State governments and the Nigerian National Petroleum Corporation (NNPC) are in collision over the non-remittance of N20billion and other yet to be identified sums from the federation account. Nduka Chiejina and Ibrahim Apekhade Yusuf examine the issues
The claims and counter claims over the remittances to the federation account by the Nigerian National Petroleum Corporation (NNPC) will linger for a while.
Fresh facts have emerged that what the NNPC paid into the federation account was part payments of royalties and Petroleum Profit Tax (Tax) and not the entire accruals from the sale the nation’s crude oil.
Crux of the matter
Things came to a head last weekend when the Chairman of Commissioners Forum Mr. Mahmood Yunusa stated that “by law NNPC is required to remit all funds accrued from the sales of crude oil.”
The last Federation Account Allocation Committee (FAAC) meeting was botched because NNPC was alleged to have under paid the federation account by at least N20billion in expected taxes and royalties.
The main chunk of the payment to FAAC being the actual proceeds from the sale of crude oil was entirely left out of the remittances to the federation account for sharing.
According to Yunusa, “if you look at it, there are specific explanations that we want from NNPC-what is the actual volume of crude oil that is lifted daily by the NNPC? What is the PMS consumption volume on daily basis? The NNPC does not provide detailed information on these issues.”
Neither the NNPC nor DPR he revealed, “Can tell us the true volume of PMS consumption in the country; today you hear 60 million litres, tomorrow they tell you 64 million litres. In the report submitted by NNPC, N3.4 billion deduction is as a result of product losses either by leakages or disappearing due to pipeline vandalism every month. When they load a product from point A, before it gets to point B, it would be lost due to leakage or whatever. Why?”
To resolve this matter, NNPC has been forced to the table to find out “if the NNPC is remitting to the federation account royalty and PPT, then what is it remitting to the federation account from the sales of crude oil and gas? We are the representatives of the state governors and they have mandated us to ensure the matter is resolved once and for all irrespective of the delay in payment of June salary.”
He lamented that the NNPC’s unremitted proceeds “has become a monthly event that you see claims of leakages due to pipeline vandalism by the NNPC but DPR said they don’t know when such pipelines were vandalised and when they were repaired.”
“There must be checks and balances in the operations of the NNPC. We are very serious on this matter that is why we are so concerned. Nothing good comes easy and we have made up our minds,” he said.
There is no law that gives NNPC the right to make claims to product lose without the consent of DPR. To this end, the other FAAC members “expect that if the NNPC has any issue regarding leakages, pipeline vandalism, it should be reported to DPR and a general investigation team will go and find out, and to come out with even the environmental impact of such leakages. But the DPR said it was not aware of any leakage and cannot confirm any of such claims by the NNPC.”
“The NNPC can’t just make claims that such amount of money was lost to leakages and pipeline vandalism, where and when? They must tell Nigerians the actual value of all their transactions,” Yunusa queried.
With this development, the nonpayment of workers’ salaries for the month of June and possibly July to civil servants at both state and federal levels will drag for a long time if the NNPC fails to give adequate explanations for the “missing” crude oil sales proceeds.
The state governments have vowed to support the Minister of Finance to get to the bottom of the scandal.
“Based on what is happening in the economy especially in the oil and gas sector, the oil price is almost at $80 per barrel and the production is steady which means we are producing about 2 million barrel per day. We expect that the remittance from the NNPC should add value to what the federal government is doing,” Yunusa stated.
Penultimate Saturday, Yunusa had argued that based on analyses, the N127 billion remitted by NNPC at the botched Federation Account Allocation Committee (FAAC) meeting “is inclusive of royalty and PPT. How can that be? But the law establishing these agencies (DPR and FIRS), royalty should be given to DPR, while PPT should be given to FIRS in line with the law.
“NNPC has remitted N127 billion and it claims it was expected to remit only N112 billion, even if they had agreed with the governors to remit N112 billion when the oil was sold at $50 per barrel, what stops them from paying more now that the oil price is at $80 per barrel,” he said.
It is instructive to note that the N127 billion remitted by NNPC was less than what was expected into the federation account from royalties and PPT combined by N20 billion. The proceeds from the sale of crude oil as alleged did not reflect in the remittances made by NNPC at the last FAAC meeting.
Commenting on the shortfall, Yunusa said: “The Department of Petroleum Resources (DPR) confirmed to us that based on the production capacity, the royalty should be N60.8 billion so when you add this N60 billion to the N127 billion remitted by the NNPC, it will give you N187.8 billion.”
Checks by our correspondent revealed that the N60.8 billion royalty was supposed to have come through DPR.
Confirming this development, Yunusa further revealed that “the royalty is supposed to have come separately from DPR but the NNPC does not remit it to DPR. Again, the record of the NNPC which it uses in calculating PPT is 1/1:46. Whatever, the amount, you multiply it by 1.46 therefore, the expected PPT is N87.6 billion.”
By these calculations, NNPC is owing the federation account full remittances from actual sale of crude oil, (undisclosed and yet to be determined) and the balance of N20 billion from PPT and royalties
Yunusa added that “the NNPC claimed that it has remitted N147 billion but what the NNPC actually remitted to FAAC is N127 billion. By law NNPC is required to remit all funds accrued from the sales of crude oil.”
The major revenue generating agencies that feed the federation account are the Nigeria Customs Service (NCS), Federal Inland Revenue Service (FIRS) and the NNPC. NNPC is by far the largest contributor to the federation account thus the perpetual focus of its remittances to the federation account.
