Reforming NNPC: NRGI report

The Natural Resource Governance Institute (NRGI) recently released a report which provides an insight into Nigeria’s National Oil Company (NNPC) oil sales. This report reveals the various ways NNPC has mismanaged Nigeria’s main revenue stream. It also reveals how unaccountable NNPC has been in the management of Nigeria’s oil revenues. The report makes interesting recommendations on reforming the operations of NNPC that would ensure more transparency and enable Nigeria manage its oil wealth prudently.

Key Issues and Recommendation from the report

Issue	Recommendation
Domestic Crude Allocation	Eliminate Domestic Crude Allocation
Revenue retention by NNPC and its subsidiaries	Government should develop  clear revenue collection framework to control discretionary spending by NNPC
Oil for Product Swap Agreements	Oil for Products Swap Agreement should be phased out. Future swap deals should be competitively awarded refined product exchange agreements with stronger terms
The abundance of middle men	NNPC should stop the sale of oil to unqualified companies both Nigerian and Foreign and improve its due diligence
Corporate Governance, Oversight and Transparency	Government should lead a programme of transparency and accountability in NNPC and empower scrutiny by oversight actors

Click to view NRGI full report

In addition to the recommendations made in the NRGI report, the new government should consider the following to enhance transparency and accountability in NNPC’s operations:

• The process for allocating oil blocs should be made clear and more transparent
• The names of those awarded oil blocs licenses should be made publicly available
• Oil contract terms and conditions should be made publicly available.
• The representation on NNPC board should be broadened to include key oversight institutions such as CBN, Ministry of Finance, Federal Inland Revenue Service as well as representatives from credible civil society organisations
• It should be compelled to publish full independently audited accounts annually and required to answer questions from its shareholders, the Nigerian People.
•  NNPC should adhere strictly to the Freedom of Information legislation and respond to any queries from the public on their operations.

The Nigerian government has started taking steps to reform NNPC. It has dissolved the NNPC Board, appointed a new Group Managing Director and sacked all the group executive directors. There are plans to split NNPC operations into two (investment and regulator arm).  The NRGI report makes good recommendations which the new government should consider implementing. The new GMD has a great task ahead. He should implement these reforms that will save Nigeria’s oil revenues from being lost to corruption and other wasteful practices.

NEITI Audit Report: Holding NNPC to Account

Holding Nigeria’s National Oil Company (NNPC) to account is a major challenge for Nigeria. The recently launched audit reports carried out by Nigeria Extractive Industries Transparency Initiative (NEITI) have raised important issues that require a comprehensive response.  One issue that needs to be addressed is the finding that NNPC failed to pay $ 8.8 billion from government Liquefied Natural Gas dividends into the main bank account of government (the Federation Account) since 2006. During the launch event of the audit report, Dr. Ngozi Okonjo-Iweala, Coordinating Minister for the Economy started the process of holding NNPC to account by publicly asking the Group Managing Director about the $8.8 billion.

Beyond the non-remittance of dividends by NNPC the NEITI audit report highlighted other major issues that NNPC needs to respond to:

• Debt of N1.305 trillion (approx. $8 billion) to the Federal government based on crude-oil supplied directly to NNPC as at 31st December 2011.
• Domestic refining allocation of 445,000 barrels per day of crude oil despite only 20% (89,445 barrels per day) actually being refined locally. The balance was either exported by NNPC or swapped for imported refined product. 
• The exchange rate used by NNPC was different from that used by the Central Bank (CBN) resulting in losses of N98.3billion (over $600 million).
• NNPC deducted N1.40 trillion ($9 billion) as subsidy claims from the earnings received from domestic crude oil. 
• Lack of transparency in NNPC‘s third party financial arrangements which are not recorded in its balance sheet. This may result to debts being incurred without the knowledge of the Federal Government. 
• NNPC utilised $1.73billion for non-cash call items from its cash call account which is strictly for expenditure in joint venture operations. 

The combined value of the issues listed above is more than $28 billion of Nigeria’s resources. 

Key Recommendations from the report

The report has made recommendations which if implemented would help ensure transparency and accountability in these areas as well as prevent unnecessary waste in the sector. Key amongst these recommendations are:

• The need for the crude oil allocation for domestic refinement to be set at the level of its current operating capacity
• The need to confirm the ownership of the 49% investment in NLNG (is it for NNPC itself, the Federation Account or the benefit of the Federation?)
• NNPC should promptly pay its debt to the Federation
• Earnings from crude oil sales should be paid into the CBN in the currency of sales where it can be converted by the CBN using its official exchange rate and transferred into the federation account
• NNPC should join other marketers in receiving their subsidy claims from the Petroleum Support fund 
• NNPC should fully disclose all contingent liabilities in its financial statement to promote transparency and accountability especially on alternative financing arrangements
• NNPC should be discouraged from using the cash call account for non-cash call items

The NEITI audit reports highlights key issues in the oil and gas sector and makes good recommendations that need to be implemented if NNPC is to become more open and accountable. The $8 billion that Dr. Ngozi Okonjo Iweala asked about is only a third of the $28 billion the NEITI report raised concerns over. Nigerians have both the right to know and the right to expect change. While disclosure of information is useful, it is only meaningful to the lives of Nigerians if its recommendations are implemented and not ignored. 

Link to the full NEITI report: