NNPC forensic audit reveals N256bn subsidy scam

When President Goodluck Jonathan ordered the immediate release of the Forensic Investigative Audit conducted by PriceWaterCoopers into allegations of unremitted funds into the Federation Accounts by the NNPC, he sought to wash his hands of any wrongdoing, or show that he had nothing to hide.

However, the document has allegedly further exposed the amount of sleaze that has been taking place in the name of subsidy in the country. Analysis of the forensic report made public on Monday by several independent groups shows several discrepancies and double payments to many oil marketers by the NNPC, as well as under reporting of revenues accruing to the NNPC.

The analysis by Vanguard revealed that over N256 billion was inappropriately paid out within January 2012 and July 2013.

It would be recalled that during the same period, January 2012, as a result of the subsidy riots in some parts of the country, the House of Representatives mandated a committee headed by Farouk Lawan to investigate the subsidy payments by government.

The Committee’s report released in April the same year revealed a huge scam in which a number of companies were being paid hundreds of millions of dollars in subsidies by the government for fuel that were never delivered. It was estimated the scam cost the country $6.8 million (about N1.36bn).

In February 2013, Lawan was charged with corruption after he allegedly accepted $500,000 from billionaire oil tycoon, Femi Otedola, as part of a $3 million bribe Lawan had solicited. Otedola claimed that Lawan demanded the bribe in order to have his company, Zenon, removed from the list of companies that the committee had implicated in the scandal.

Read below, the analysis as compiled by Vanguard….

Following a Presidential directive, the Federal Ministry of Petroleum Resources, yesterday, released the Forensic Investigative Audit conducted by PriceWaterCoopers into the allegations of unremitted Funds into the Federation Accounts by the NNPC.

Among other things, the report revealed financial improprieties amounting to $1.28 billion in payment for petrol and kerosene subsidy between January 2012 and July 2013, comprising $980 million in subsidy over claim by the NNPC, $63.78 million duplicated subsidy payment by NNPC, $36.05 million over-statement in PPPRA’s PMS subsidy Payment Advice to NNPC, and an estimated $205 million kerosene subsidy over-charge by NNPC.

It also revealed under-reporting of revenue amounting to $6.58 billion comprising $2.34 billion under-reported revenue and under-reported remittance of $3.81 billion, as well as under-reported third party financing revenue of $430 million.

Petrol and Kerosene Subsidy: The report stated, “Our review of the subsidy documentation revealed that the subsidy due to NNPC between January 2012 and July 2013 on PMS and DPK import was $8.99billioncompared to the $9.97 billion stated by the Reconciliation Committee.

The difference was due to the following: Exclusion of October 2011 – December 2011 subsidy claims of $1.2billion. This does not relate to the review period of January 2012 to July 2013; $0.13billion increase in PMS subsidy claimed for the 19 months period; $0.09billion increase in DPK subsidy claimed for the 19 months period.

“Our examination of the PMS and DPK import verified by PPPRA revealed that some discharges were apparently verified and subsidy advised to NNPC more than once. The repeated subsidy for PMS amounted to N3,709,879,190 ($23,954,796). The repeated subsidy for DPK amounted to N6,169,502,266 ($39,836,652).

“Our review of the Subsidy Payment Advice sent by PPPRA to NNPC for discharges between January 2012 and July 2013 revealed that PPPRA applied the pre-2012 Ex-Depot Price (N49.51) on some discharges in 2012 instead of the approved Ex-Depot Price of N81.51; A total of 174,449,778 litres of PMS was affected in these PPPRA computations.; The error in computation resulted in an over-statement of PMS subsidyby N5.6 billion ($36.05 million).

“Our review of a sample of the copies of the Pro Forma Invoices (PFIs) issued to the other marketers of DPK across different geopolitical zones of Nigeria, revealed that the other marketers bought DPK from NNPC/PPMC prior to arrival at NNPC depot in Nigeria at N40.90;

The marketers are thereafter required to incur the Lightering expenses10, NPA charges, Jetty Throughput Charge and Storage Charges before bringing the product into Nigeria. “Subsidy is calculated as Landing Cost minus Ex-Depot Price; Per PPPRA’s template, Landing Cost also includes the extra expenses incurred by the other marketers;

By selling DPK to marketers at N40.90 and claiming subsidy at an Ex-depot price of N34.51 without adjusting the Landing Costs for the extra costs borne by the marketers, NNPC had over deducted subsidies to an estimated amount of N31,522,234,881.06 ($204 million).”

Further revelations from the forensic audit showed $2.34 billion under-reported revenue and under-reported remittance of $3.81 billion, as well as under-reported third party financing revenue of $430 million. $2.34 billion under-reported revenue generated:

The report stated, “The total revenue generated from our analysis of all crude oil revenue streams amounted to $69.34 billion. This was $2.34billion higher than the amount reported by the Reconciliation Committee. The difference was as a result of the following;

FIRS – Data received from both COMD and FIRS put revenue generated from FIRS tax oil lifting at $16 billion which is $1 billion higher than the amount quoted by the Reconciliation Committee. B. NPDC – Information submitted by NPDC to the Senate Committee stated total revenue generated from lifting at $6.82 billion. This is $0.82 billion higher than the Senate Reconciliation Committee’s figure.