No longer at ease with NNPC
Yunusa noted that “we don’t intend to join issues with the NNPC but we want to make it very clear to NNPC that it is a public company and it is required that its operations be made public because it is meant to make profit, and as shareholders and stakeholders interested in the running cost of this public investment, the major issue we are having with the NNPC is discrepancies in the figure.”
The finance commissioners’ chairman added that “we have to go through it and if it convinces us, then we accept, but where it is not clear to us, we have to seek for proper reconciliation.”
In addition, the Finance Commissioners Chairman explained that “we have to go back to look at the differences in the figures remitted by NNPC, deduct the taxes -royalty and ppt then we will know if the figure is accepted.”
“We are doing this on behalf of Nigerians, because we want to resolve this issue once and for all. We are not comfortable with the figures the NNPC remitted. It is a kind of holistic thing. We even want to know what are the costs incurred by the NNPC? What are the personnel cost? Are there other cost incurred by the NNPC? If there are, then we review the cost, and know how much should be deducted for such cost. But it is not for NNPC to appropriate and reprobate at the same time.”
He went further to state that FAAC will “have to look at what are the status of the refineries, are the refineries making profit of losses? If they are making profit, then what are the loss? Are we just injecting money into the refineries without gains? All these information are not clearly known to us.”
Yunusa noted that “this action is in the interest of Nigerians, in the interest of transparency and accountability and is in the interest of good governance because these are public funds.”
He maintained that “NNPC is a public company and the owners of the company are not comfortable with the way the company is being managed; and they have the absolute right to ask how the company is being run.”
“We are much aware that in every business, there is loss and profit but we must be told clearly what brought about the loss and how much is involved, then if there is profit we must understand how the profits came about. We are now discussing NNPC under remittance. But we will want to partner with NNPC to make more progress. This is a peaceful disagreement, it is a progressive disagreement. We are disagreeing to agree so that by the time we agreed, we will make progress.”
Ghost of missing allocation
It is not the first time FAAC allocations would be subjected to a litmus test. Under the last administration, there were reported cases of unremitted funds not accounted for by the national oil corporation.
A case in point was the controversial $50billion reportedly missing from the federation account and for which the NNPC was alleged to be complicit.
The former governor of the Central Bank of Nigeria (CBN), Sanusi Lamido Sanusi, now and the Emir of Kano first blew the whistle on the missing money from the nation’s vaults.
As expected, the issue was hotly debated at the time but no prima facie case was established against any particular person by the government, a development, which many observers at the time believe dente the image of that regime. But with the benefit of hindsight, Sanusi was later vindicated when the minister of petroleum under the past administration was later discovered to have benefited from proceeds of crime and for which she is still facing corruption charges in court.
NEITI to the rescue
Meanwhile, available information from the latest edition of the NEITI Quarterly Review by the Nigeria Extractive Industries Transparency Initiative (NEITI) showed that the Federation Account Allocation Committee (FAAC) disbursed N1.938 trillion in the first quarter of 2018. The amount shared represented an increase of 37.3% when compared with N1.411 trillion shared during the same period in 2017 and 71.1% of the N1.132 trillion shared in the same quarter of 2016.
A breakdown of the FAAC allocations shows that the Federal Government received N812.8 billion, the 36 states got N683.4 billion, while N393.3billion went to the 774 Local Governments. A further breakdown shows that N655.2 billion was disbursed by FAAC in January, N635.6 billion in February, and N647.4 billion in March this year.
The publication observed that even with increasing trends in the revenue disbursements to the three tiers of governments, the disbursement in the first quarter of 2018 is still 25.6% lower than the N2.6 trillion disbursed during the same period in 2013 before the crash in global oil prices.
The report projected brighter prospects for higher revenue disbursements for the rest of the year because of the rising oil prices, which currently hovers around $70 per barrel, in addition to the increase in oil production.
The report however called for caution while celebrating the amounts disbursed in the first quarter of 2018 because of the volatility of the international oil market. “The year started on a bright note as all tiers of government received higher revenues than corresponding quarters in the past two years. This was largely on the account of sustained increase in domestic oil production and global oil prices,” the NEITI report added.
On allocations received by each state, the report reveals that Akwa Ibom got the highest amount of N50.44 billion while Osun State received the lowest net share of N4.99 billion, a variance of 920% between the highest and the lowest. The NEITI report explained that these disparities in FAAC disbursements suggest differences in revenue capacities of different states and the implications for expenditure decisions in the affected states.
The publication expressed concerns about the relationship between the projected revenues of states and their proposed budgets. “The budget of all states completely outstrips their projected total revenues,” the report stated. For instance, the publication observed that the gap between projected total revenues and budgets is small in some states like Kano, Enugu, Delta and Bayelsa. In these states, projected revenue is at least 60% of the budgets.
However, in about 18 states, projected revenue is less than 40% of budgets. Examples are in the 2018 budgets of Adamawa, Akwa Ibom, Anambra, Bauchi, Benue, Borno, Cross River and Ebonyi states. Other states are Imo, Katsina, Kebbi, Kwara, Ogun, Osun, Oyo, Plateau, Sokoto and Zamfara). In particular, the NEITI report described the situation in Cross River State as chronic as its projected total revenue only constitutes 4% of the proposed budget.
The NEITI report cautioned that: “These conditions will ultimately result in a situation where the states will either not be able to execute their budgets or have to increase borrowing.”.
The NEITI Quarterly Review, designed to provide timely information and data, is a tool to support citizens’ engagement, advocacy, promote constructive debate, information sharing and enlightenment in tracking the utilisation of the funds for purposes of development. NEITI’s interest in FAAC disbursements and the statutory recipients is in view of the fact that more than 50% of the funds are derived from the extractive industry.