A report released recently by New York-based Natural Resource Governance Institute (NRGI) has claimed that Nigeria lost over $32 billion oil revenue due to the mismanagement of domestic crude allocations (DCA) by Nigerian National Petroleum Corporation (NNPC), as well as the opaque revenue retention practices and oil-for-product swap agreements signed by the corporation.
The NRGI also faulted past audits of the NNPC, describing the audits as questionable and marred by irregularities and lack of due process. NRGI, an independent, non-profit organisation with focus on governance issues in oil, gas, and mining, in a report titled, “Inside NNPC Oil Sales: A Case for Reform in Nigeria,” stated that only national oil companies with strong audit and reporting requirements tend to realise better returns from their operations.
According to the report, “Periodically, though perhaps not regularly, audits of NNPC, its subsidiaries and corporate divisions do take place, but the quality of audit functions and management responses are questionable.” The report noted that, “In 2010, KPMG found that the NNPC board’s audit committee met just once in three years, the plan used for audits was not approved by directors, and the full board apparently did not discuss or approve internal audit plans or results at its meetings. The corporate audit division reported directly to the group managing director- a possible threat to its independence. Specific to oil sales, KPMG auditors examined reports from annual audits of Crude Oil Marketing Division and found that management did not address red flags on transactions and financial movements worth $2.59 billion.”
The report also stated that auditors also routinely complain that the NNPC does not give them access to people or data they need to do their work.
For instance, in their 2014-2015 review, PwC auditors concluded that the lack of independent audit and reconciliation [for NNPC oil sales] led to over reliance on data produced from NNPC. “This matter is further compounded by the lack of independence within NNPC as the business has conflicting interests of being a stand-alone self-funding entity and also the main source of revenue to the Federation Account,” the report said.
It further stated that the NNPC, like its counterparts globally, should be made to adopt good audit practices such as hiring external, independent firms to conduct audits, publishing the audit reports, hiring auditors through open tenders, and changing auditors periodically. The report also called on the Presidency to compel the NNPC to regularly disclose detailed, cargo-by-cargo data on all of its crude oil sales, to include buyers, grades, vessels, lifting dates, destinations, financing banks, prices obtained and payment details.
According to the report, a good first step would be for the government to require the NNPC to issue an annual report for 2015. This will also include its audited financial statements, operational data, the financial positions and earnings of its subsidiaries, and disclosures on quasi-fiscal and other discretionary spending.
The NRGI report further recommended that the Central Bank of Nigeria, CBN and the Ministry of Finance, should also make more detailed reporting on oil sale revenues in their publications, including disaggregation by sales types.
“Currently, NNPC only publishes gross lifting volumes and destinations for each type of sale. Its last published price data was in 2008 and revenue information in 2005,” the document revealed.
Continuing, it said, “Nigeria can no longer afford to leave NNPC’s inefficient, secretive, overly convoluted oil sales system untouched. Particularly in this time of low oil prices, soft demand for Nigerian crude, rising oil sector operating costs, and weakened fiscal buffers. The current model is unsustainable for both the Corporation and the nation.”

Oluchi Ugboaja
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