The Nigerian National Petroleum Corporation provides the teat on which the greediest pairs of lips suck
One name that is unlikely to spark joy at the corporate headquarters of the Nigerian National Petroleum Corporation in Abuja is that of Mallam Sanusi Lamido Sanusi, now suspended Governor of the Central Bank of Nigeria, CBN.
Over the last five months, Sanusi has put the NNPC under the headlights of public scrutiny by inviting attention to the management of the billions of dollars it has earned on behalf of the country from crude oil sales.
Last September, Sanusi alleged in a letter to President Jonathan that the NNPC had failed to remit $49.8 billion in oil proceeds to the Federation Account over a 19-month period. The letter, which was not acted upon by the President, got leaked to press, sparking an outcry from the public, which had always viewed the corporation with deep suspicion.
Former President Olusegun Obasanjo, who has an axe to grind with Jonathan, seized on the letter’s content as an instance of the grand larceny going on under the Jonathan administration. His reference to Sanusi’s letter was contained in his controversial letter to the President.
The NNPC responded by describing Sanusi as being ignorant of the workings of the oil industry and accusing him of acting out of mischief. The corporation claimed that the figure Sanusi qouted was still being reconciled by all the relevant stakeholders, including officials of CBN.
In reaction to the public outcry, the Senate, last December, asked its Committee on Finance, headed by Senator Ahmed Makarfi, to investigate the matter. On his first appearance before the committee, Sanusi said only $12 billion was yet to be reconciled out of the $49.8 billion he alleged was unremitted to the Federation Account by NNPC. But at the rather rancorous public hearing, Dr. Ngozi Okonjo-Iweala, Coordinating Minister of the Economy and Minister of Finance, interrupted Sanusi, alleging that it was $10.8 billion that was yet to be reconciled and not $12.8 billion. The CBN Governor raised no objection. Both of them, however, agreed that the figures were still being reconciled. The allegation gained further traction when the opposition latched on to it as the reason for the ever reducing quantum of revenue available for sharing among the three tiers of government at the monthly Federation Accounts Allocation meeting, despite the rising price of oil on the global market.
After a meeting in Abuja last month, the Nigerian Governors’ Forum, led by Governor Rotimi Amaechi of Rivers State, asked the National Assembly to appoint a forensic auditor to carry out an investigation into the missing $49.8 billion. “On the issue of $49.8 billion, (N8.5 trillion) or equivalent of two years of the national budget, there is no evidence that the amount was paid to into the national account or duly appropriated. We accordingly called on the National Assembly to institute a comprehensive independent audit by a reputable international firm. We fear that the recent decline of states’ revenue is not unconnected with the financial diversion,” Amaechi reasoned.
Ahead of the resumed hearing by the committee a few weeks ago, the NNPC detailed how it spent the yet to be reconciled $10.8 billion.
Bernard Otti, NNPC’s Group Executive Director, Finance and Accounts Directorate, told journalists on 10 January that the sum in question was part of the expenditures incurred through the statutory responsibilities that the NNPC executes on behalf of the country. He added that the expenditures were mostly incurred as part of measures to ensure regular supply of petroleum products. Specifically, Otti said out of the amount, $8.49 billion was spent on subsidy claims, $1.22 billion on pipeline management and repairs, $0.72 billion on product/crude oil losses and $0.37 billion for holding of strategic reserves. The NNPC director said the expenditure incurred by the NNPC was backed up by Section 7, sub-section A and B of NNPC Act. “There is a process by which revenue accrues to government account. There is also government policy stating that subsidy is still in place. NNPC does not create policies, but it executes policies. The subsidy claim has simply arisen because after 2011 period, we saw there was no importation of petroleum products when the prices had gone up. NNPC was the sole importer and subsidy claims for this particular period had gone up. The subsidy claim is normally is known to all the relevant agencies,” Otti said.
However, Sanusi said he was not aware that NNPC is not still withholding funds that it should have passed on to the Federation Account in the name of subsidy. This was when he appeared before the Makarfi Committee on 4 February.
In his presentation, he virtually accused the corporation of running a racket through which trillions of naira are being pilfered under various guises. Sanusi submitted that “claims by NNPC of spending money on subsidy are not credible”.
