Still on Monumental Financial Loss to Oil Sales Shady Deals

By Abubakar Jimoh

The Nigeria National Petroleum Corporation (NNPC) has hitherto employed various mind-boggling secrecies in the sales of oil, maximising chances for years of unchecked monumental fraud, corruption and mismanagement of the nation’s largest revenue stream.

A recent report by Natural Resources Governance Institute estimates $41 billion generated from the sales of crude oil, which constituted the highest government’s revenue stream in the 2013, the same year studies by Civil Society Legislative Advocacy Centre (CISLAC) gathered that every 10 minutes one woman dies from conditions associated with childbirth, and only 39% births take place with assistance of medically trained personnel, coupled with the scarcity of skilled attendants, absence of personnel among other factors impeding the effectiveness of health services in the country.

At the same time, the United Nations Educational, Scientific and Cultural Organisation (UNESCO) also in 2013 released a shocking report indicating that one out of every five Nigerian children is out of school, pointing to the fact that Nigeria holds the world record (accounts for 47% of the global out-of-school population) of having the highest number of its young people out of school.

Although the above reports were widely regarded as national disgrace, however, subsequent glorified mismanagement of the nation’s huge revenue generated from the oil sales was a clear indication that citizens’ welfare and standards of living was practically out of the government’s agenda.  For instance, in early 2014, Nigeria’s Central Bank Governor, Lamido Sanusi raised alarm over the missing N20 billion from NNPC’s oil sales revenues.  The same period Nigeria Extractive Industries Transparency Initiative (NEITI) Audit reported un-remitted $9.6 billion in the oil and gas sectors couple with the massive stealing of 200,000 barrels of crude every day reinforced by the already widespread corrupt activities eating deep into the nation’s economic and political realms.

It is worrisome that effective management of oil sales has been intentionally worsened especially since 2010, primarily to frustrate transparency and accountability of revenue generated from the sector. As reported by NRGI, NNPC had entered into poorly designed oil-for-product swap deals when it could no longer meet the country’s fuel needs, just as the corporation began unilaterally spending billions of dollars in crude oil revenues each year, rather than transferring them to the treasury, because NNPC’s actual budget process fails to cover operating expenses.

Meanwhile, continuous sales of crude oil by NNPC to government that do not refine it further expose Nigeria to a glut of unnecessary middle men and prompt corruption scandals in five buyers countries.

It was against this backdrop that in September, 2015, CISLAC was widely reported advocating for the immediate need to curb all existing offshore processing agreements and institute a competitive and open process and employ the more universally practiced format of refined product exchange agreements. CISLAC expected the NNPC to design a crude sales system that eliminates the use of multiple middlemen and companies that are unqualified to operate in the sector.

By October 2015, a report by NEITI disclosed that the federal government had lost $966million in revenue from the crude oil swap deal supervised by NNPC between 2009 and 2012, bringing the cost of crude oil swapped to 6.4 billion dollars in 2012 alone, when the value of refined products returned to Nigeria was 6.3 billion dollars. This resulted in $500 million as total revenue loss to the Federation Account from 2009.

Similarly reports have questioned the dramatically widening gaps between the sales value of domestic crude, as assessed by NNPC, and the transfers of the direct crude allocation revenues to the Federation Account. For instance, in 2004, NNPC reportedly retained over $1.6billion (27%) of the direct crude allocation’s full assessed value; and by 2012, the figure had increased to $7.9billion (42%) of the value of the domestic oil for the year. Understanding these huge economic losses, the government recently approved the cancellation of offshore processing and crude swap deals for refined oil products between the NNPC and oil traders.

Also, the excessive power accrued to the NNPC paved way for the questionable discretion exercised by the corporation over the retained several billion dollars a year for subsidized kerosene sales despite the 2009 presidential directive calling for an end to the kerosene subsidy. An audit report by PricewaterhouseCoopers (PwC) showed duplicated and undocumented expenses totalling $2.07billion in 19 months without evidence disclosing to other agencies what buyers of domestic crude actually paid.

It has become imperative for Nigerian government to: effectively manage and maximise revenue from its oil sales in order to advance an urgent developmental agenda towards socio-economic development; rebuild depleted foreign reserves and oil savings; boost demand for Nigerian crude; eliminate direct crude allocation; develop explicit revenue collection framework for NNPC to facilitate more predictable financing and reins in discretionary spending; stop NNPC from selling oil unqualified local and international companies .

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