RECOVER OVER $21 BILLION UNREMITTED FUNDS …. NEITI urges FGN

The Nigeria Extractive Industries Transparency Initiative (NEITI) has urged the Federal Government to put urgent machineries in motion to recover over $21 Billion unremitted funds disclosed by its independent reports of the extractive industry, to fund the country’s economic recovery plan.

In a policy brief which focused on unremitted funds, economic recovery and oil sector reform, NEITI noted that the recovery of these huge unremitted funds is more than enough to jump-start the economy.

‘‘Findings from a series of audits of the oil and gas sector carried out by the Nigeria Extractive Industries Transparency Initiative (NEITI) shows that NNPC and its upstream arm, NPDC, have failed to remit $21.778 billion and N316.074 billion to the Federation Account. These are amounts due from three main sources: Federation assets divested to NPDC and NPDC’s legacy liabilities; payments for domestic crude allocation to NNPC; and dividends from investment in Nigerian Liquefied Natural Gas Company (NLNG) paid to but withheld by NNPC. Recovery of these funds will significantly enhance government's fiscal position in the short term.’’

A breakdown of the unremitted funds disclosed by NEITI reports of the oil and gas industry over the years include outstanding payments of $1.7billion arising from the transfer of eight OMLs from Shell Petroleum Development Corporation (SPDC) and the sum of $2.2million from four OMLs from Nigeria Agip Oil Company to the Nigeria Petroleum Development Company respectively. NEITI reports disclosed that the NPDC is yet to pay for these major national assets that were transferred for its commercial operations. Also contained in the breakdown of unremitted funds is cash call paid on the transferred OMLs amounting to about $148.28million. This is in addition to legacy liabilities amounting to the sum of $1.5Billion and the huge sum of  $15.8billion unremitted to the Federation account from accrued NLNG dividends between 2000 to 2014.

A breakdown of the outstanding recoverable sum of over $21.8 billion and N316 billion is shown in the table below:

Table 1: Summary of Outstanding Remittances to Federation Account

Transfer of OML to $(Cost in dollar) N(Cost in Naira)
NPDC    
Transfer of 8 OMLs from SPDC JV 1,700,000,000.00  
Transfer of 4 OMLs from NAOC JV 2,225,000,000.00  
Cash-calls paid for transferred OMLs (not refunded)     148,278,000.00   2,420,507,000.00
Legacy liabilities 1,458,618,285.76 70,014,589,266.45
NLNG Dividends (2000 to 2014) 15,822,713,000.00  
Cash-calls refunded to NAPIMS but not remitted      424,185,000.00  
Unpaid earnings from domestic crude sales   243,639,000,000.00
TOTAL 21,778,794,285.76 316,074,096,266.45

The NEITI policy brief also raised concerns over the status of NPDC operations, issues of transparency and value for money in the transfer of these national assets.

‘‘The process of transfer of these assets raises serious questions, as there appears to be no clear-cut criteria for transfer of oil mining assets to NPDC. The process for the transfer of federation’s assets to NPDC does not seem to pass the transparency test. One of the upshots of this is the undervaluation of these assets, thereby depriving the federation of optimal value for the assets. It has also created a situation where NPDC continues to be unaccountable to state institutions and the laws of the country. NPDC has consistently declined to give account of its operations and its management of national oil assets in its possession. NPDC failed to cooperate with the forensic audit ordered by the Auditor-General of the Federation in 2015. Similarly, the company failed to cooperate with NEITI for five audit cycles and only partially cooperated during the 2013 and 2014 audits. Consequently, the 2013 and 2014 audits have discovered significant sums of money that the NPDC has withheld from the Federation Account.’’

The NEITI policy brief recommended a comprehensive review of the transactions to conform to EITI accountability principles:

‘‘NEITI’s review of transfer of the country’s oil assets to NPDC also shows that these decisions were not underpinned by sound economic judgment. Although NPDC was established to foster indigenous participation in the upstream sector, it is not really able to produce at substantial levels on its own. In mid-2006, total output from its wholly owned production was just 10,000 bpd. On the other hand, production from its service contract agreement with Agip was 65,000 bpd[1]. Reasons given for NPDC’s disappointing performance include: undue interference by NNPC, inadequate financial structure, inability to source project finances. These bottlenecks in indigenous production seem to have led to the current strategy of the NPDC entering into partnerships with both international and indigenous oil companies who do the actual exploration and production on NPDC assets. Despite NPDC’s clear operational and capacity deficiencies, the company continues to be allocated valuable concessions of Nigeria’s most productive OMLs.’’

The NEITI policy brief urged the government to go beyond recovery of these funds to putting in place adequate measures to ensure:

  • Revaluation of the assets divested to NPDC to determine the actual market prices with a view to recovering the full value of these assets and securing optimal benefits from them;
  • Review of the relationship between NPDC, NNPC and the Federation to determine and establish effective lines of accountability of NNPC’s subsidiaries, and determine optimal mode of operation in line with global best practices;
  • Review of the process of acquisition of OMLs by NNPC and NPDC to ensure that long-term net positive value is realized given the availability of alternative economic options.

On the NLNG dividends, the NEITI policy brief noted with concern that while there is evidence of payment of dividends from NLNG to NNPC, there is no similar evidence to show that NNPC remitted the dividends to the Federation account as required by sections 80(1) and 162(1) of the constitution.

‘‘NLNG operates as a private company run by its private partners. Despite owning majority shares, the government of Nigeria is not involved in its management but earns revenues from its investment in the enterprise in form of dividends, interests and loan repayments. Since the Federation’s shareholding in NLNG is held through NNPC, dividends are paid to NNPC, which should remit same to the Federation. However, NEITI’s audits have revealed that until 2015, NNPC has failed to remit the interests and dividends from NLNG to the Federation Account. For the period between 2000 and 2014 NLNG paid a total of $15.8 billion to NNPC, which NNPC acknowledged receiving but failed to remit to the Federation Account.’’

NEITI therefore recommended urgent measures to recover the funds to support the on-going economic recovery plans.

‘‘Total unremitted revenues to government’s treasury amount to $21.778 billion and N316.074 billion. At current exchange rate, this comes to about N7.2 trillion. Achieving a recovery rate of just 20% would significantly offset the projected deficit for the 2017 budget. A third of the computed unremitted revenues would completely eliminate the need to borrow to finance the budget. This has both short and long-term positive implications for the economy.’’

 


 

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