He accused the NNPC of duping Nigerians into believing that it has remitted or accounted for all monies due to the Federation Account. Sanusi put the amount that the NNPC has not accounted for in over 19 months (January 2012 to July 2013) at $20 billion. According to the CBN Governor, the NNPC is yet to account for $12 billion for domestic crude oil sales, $6 billion shipped on behalf of the NNPC and $2 billion “third-party financing”, making a total of $20 billion. He listed three areas that the corporation has been short-changing the country, the biggest of which he claimed is in the payment of subsidy. NNPC had claimed that $8.49 billion out of the funds it failed to remit to the Federation Account was used to defray the expenses incurred as subsidy on petrol and kerosene it imported.
The Kerosene Subsidy Scam
Sanusi, however, contended that in the payment of the subsidy to itself, “NNPC has been diverting money from the Federation Account and involving itself in activities that warrant full investigations for more serious violations of the law.” The CBN Governor argued that while NNPC claimed that 80 per cent of the funds it failed to remit to the national treasury was spent on kerosene and fuel subsidy, the Federal Government had in 2009 directed the elimination of subsidy on kerosene. Despite the directive, records of the Nigeria Ports plc, according to Sanusi, show that NNPC imports four to six vessels of kerosene monthly at the landing price of N150 per litre. It, however, sells to marketers at N40 per litre despite being aware that the product sells for between N170/N220 per litre in the open market. Through this, the corporation incurred a subsidy of $20 million per vessel. “This means that at an average of five vessels a month, the Federation Account loses $100 million every month to this racket,” said Sanusi, who submitted the memo directing the stoppage of subsidy on the product in 2009 to the committee. He noted that the product was not even available at the subsidised price in the market as contained in figures compiled by the National Bureau of Statistics.
Also, Sanusi noted that the funds taken by NNPC as payment to itself for importation of kerosene did not go through the process of appropriation. “The margin of 300 to 500 per cent is economic rent, which never got to the man on the street. In dollar terms, every vessel of kerosene imported by NNPC cost about $30 million and it was sold at $10 or $11 million, generating rent of $20 million per vessel to the syndicate,” he added.
But Abiye Membere, NNPC’s Group Executive Director of Production and Exploration, told journalists that the directive on the stoppage of payment of subsidy on kerosene was not carried through. According to him, the directive actually received a stay of execution as a result of its possible consequences on poor Nigerians.
“In fact, the memo that was sent to the PPPRA (Petroleum Products Pricing Regulatory Agency) for suspension of the subsidy removal was categorical in saying public announcement should be avoided. So how can such a step be taken without the public knowing? There was a meeting and the then Minister of Finance, Dr. Mansur Muktar; former Petroleum Minister, Lukman Rilwan; the Director of Budget Office, with about nine other government officials, observed that the kerosene subsidy cannot be treated the way subsidy was removed on diesel. It was then reasoned that kerosene is for the poor masses,” Membere said. Further action on the matter, according to him, was stopped because the late President Umaru Yar’Adua fell ill soon after and later died.
Investigations by this magazine revealed that the kerosene racket, as alleged by the CBN Governor, is an open secret in the industry. Some marketers who spoke to this magazine alleged that the product is scarce because the NNPC has monopolised its importation, as alleged by Sanusi, and was selling above N120 per litre in most parts of the country. This magazine gathered that lifting of kerosene from the Pipeline and Products Marketing Company, PPMC, an NNPC subsidiary, has over the years become a major means of extending patronage to politicians for their support or donations to political campaigns.
On recommendations of top government officials, politicians are issued pro forma invoices (PFI) for kerosene by the NNPC. These entitle them to lift the product at N40.99 a litre, which they then sell to independent marketers through their agents at prices higher than N50. This, according to sources, is why kerosene is mostly available at outlets run by independent marketers that sell to final consumers, depending on the price PFI holders sell to them. Though NNPC has insisted that the product sells at the regulated price in its outlets, the report of Aig-Imokhuede Technical Committee on payment of fuel subsidies in 2011 revealed that the corporation accounted for just six per cent of sales to bulk purchasers of kerosene in that year, while marketers were responsible for the remaining 94 per cent.
