The first of this five-part serial appeared on this column last week but it was marred by a production error that resulted in printing a wrong version of the article. We deeply regret the error. Below is the correct version. It is about chaotic record keeping and accounting practices by NNPC. Enjoy it.
Two recent reports on aspects of the operations of the Nigerian National Petroleum Corporation (NNPC) are now in the public domain. One was prepared by a Senate committee headed by former Kaduna State governor, Ahmed Makarfi. The other was put together by the international accounting firm of PricewaterhouseCoopers (PwC). Both investigative reports are about the controversial allegation of unremitted $49.8bn (later reviewed to $10.8bn, $12bn and $20bn by the whistle blower and former governor of Central Bank of Nigeria (CBN), Sanusi Lamido Sanusi, now Emir of Kano.
The Makarfi report concluded that NNPC had accounted for all the proceeds of crude oil sales during the 19 months covered by the investigation. It, however, recommended that the NNPC should pay $1.48bn to the federation account being an amount in respect of assets divested by Shell which were assigned to the Nigerian Petroleum Development Company (NPDC), NNPC’s oil prospecting and producing subsidiary. The PwC report, on the other hand, refrained from pronouncing on whether or not Sanusi was right. PwC said it could not be definitive on the point because it did not have access to some of the information it would have loved to see. The international audit firm agreed with Makarfi that NPDC should pay for the assets divested by Shell. Both reports also agree that the existing NNPC Act allows the corporation to deduct its expenses before remitting funds to the Federation Account. Makarfi specifically recommended that the law should be changed at the earliest opportunity to check abuses by NNPC.
These two reports are generating widespread interest in the media about NNPC’s sullied past which not even the most colourful apologist for the national oil company can dispute. Indeed, as President-elect Muhammadu Buhari gets set to order further investigations into the affairs of NNPC, it is useful to reflect on some of the past probes, their findings and government’s spectacular failure to punish wrongdoing based on such probes.
Heroic efforts to promote transparency and accountability in the oil industry have been made in the past. Some of these were initiatives of the Senate and the House of Representatives between May 1999 and April 2004. Our first port of call is the Senate Committee on Petroleum Resources (Upstream) which in 2004 issued a query to NNPC’s group managing director (GMD) at the time, Funso Kupolokun. Committee chairman Lee Maeba signed the query.
The lawmakers wanted the GMD to explain an alleged inflation of the Joint Venture Cash Calls (JVCCs) for 2004 by over $100 million. Other areas in which the senators sought clarification included alleged impropriety in the operation of some NNPC offshore accounts said to have been the subject of illegal deductions and the use of inappropriate exchange rates for converting crude oil proceeds into naira.
Investigators found that NNPC manages the JVCCs but renders accounts on some through the National Petroleum Investment Management Services (NAPIMS). This has rendered JVCCs a honey pot for NNPC, CBN and the Joint Venture operators making it possible for the nation to be hooked perpetually to payment of cash call arrears that never existed. It is significant to note that the NNPC is a group of companies that is required by the Companies and Allied Matters Act (CAMA) of 1990 (as amended) and the Nigerian and International Accounting Standards to produce, for each financial year, a group financial statement incorporating all its activities through self, subsidiary and associated companies according to the specified rules and procedures.
A previous investigation by the House of Representatives discovered that the audited accounts of NNPC from 1999 to 2002 contravened the law and accounting standards. Significantly, the House found numerous anomalies and misinformation that denied the Federal Government the revenue due to it from taxes. One of the anomalies concerned the functions and legal status of NAPIMS. Investigators found that NAPIMS is not an incorporated company but audited accounts are produced in its name. These are entirely separate and distinct from those of NNPC. At page 2, item 3 of NAPIMS audited accounts for 1999, NNPC, NAPIMS and the external auditors agreed that “though the Corporation is the legal entity entrusted by the Laws to execute the joint venture and other oil exploration and production activities, NNPC implements these by employing NAPIMS”.
Over the years, NNPC and NAPIMS have constituted themselves into separate reporting units with intent to confuse and confound. Consequently, the huge investments the nation has made in the oil industry are not transparently accounted for. For example, foreign loans are obtained and managed using NAPIMS that has no legal status. Similarly, NAPIMS reports huge production costs in its audited accounts even though it is simply a supervisor, not an operating company.
Another major concern is that NNPC sells the nation’s crude and reports the proceeds under NAPIMS. Neither NNPC nor NAPIMS reported on the trade-by-barter between Saudi Arabia and Nigeria in respect of Kaduna Refining and Petrochemical Plant a few years ago. One earlier investigation of the NNPC found that the results and operations of some of the subsidiary companies are not incorporated in NNPC’s group audited accounts. In cases where the accounts of the subsidiaries are incorporated, such accounts are riddled with manipulations ranging from under-declared revenue, over-bloated costs and mis-statement of comparative figures.
In a similar vein, dividends and profits from associated companies are accounted for in a haphazard manner and in some cases completely ignored. This is made possible by lack of monitoring of the associated companies through periodic investment evaluation. Some are not even identified as NNPC’s investments.
NNPC confirmed in its audited accounts between 1999 and 2002 that it granted tax waivers to some foreign contracting companies but it would not disclose the amount waived and the names of the beneficiaries.
Weneso Orogun
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