a separate agreement. No such agreement has been concluded. Where gas is already used in commercial production, such as in Bonga, the absence of an agreement may result in a misstatement of the Federation’s income.’’ According to the report, crude oil from new fields is subject to trial marketing. Cargoes are lifted by both NNPC and the operator. After the trial marketing, NNPC and operators met to agree on the pricing formula for the crude, it says.
“As there appear to be different practices between the PSCs on how the proceeds of sale during the TMP are managed, it is advised that the NNPC specifies a uniform methodology for managing crude sales proceeds during any trial marketing period,” it says.
It states that there are many inadequacies between the data presented by NNPC and those of the Pipelines Product Marketing Company (PPMC).
“NNPC, PPMC provided data on importation and inland distribution but it was not possible to confirm the overall mass balance because of a number of inadequacies in the data.
“Despite extensive reconciliation work, differences remain between receipts reported by government agencies and payments reported by companies.
The report also shows sluggishness in the way NNPC handles proceeds from crude sales saying: “The credit line for domestic crude payments by NNPC is 90 days from the bill of lading date. However, payment to the Federation Account is delayed in most cases by NNPC. The arrears of payment beyond the authorised period sum up to N588 billion as at December 31, 2008.
“No standard method of paying the Federation’s share of gas proceeds is in place. Some are accounted for by Joint Venture (JV) operators; some are paid directly to NNPC and other equity owners by gas purchasers, while others share the proceeds in terms of equity share of operations. There is need to streamline and standardise the process to ensure that the Federation’s gas income is properly accounted for.
“The Office of the Accountant General of the Federation should make greater use of IT systems to improve controls, eliminate inconsistencies and improve transparency through wider sharing of data on a timeless basis.’’