Mike Ogiadomhe, until recently Chief of Staff to President Jonathan, was allegedly implicated in the kerosene scam. He has, however, denied the allegation. In the presentation the NNPC made to the Makarfi Committee last Thursday, it claimed it incurred total subsidy claims of over N540 billion on kerosene from January 2012 to July 2013 from importation of over 3.9 billion litres of kerosene at a cost of over N811.4billion during the same period. Last November, the House of Representatives mandated its Committee on Petroleum (Downstream) to probe the criminal racket going on in the kerosene distribution business. This followed a motion that was moved to look into the unavailability of kerosene at regulated price despite the government spending N634 billion on payment of kerosene subsidy within three years. But the absence of Mrs. Diezani Alison-Madueke, Minister of Petroleum Resources; Andrew Yakubu, NNPC Group Managing Director; and Managing Director of the Pipelines and Products Marketing Company (PPMC), Haruna Momoh stalled the sitting of the committee last Tuesday. The committee will resume sitting this Tuesday. “We are now compelled to once again put off the public hearing. We are adjourning to Tuesday, February 18, but we want to assure Nigerians that we owe them every responsibility to unearth every expenditure and subsidy on kerosene,” Dakuku Peterside, Chairman, House Commmittee on Petroleum (Downstream) told journalists.
In the same vein, the CBN Governor queried the claims by the NNPC that part of the $8.49 billion was used to pay subsidy on importation of PMS. Sanusi noted that the corporation had previously announced that it had stopped deductions for subsidy from 2011. The CBN Governor noted that the corporation had from April 2012 indicated that it made no deductions for subsidy in its returns to FAAC. “As from 2012, the directive was for NNPC to submit its papers to PPPRA, the relevant government agency set up and given the responsibility for verifying and paying subsidy claims. Having officially reported that it was not making deductions for fuel in 2012 and 2013, it is surprising that the GMD and GED of NNPC would now claim that $8.49 billion was used to pay for subsidy,” Sanusi said in his presentation.
In his analysis of figures provided by the NNPC on the quantity of petroleum products imported to the country, Sanusi said the corporation gives the impression that it is importing far above the quantity of petrol the country is consuming. He, therefore, suggested an audit of the NNPC database to verify the legitimacy of the corporation’s claims on fuel imports. He also lamented that the focus of past investigations of fraudulent dealings in petrol importation have been on the private sector, though NNPC imported about 50 per cent of the product consumed in the country.
Controversial Strategic Alliance Agreement
Another area that Sanusi alleged that the NNPC has been creaming off relates to oil produced by the corporation under the controversial Strategic Alliance Agreement, SAA, entered into with Atlantic Energy Drilling Concept Limited, a company owned by Jide Omokore, a Nigerian businessman said to be an associate of Alison-Madueke. The Nigerian Petroleum Development Company, NPDC, a fully owned subsidiary of the NNPC, had for an initial “entrance fee” of about $50 million, transferred its 55 per cent stake in a couple of oil blocs to Septa Energy and Atlantic Energy under “strategic partnership agreements” with the NPDC to help it operate oil mining leases (OMLs) 4, 38, 41, and 30, 34, respectively. Scott Aitken, boss of Atlantic Energy was previously the head of Seven Energy, which owns Septa. There were allegations that the oil blocs were undervalued, as Shell, owner of the remaining 45 per cent of the blocs, had earned about $1.3 billion through open and competitive bidding in a single field. Under the Strategic Alliance Agreement adopted by the NNPC, the country only earned an upfront cash payment of little more than $50 million. Critics reckon that NPDC could have earned over $1.5 billion if it had adopted competitive bidding to sell off the oil acres. The lawmakers said they will investigate deals through which NNPC gave two local firms with no previous operating experience the rights to make billions of dollars from oilfields without competitive bidding. Both chambers of the National Assembly had indicated their intention to investigate the oil deal, following protests by some Niger Delta activists last year. After the protests, the House of Representatives passed a motion in May 2013 to investigate the deals which, it alleged, breached rules requiring the government to openly tender for stakes in oil blocs. “The protesters complained of the secret and arbitrary farm-out of (the blocs) to both Atlantic Energy Drilling Concept and Septa Energy Limited without regard to the law and due process,” said Afam Ogene, who moved the motion for the probe.
But Sanusi upped the stake in the controversy, alleging that the three legal law firms he consulted on the agreement indicated that it was more of revenues due to the federation going into private purses.
