Nigeria audit: state oil company siphoning oil revenues

Nigeria's state oil company is assuming "carte blanche" and spending nearly half the proceeds from crude oil sales before they reach the treasury, according to a long awaited audit into billions of dollars of allegedly "missing" oil revenues.

The audit, carried out by PwC and published in full late on Monday on the orders of outgoing President Goodluck Jonathan, recommends an "urgent" overhaul of the way Nigeria manages its oil industry, which it describes as "unsustainable".

Mr Jonathan commissioned the report last year after the outspoken former governor of the central bank, Lamido Sanusi, claimed that the Nigerian National Petroleum Corporation had withheld more than $1bn a month in revenues owed to the treasury between January 2012 and July 2013.

PwC does not come up with a headline figure for the total amount of money that should by law have been remitted directly to the treasury. But the audit raises questions about the legality and rationale behind a series of multibillion dollar transactions, including deals on kerosene and fuel subsidies, as well as the way oil assets were transferred to a subsidiary of the NNPC and the scant revenues derived through third party financing of oil blocks.

The auditors found a total of $1.48bn in "duplicate" subsidy claims, computation errors, "unsubstantiated costs" and unpaid taxes - a sum the petroleum minister, Diezani Allison-Madueke has now ordered the NNPC to refund.

They also found a discrepancy of more than $2bn in the total value of crude oil sales. This, and other questions around the reliability of NNPC data, implies that colossal sums of money passing through the state oil company were barely auditable.

"The procedures we performed did not constitute an examination or a review in accordance with generally accepted auditing standards or attestation standards. Accordingly, we provide no opinion, attestation or other form of assurance with respect to our work or the information upon which our work was based," PWC's Pedro Omontuemhen, says in a cover letter to Nigeria's auditor general published with the report.

Mr Sanusi, who is now Emir of Kano, raised the alarm because Nigeria was failing to save money despite the soaring world oil price, and warned that the country's economy, Africa's largest, was unnecessarily vulnerable to market volatility as a result. His warning proved prescient. The treasury is now heavily depleted, foreign reserves have dipped below five months of import cover and the currency has come under sustained pressure since the oil price began to slide last June.

The former central bank governor's allegations reinforced the public perception that corruption was out of control under Mr Jonathan and contributed to his defeat at the polls in March, the first of an incumbent president.

PWC's report provides additional ammunition to reformers in the incoming administration of president-elect Muhammadu Buhari who want to see a complete overhaul of the NNPC.

Two weeks ago Godwin Emefiele, the governor of the Central Bank proposed in an interview with the FT that the incoming government might have to consider selling down the NNPC's 55 per cent stake in joint ventures with multinationals in order to raise funds to rebuild macroeconomic buffers and finance infrastructure development.

It is a proposition that is gaining some traction among some members of Mr Buhari's party.

"Revenue is being hijacked before it gets to the government. When you buy a company you can't tell the state its in until you get in there. I don't think the (incoming) government is in any doubt that the picture may well be much bleaker than we've been led to believe," a senior official in Mr Buhari's party, told the FT.

PwC said it appeared the decree that created the state oil company gave the corporation "a blank cheque to spend money without limit or control".

"The Corporation should be required to create value, and meet its expenses entirely from the value created. Proceeds from the (federal government's) crude oil sales should be remitted entirely to the Federation accounts. Commissions for the corporation services can then be paid based on agreed terms," it recommended.

PwC also found that if the same practises from the period under review - when oil prices were averaging $122 per barrel - were maintained in today's lower price environment, the NNPC would not meet operational and subsidy costs without incurring third party liabilities and might not be able to make any remittances to the treasury.

"We therefore recommend that the NNPC model of operation must be urgently reviewed and restructured, as the current model which has been in operation since the creation of the corporation cannot be sustained," the audit concludes.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation