It was Nigeria’s immediate past Minister of Finance and Coordinating
Minister of the Economy, Dr. Ngozi Okonjo-Iweala, that popularised the
term “unreformable” in her memoirs ‘Reforming the Unreformable: Lessons
from Nigeria’. In her book, she narrates her successes and frustrations
as a reformist in the midst of people, systems and institutions that had
long grown allergic to reform.
Of all Nigeria’s economic institutions, there is apparently none that
typifies Okonjo-Iweala’s notion of “the unreformable” as much as the
Nigerian National Petroleum Corporation. The corporation is the
regulator of Nigeria’s oil and gas sector. It is also the operator of
government’s interests in joint venture partnerships with oil
multinationals. But the reality of Nigeria’s state oil company has been
one of trans-generational rot. General perception of the NNPC has been
of an unwieldy and rotten behemoth that had become a metaphor for public
sector inefficiency and corruption.
It is no longer debatable that the NNPC in particular and Nigeria’s
oil and gas sector in general, urgently need reform. Even if the NNPC
were not corrupt, there is sufficient agreement on the need for
far-reaching reform if only to address the contradictions and conflicts
of interest occasioned by its dual (commercial and regulatory) role.
Another reason for which reforms have been advocated is the power of
the corporation (under the NNPC Act of 1977) to deduct operating costs
from its revenue before remitting funds to the treasury, in
contravention of the constitution, appropriation law and the Fiscal
Responsibility Act 2007. A recent figure puts revenues withheld in this
way at N3.8 trillion for 2012 to May 2015. Over the years, this
anachronistic law has worked at cross purposes with the need to run the
NNPC as a commercially viable and competitive entity. It has also been
an excuse for all sorts of shenanigans – empowering the corporation to
run the show at whim, determining its own costs and what to remit to the
federation account in an arbitrary fashion; the perfect cover for grand
corruption. President Muhammadu Buhari’s directive last week that the
NNPC and other revenue generating agencies like it must pay all their
revenues into the Consolidated Revenue Fund gives hope that this ugly
practice will be discontinued. But the NNPC law itself still needs to
change.
So what appears to be in debate is not whether thorough reforms are
needed at the NNPC but rather what should be the direction of such
reforms? Many industry watchers were therefore excited with the release
of the full report of the NNPC forensic audit in the twilight of the
Goodluck Jonathan administration. Another look at that report is no
doubt instructive on the challenge before Buhari and the direction the
reforms should take.
The report by PricewaterhouseCoopers noted several irregularities
bordering on the aforementioned structural and legal issues as well as
outright fraud. It went on to recommend that “a minimum of $1.48
billion” owed by the NNPC to the federation account should be paid by
the corporation. The amount comprised double payments for petrol and
kerosene subsidy, subsidy computation errors, subsidy over-claims and
claims on un-incurred costs, avoidable computation errors, vague claims
and unsubstantiated costs all running into hundreds of millions of
dollars. It also included unpaid signature bonuses for divested assets
as well as unpaid taxes and royalties. Four months after the former
petroleum minister, Diezani Alison-Madueke, ordered the NNPC to act on
that recommendation, the amount remains unpaid.
The report also revealed that the NNPC undervalued the price of crude
liftings resulting in a loss of $3.6bn to government, although that has
since been amended and remitted. There were controversial payments for
kerosene subsidy to the tune of $3.36bn in contravention of a
presidential directive and without appropriation. While it was at that,
the corporation found a “clever” way of calculating kerosene subsidy so
that it charged marketers for a cost the government was already paying,
pocketing $204m for itself. There were also several figures that could
not be substantiated: $305.88m claimed to have been spent on pipeline
maintenance contracts, $64.8m spent on demurrage and $250m port charges
to the Nigerian Ports Authority, all without supporting documents. The
case was the same for several other costs, some of them quite laughable.
The Nigerian Petroleum Development Corporation, a subsidiary of the
NNPC has also earned a notoriety all its own. It calculates and
determines what taxes it owes government, how much it should pay and how
much it should keep. It was found that out of $1.85bn expected to be
paid for eight licences it bought, NPDC paid only $100m. During the
review period, NPDC inflated its payments to the Federal Inland Revenue
Service to the tune of $26 million. NPDC virtually frustrated the audit
by refusing to cooperate with the auditors. And for that reason, up
until now no one (not even PwC) has a clear idea of revenue due to the
CRF from NPDC crude liftings and divested multinational assets that it
took up as operator, although the report puts the later at $5.1bn.
But in all, it is easy to see from the audit report that spending on
subsidy alone accounted for over 43 per cent ($8.7bn) of the
“explanation” found by PwC for the allegedly “missing” $20bn. This
should, at least, give President Buhari an idea on the direction of
needed reforms.
Did the PwC audit go far enough? No, it did not. The scope of the
audit was limited to the specific questions posed by former Central Bank
Governor Sanusi Lamido Sanusi and therefore covered a definite
timeframe of 19 months. But at this point, any effort at investigating
the NNPC must go beyond 19 months. That is why the Nasir el-Rufai
Committee set up by President Buhari holds more promise as it looks at
transactions covering a longer period of eight years.
Mr. President has to revisit the recommendations of the PwC report
and the series of NEITI reports before it, among others. These
recommendations have included the need to restructure the NNPC, review
the NNPC Act and discontinue its “unsustainable model” which has it
spending 46 per cent of domestic crude proceeds on operations and
subsidies. They have also included strengthening the NNPC’s very weak
accounting and reconciliation systems and the passage of the Petroleum
Industry Bill.
With President Buhari’s scrapping of the Board of the NNPC and his
declaration that the NNPC should henceforth pay its revenues directly
into the CRF, it appears we can finally look forward to some real action
in the days ahead.
But in my view, the biggest test of Mr. President’s commitment to
“reforming the unreformable” will be in how he responds to the call for
withdrawal of the PIB made recently by his party. The PIB may not be a
silver bullet, but it remains, to date, the single most comprehensive
and workable proposal at reforming Nigeria’s oil and gas sector,
including its biggest headache, the NNPC. Will he will heed the voice of
reform, or will political considerations take the day? We can only wait
to see.
Source: PUNCHNG