In his memo, Sanusi detailed how the NNPC had allegedly been giving tax reliefs and concessions to its partners under the agreement. The CBN Governor alleged that the companies have been avoiding the payment of duties and taxes by passing them off as development costs. “These companies recover OPEX (operating expenses) and COPEX (capital expenses) from production, take 10 to 20 per cent of the profit and pay no tax on JVs in which the federation was previously entitled to 55 per cent of the entire profit of oil when Shell was the operator,” said Sanusi. He also argued that part of the $6billion worth of crude oil shipped under the agreement with the two companies belonged to the country. Atlantic Energy, has denied the claims, saying what it got from NPDC was in kind for the services rendered to the oil wells where the joint venture partners had divested. The company argued that it had made investment in hundreds of millions in the relevant OMLs, including the payment of the entry fees prescribed by the SAAs. “The production optimisation activities and infrastructure improvements initiated by NPDC and Atlantic Energy following the SAAs have arrested production declines in the underdeveloped fields in the relevant OMLs, thus resulting in increased production year-to-year. Furthermore, on account of Atlantic Energy’s contributions, NPDC has recorded significant step-change progress in understanding the subsurface reservoirs and surface facilities in the areas comprised in the relevant OMLs, thus resulting in a 200 per cent increase in certified reserves and of 200 million barrels of crude oil in new fields development plans,” the company said in the statement.
Suspicious Oil Swap Deals
Sanusi also detailed in the agreement how the NNPC, through PPMC has allegedly been creaming off the country through suspicious oil swap deals, an arrangement through which Nigeria gives out crude oil to foreign companies in exchange for refined product.“For example, companies in swap agreements with PPMC would lift crude oil for free, sell at the international market, repatriate the funds and sell at the autonomous rate, trade with the proceeds and at their own time, establish letters of credit (LCs) to import PMS, using the funds purchased at the official window.”
The CBN Governor revealed that the PPMC signed oil swap agreements with companies with a clause allowing the destruction of vital documents after one year, a clause he described as “troubling.” Last year, report produced by Switzerland-based non-governmental advocacy organisation, the Berne Declaration, identified “shady deals” in the swap arrangement between NNPC and two Geneva-based commodity trading firms, Vitol and Trafigura, registered in Bermuda. Titled Swiss Traders’ Opaque Deals in Nigeria, the report detailed how the NNPC is taking advantage of its comatose refineries to keep the two companies in business. NNPC has continued to allocate crude to the refineries as if they were operating at full capacity. However, the bulk of the crude oil is sold off to the two Geneva-based companies’ local oil marketers through their portfolio subsidiaries in Switzerland at less than the face value or exchanged for refined petroleum products in shady swap contract. The organisation estimated that Vitol and Trafigura alone took 13.44 per cent and 13.49 per cet respectively of Nigerian crude oil exports valued at $6.7 in 2011. It also noted that over 56 per cent of oil put up for sale by the NNPC in 2011, valued at over $14 billion, was sold to Swiss companies or Nigerian companies with dodgy subsidiaries based outside the country.
“Nigeria is the only major producing country that sells 100 per cent of its crude to private traders rather than market it itself and benefiting from the resulting added value. A number of beneficiaries of export allocations are nothing but letterbox companies, whose sole merit is that they are linked to high-ranking political officials or their entourage,” report stated. The NNPC justified the use of traders, following similar conclusions in a report of the committee which probed oil revenue in 2012. “The use of traders in the sale of crude oil is an internationally accepted practice, which even the IOCs adopt. NNPC does not sell 100% of its crude oil through traders. Indeed, NNPC maintains a mixed-bag of trading companies to facilitate wider market circulation and penetration into new (captive-niche) markets…All sales of Nigerian crude oil are based on the same general terms and conditions and all payments are made through Irrevocable Letters of Credit (ILCs) prior to liftings. It is pertinent to emphasise that the NNPC sells all crude oil under the general terms and conditions for sale of Nigerian crude oil,” argued the NNPC. At the resumption of the public hearing last Thursday, Dr. Okonjo-Iweala, Minister of Finance, supported the call for an independent forensic audit into the unremitted funds. The minister also said there is a need to get an independent legal opinion on NPDC’s deals with its two foreign companies to determine the ownership of the funds. However, Alison-Madueke stressed that such forensic probe must stretch back to 2004, when the whole process began. The NNPC Group Managing Director also debunked claims that $10.8 billion had been diverted by the corporation, insisting that the money was spent on subsidy, pipeline maintenance and other loses. “The impression Nigerians have is that $10.8 billion is seated in the four towers of the NNPC. Nigerians believe NNPC is sitting on money. But I want it known that these monies we are talking about are not realisable flows,” he said.