· NNPC as a conduit pipe
· ‘Audit Report grossly unreliable’
By Ohia Israel
Hardly had the President-elect, Muhammadu Buhari, threatened that his administration will probe the allegations hanging over the missing $20 billion, that President Jonathan ordered immediate release of the report to Nigerians.
According to the spokesperson to Mr. President, the decision to release the full report has demonstrated that the present administration had nothing to hide over the matter.
However, as gathered by this medium, a request by Premium Times, an online news medium to the office of the Auditor General of the Federation, shows that the long delay of the report by the office of the Auditor General of the Federation is due to interest by President Jonathan which has on the report.
According to the online news report days before the presidency released it, Mr. Ukura said he was not in a position to release the report because the presidency has “great interest” in the information contained therein.
“After a careful review of the information, it is my considered opinion that the Presidency has a great interest in the information,” the auditor general said through his representative, Uche Okafor-Agbi.
Accordingly, the report highlighted that the Management of NNPC was indicted as it also demanded the sum of $1.48 billion be refunded by the Nigerian Petroleum Development Company, NNPC upstream subsidiary, for various un-reconciled transactions.
According to the Auditor General in his letter to the online news the auditor-general said under the Federal Civil Service Rules, the audit report was carried out by PwC as an assurance engagement in which the reporting channel was duly spelt out in the international auditing standard.
Under the circumstance, he said neither his office nor the auditing firm had greater interest in releasing the information in accordance with the FOI Act 2011.
The much anticipated report of the forensic audit of the Nigerian National Petroleum Corporation, NNPC, operations on the missing $20 billion oil money may not amount much after all, with PricewaterhouseCoopers, the audit firm that conducted the probe, saying it cannot vouch for the integrity of its findings.
In a startling introductory letter addressed to Nigeria’s Auditor General, the audit firm said findings in its 199-page report were limited to available information and did not constitute a review in accordance with generally accepted standards.
“The procedures we performed did not constitute an examination or a review in accordance with generally accepted auditing standards or attestation standards,” the firm said.
“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,” it added.
The report and all accompanying deliverables, the company pointed out, were “solely for the Office of the Auditor-General for the Federation, for their internal use and benefit and not intended to, nor may they be relied upon, by any other third party.
The firm concluded that the NNPC should refund to the government a minimum of $1.48 billion of missing oil funds, a figure many Nigerians believe is smaller than the likely actual figure.
The report however gave no strong and independent opinion of its findings despite saying the investigation was carried out using forensic techniques.
The firm instead listed a series of potential factors that could render its findings implausible, saying it had no access to the full account of some relevant agencies like NPDC, the upstream petroleum industry subsidiary of the NNPC.
The firm said where it lacked data, it turned to details of earlier investigations carried out by the Nigerian Senate, which all but cleared the NNPC, and the petroleum ministry of any wrongdoing.
“We did not obtain any information directly from NPDC, but in accordance with NPDC former Managing Director’s (Mr Briggs Victor) submission to the Senate Committee hearing on the subject matter, for the period, NPDC generated $5.11billion (net of royalties and petroleum profits tax paid),” the firm said.
PricewaterhouseCoopers also said without an independent legal opinion, it relied on the legal advice of the Nigerian government’s Attorney General (AG) on the subject of the transfers of various NNPC (55%) portion of Oil leases (OMLs) involved in the Shell (SPDC) Divestments which impact crude oil flows in the period.
“The AG’s opinion indicated that these transfers were within the authority of the Minister to make. Thus, these assets were validly transferred to NPDC. The same AG’s Legal Opinion also indicated that NPDC was to make payments for Net Revenue (dividend) to NNPC, which should ultimately be remitted to the Federation Account,” PwC said.
Still, the PwC said that although it reviewed documents submitted by the key parties involved, its work was conducted independently, with its findings based on the review of documentation, analytical reviews of data, and interviews conducted.
The firm said with the exception of the Deputy Group Managing Director/ Group Executive Director Finance and Accounts of NNPC, the Auditor-General for the Federation, and the Minister of Petroleum Resources, it did not discuss the findings of the report with anyone.
It is not clear for how much the Nigerian government hired the audit firm that has now delivered a report which it said should not be relied upon by Nigerians and the global community.
Meanwhile, the audit has found that Nigeria’s state oil company overpaid the federal government of Nigeria $750m (£490m), but also found it had not properly accounted for $1.48bn.
It also said that NNPC is assuming “carte blanche” and spending nearly half the proceeds from crude oil sales before they reach the treasury, according to the long awaited audit into billions of dollars of allegedly “missing” oil revenues.
The financial report follows allegations in 2013 by then Central Bank of Nigeria, Lamido Sanusi that the firm had failed to account for about $20bn.
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 every month in revenues owed to the treasury between January 2012 and July 2013.
It caused a huge uproar in Nigeria, forcing President Goodluck Jonathan to order an independent audit.
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”. His office released the findings as he prepares to step down in a month.
The audit into the accounts of the Nigerian National Petroleum Corporation (NNPC) was carried out by PwC, one of the world’s leading accounting firms.
It stated that it could not vouch for the integrity of the information it was given when it conducted the audit.
PwC said the oil company should be overhauled and pay the government about $1.5bn arising from duplicate claims and accounting errors.