Third Party Financing – Data received from COMD and confirmed by Mobil Producing Nigeria Limited (MPNL) and Total E&P Nigeria Limited (TEPNL) during their submissions at the senate hearing, revealed total revenue figures of $2.43 billion.

This is $0.43 billion higher than the amount reported by the Reconciliation Committee. D. Our analysis also revealed increased revenue of $0.29 billion and $0.22 billion from Equity and Domestic crudeoil lifting respectively, and a reduction of $0.42 billion from DPR royalty revenue, when compared to Reconciliation Committee’s figures.

Under-reported revenue remittance of $3.81billion: The report stated, “The total cash remitted into the Federation accounts from crude oil liftings for the period under review amounted to $50.81 billion. We were able to trace $49.33bnof this amount to the FGN bank accounts listed in Appendix 6.1.33.

The balance of $1.48billion was also traced to the FAAC report for subsequent months. Please refer to Section 4.2.7 for more details. $3.81billion is the difference between $50.81billion and the $47billion amount reported by the Senate Reconciliation Committee.

This difference was as a result of the following: FIRS remittance – We verified additional $1 billion revenue generated by FIRS which was not reported by the Reconciliation Committee. We also traced the payment of this amount to the CBN/FIRS JP Morgan account. Other third party financing remittance – $1.37billion was received from the third party financing arrangements.

Financing arrangements

The arrangement with TEPNL resulted in the payment of $211million to the Federation from the USAN Field TMP project which represents Royalty and Profit oil, while the sum of $1.16billion was received from MPNL from the Satellite Field and Reserve Development projects. NPDC remittance – Cash payments of $1.7 billion representing Petroleum Profit Tax and Royalties had been remitted.

Equity crude and DPR royalty oil remittance – The remittance received from Equity crude sales, and in favour of DPR royalty oil, was $0.16 billion higher and $0.42billion lower than the Senate Reconciliation Committee figures respectively.”

Under-reported Third Party Financing Revenue of $0.43 billion

“Mobil Producing Nigeria Limited, in its submission to the Senate, reported revenue figures of $518million5 and $859million6 in respect of the Reserve Development Project (RDP) and Satellite Field Development Project (SFD) respectively.

Total E&P reported a revenue figure of $1.053 billion7 in respect of the USAN project. These amounts represent royalty and profit oil due to the Federation from these third party financing arrangements. The total revenue generated from third party financing arrangement was $2.43billion and not $2 billion reported by the Reconciliation Committee.

On the undisclosed remittance to the Federation account, the report stated, “Out of the total revenue reported by MPNL, $1.158 billion had been remitted to the Federation Account as at November 2013. This was confirmed by the Office of the Accountant General of the Federation at the presentation to the Senate Committee.

We also traced these payments to the CBN/NNPC JP Morgan account. The total of $858,750,972 relating to SFD had been remitted while $300,000,000 out of the $518,069,354 relating to RDP had been remitted. The balance of $218,069,354 was withheld to service the project finance cost and subsequent remittance of the net amount, in accordance with the contract terms.

In respect of the USAN project handled by Total E&P Nigeria Limited, the sum of $193,478,061.15 and $17,943,616 totaling $211,421,6779, being Royalty and Profit Oil was remitted to the Federation”

Remittance of shortfalls

The forensic audit covered analysis of remittance shortfalls from NNPC into the Federation Accounts; analysis of submissions made by key stakeholders in relation to these alleged shortfalls; and Producing an independent Forensic report detailing our findings.

The forensic audit project follow the timeline of events beginning with a letter in September 2013 by the former Governor of the Central Bank of Nigeria CBN, now Emir of Kano, HRH Sanusi Lamido Sanusi, to the President of the Federal Republic of Nigeria, Dr Goodluck Ebele Jonathan GCFR, stating that from January 2012 to July 2013, NNPC had lifted US$65billion worth of crude oil on behalf of the Federal Government of Nigeria (FGN) but remitted only $15.2bn into the Federation Accounts, with US$49.8bn as outstanding to the FGN.

The AuGF engaged PwC to investigate any and all crude oil revenues generated by the NNPC that was withheld or unremitted to the Federation Accounts between January 01, 2012 and July 31 2013.

In November 2014, PwC submitted the report in which it indicated that the findings in the report were based on the information it received up until October 31, 2014.

In January 2015, PwC was recalled by the Auditor General for the Federation and asked to visit with NNPC (the nominal Auditee) to share its key findings and receive feedback from them. This recall action led to a significant amount of additional information and clarification hitherto hidden, a development that consequently forced a substantial change in the content of the report.

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