Lamido Sanusi, then a respected banker, caused shockwaves in September 2013 when he claimed that the NNPC had failed to account for $20bn of oil sold between January 2012 and July 2013. The ousted central bank governor, was removed from his post last year after questioning the NNPC’s practices. He was forced out of office following a heated row with Mr Jonathan and the NNPC over the allegation.
Mr Sanusi, now an Emir of Kano, a powerful Muslim traditional leader in Nigeria, has not commented on PwC’s findings.
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 wants 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 Financial Times 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 it’s 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.
More so, the forensic audit report on Nigerian National Petroleum Corporation (NNPC) compiled by PricewaterHouseCoopers (PwC) was done without bank statements, the report said.
The Central Bank of Nigeria (CBN), according to the report, shunned the auditors’ request for the bank statements.
PwC stated in the revenue section of the report that “up till the time of writing this report, our request for bank statements from CBN was not responded to,” PwC said in the revenue section of the report, which depicts the NNPC as an organization with chaotic procedure.
As a result of this “limitation”, PwC said it “relied on the account statements obtained from other stakeholders to carry out our independent check on the remittances made”.
PwC was engaged to carry out the forensic audit with a letter dated 5 June, 2014 by the Ministry of Finance in the wake of the missing $20 billion allegation by the former governor of the Central Bank of Nigeria (CBN),
Mallam Sanusi Lamido Sanusi, who is now the Emir of Kano.
The audit report, though called “forensic”, may not be considered a detailed financial audit of Nigeria’s carbon deposit industry activities because PwC was quick to state that it “examined crude oil production records only rather than crude oil and gas as per the signed contract”.
This review addressed three key areas, namely the outcome of the Senate Committee hearings, the total crude oil lifting by NNPC from all terminals in the period and the total revenue generated from crude oil from January 2012 to July 2013. The audit report disclosed that the activities of the NNPC led to the under-valuation of $32,909,590 relating to 13 lifting (equity and domestic crude) during the review period.
These differences, the report noted, resulted in value loss to the federation. One of such differences is the under-valuation of $1,503,540.
PwC stated that “of the $33 million, Crude Oil Marketing Division (COMD) of the NNPC agreed that for two liftings (with an under-valuation of $1,503,540), they had made valuation errors by computing the amounts due using a different pricing option in one case and a wrong Official Selling Price (OSP) in the other”.
The auditors added that there was another under reporting to the Federation Account Allocation Committee (FAAC) of $2,107,275. According to the report, “for four other liftings with differences totaling $2,107,275, the unit prices on the schedule received did not agree with our recomputation. We checked the liftings to COMD’s valuation documents and observed that the prices agree with our recomputation but were just different on the schedule provided. However, the different valuations on the schedule were also used in the monthly FAAC reports; as such, the errors resulted in lower remittances to FAAC”.
There were other accounting infractions discovered by the auditors. According to PwC, “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 $49.33bn of this amount to the FGN bank accounts. The balance of $1.48billion was also traced to the FAAC report for subsequent months. $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. 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 $1.7billion 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.”
The forensic audit report noted that “Mobil Producing Nigeria Limited, in its submission to the Senate, reported revenue figures of $518million and $859million 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 Account 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.”
With regards to undisclosed remittance to the Federation Account, out of the total revenue reported by MPNL, $1.158billion 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.”
However, PwC 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, $193,478,061.15 and $17,943,616 totaling $211,421,677, being Royalty and Profit Oil was remitted to the Federation account.
There were cash payments of $863 million by NPDC to FIRS not captured by Reconciliation Committee. PwC noted that “NPDC was yet to be assessed for tax by the FIRS. However, the company made several cash payments during and after the period which amounted to $863million. These payments were confirmed by FIRS to have been received. We also traced the payments to CBN/FIRS bank statements with JP Morgan.”
“For the period under review, NPDC made several payments to DPR based on self-estimated royalty. We traced several cash payments made by the company to CBN/DPR JP Morgan account statement, to the tune of $839 million but this was also not captured by the reconciliation committee.
“The report reveals that PricewaterhouseCooper was recalled by Nigeria’s auditor general in January 2015 to share its original findings with the NNPC,” said the expert. He added, “At this point, PwC received ‘a significant amount of additional information’ from the NNPC, which was reportedly not provided during the original review period. Consequently, the so-called updated report released by Jonathan contains significant changes from the previous report.”
He stated that it was important to investigate the nature of the “additional information” produced by NNPC “to determine whether it was simply a tactical deployment of deceptive data and information to color the audit outcome.”
However, Abuja-based expert said; “it is highly curious that the NNPC was apparently inept in the quality of information it originally provided to the auditors. Given the charged nature of the controversy generated by the matter, one would expect that the NNPC would be scrupulous in providing exhaustive information to PricewaterhouseCooper at the initial stages of the audit.” He stated that it was important to examine and evaluate the additional information to ascertain that it was not part of a scheme to compromise the audit process. The oil sector expert added that it was significant that, despite the revision, the sanitized version of the audit still indicated “there was a shortfall of $1.48 billion in oil revenue that the NNPC needed to refund to the Federal Accounts.”
The PwC report also warned that its findings cannot “be relied upon by any other party (third party)” to Nigeria’s auditor-general. “This is another curious aspect of the audit,” according to our expert. “Basically, it’s as if the audit company was telling the world that the work they set out to do did not follow stringent standards of auditing. And yet, the Jonathan administration had promised Nigerians a thorough audit. And a thorough-going audit is certainly what the government owes the Nigerian people.”