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  • Appraising Uduaghan’s Delta beyond Oil

    Appraising Uduaghan’s Delta beyond Oil

    SIR: As the global search for shale gas and other forms of energy intensifies, global demand for crude, as we know it, keeps dropping. The effects on our economies–at macro and micro levels—are expected to be negative. It is on this premise that Governor Emmanuel Uduaghan’s drive to grow Delta state’s economy, in a way that there will be minimal disruption to its revenue sources when oil finishes or loses its global relevance, can be fully appreciated.

    Critics who saw the policy as mere sloganeering, had a field day when it was unfolded. Today, thanks to Uduaghan’s clear vision and the tenacity that propelled it, the idea is increasingly catching on across the Niger Delta and at the national level.

    In building a Delta that will prosper beyond oil, Uduaghan reckoned with the need for certain critical infrastructure-both human and physical-that will support diversification of the economy. Among the physical infrastructure he embarked upon that are in different stages of realisation are the Oghareki power plant, the Asaba International Airport, upgrade of Osubi Airport to international standards and the establishment of industrial clusters like the Koko Industrial Park, the Warri Industrial and Business Park as well as the Asaba ICT Park.

    His administration has also substantially harnessed the people’s entrepreneurial skills through the highly successful micro credit scheme. Not only has this scheme nurtured small and medium enterprises with over 100,000 beneficiaries, it has also won for Uduaghan’s government, the Central Bank of Nigeria (CBN) awards, three times consecutively.

    The administration’s determination to change the landscape of the riverine and oil producing areas is, perhaps, the singular reason it has kept faith in heavily funding the Delta State Oil Mineral Development Commission (DESOPADEC) with 50 per cent of the 13 per cent derivation it receives from the federal government. It may yet be the only state with this level of commitment.

    Its investment in massive infrastructure renewal has resulted in the dualisation of major roads that include the 148 km Asaba-Ughelli road, the 33 km Ugbenu-Koko road, the Effurun-Osubi-Eku road, the 7.2 km Ughelli Artery, the PTI/Jakpa road and the Old Lagos/Asaba road, among others.

    New public schools and health-care facilities are being constructed or upgraded, but equally significantly is the progress of Oghara Teaching Hospital as a centre of excellence.

    However, easily the most profound outcome from the policy is the redirection of the youth who are growing up in expectation of an easy life from oil. Though oil has brought so much wealth to the multinational oil companies and the Nigerian state whose economy functions on 85% earnings from crude sales, it has over time become like nemesis for many Niger Deltans who are fixated on oil money. This attitude is gradually changing as the policy has succeeded in orientating them towards hard work.

    The picture of Delta State that is emerging is one that gives hope for the future and belief in the drive towards a new economy.

     

    • Sufuyan Ojeifo

    Abuja

     

  • Sanusi’s alarm

    Sanusi’s alarm

    •Where is our $20 billion dollars?

    As if living to its billing as a nation where scandals are never in short supply, the Central Bank of Nigeria (CBN) Governor, Sanusi Lamido Sanusi, again on February 4, stirred the hornet’s nest when he drew the attention of members of the Senate Committee on Finance to an alleged discrepancy of $20 billion in crude oil receipts.

    This time, he was point-blank when he told the members: of the $67 billion crude confirmed to have been shipped by the Nigerian National Petroleum Corporation (NNPC) between January 2012 and July 2013, only $47 billion was remitted to the federation account. Taking his chance to present what appears to be, by far, the most robust rebuttal to the disclaimer put out by the NNPC that any oil money was missing, he also revealed other details bordering on legal and constitutional violations by the corporation – all of which speak to how gangrenous the sore of impunity has become.

    Among the highlights is the so-called kerosene subsidy which, although had been eliminated by a 2009 presidential directive, still nonetheless bled the nation by $100 million monthly within the period; the petrol subsidy albatross which the NNPC claims as justification for withholding  $8.49 billion of monies due to the federation account –  whose rationalisation came only after the discrepancy was highlighted; the contentious $6 billion worth of crude oil said to have been shipped by the NNPC on behalf of its prospecting arm – the Nigerian Petroleum Development Company (NPDC); the “Strategic Alliance Agreement” under which public revenue is transferred into private hands; and of course the practice of crude swap that has remained opaque.

    We note the attempt by the Group Managing Director, NNPC, Andrew Yakubu, to latch on to the now worn defence of  so-called ignorance by Sanusi, of oil sector accounting, after the so-called overstatement of the amount due to the federation account last month. That is deplorable. We cannot accept that as a defence to the weighty issues raised any more than his strange position that the CBN’s role – as banker to the Federal Government – stops at collecting the receivables on behalf of the government.

    For sure, the contention that the CBN governor cannot raise queries on the activities of the corporation, or sound alarm when entities like NNPC perpetrate brazen outlawry on the treasury is absurd. We certainly expect more than the hollow, opportunistic and dangerously self-serving defence being put out by the NNPC on the issue.

    The truth of course is that the CBN, as banker to the Federal Government, has a primary responsibility to track the nation’s revenue. What role does the CBN governor’s membership of the Economic Management Team confer if not to enable him draw attention to such open and direct threats to the economy?

    So, who is the author of mischief – the individual calling for scrutiny of the finances or the corporation’s top guns and their principals that would rather go on doing as they please with our common wealth?

    Now, very much unlike the previous outing, Sanusi did not pretend, nor did he claim, to have the final word on the matter. That, he has made clear, is for the authorities – the National Assembly – to determine. On this, we find common agreement. If, as he claims that the value of crude export for the period between January 2012 and July 2013 is $67 billion, let the corporation present its books to prove that it has nothing to hide. The same goes for the so-called “Strategic Alliance Agreement”; the burden is on the NNPC to explain how the strange partnership with a firm with unknown pedigree can be said to have added value to the nation. And, as for the racket called subsidy, now perhaps is the time for forensic auditors to be called in to finally lay all matters to rest.

  • $50m Biometric Solution’ll fix identity hitches, says Sanusi

    $50m Biometric Solution’ll fix identity hitches, says Sanusi

    The Central Bank of Nigeria (CBN)-led Biometric Solution for the financial system will fix identity challenges facing the financial system within 18 months of its operations.

    The CBN Governor, Sanusi Lamido Sanusi made this known during the Standard Bank West African Investors’ conference for the year.

    He said it would address unified identity for bank customers.

    He said: “On Valentines’ Day in Lagos, we will be launching the biometric solution, which will in 18 months, fix the problems we are having in the banking system.”

    Earlier, Special Adviser to the CBN Governor on Sustainable Banking, Dr. Aisha Mahmood had said the CBN is making progress on how to get more people into the system, especially with the institution of agent banking model.

    “The Biometric Solution Project of CBN will authenticate banks’ customers, Point of Sale (PoS) terminals and Automated Teller Machines (ATMs) and hence, is a game changer for financial inclusion,” she said.

    Mahmood said the facility is also expected to help those who are not educated to use biometric to be part of the payment system.

    The biometric solution pilot phase was expected go live in February 14. The new system will promote the use of thumbprint as major means of identification in banks and ATMs, he added.

    According to the apex bank, with the biometric solution, the CBN, banks, Nigeria Interbank Settlement System (NIBSS) and at least one branch of each bank would have been connected a few months after the takeoff date.

    However, it cautioned that “it will take a few months to go all over the country and register customers of every bank and we will get to the microfinance banks”.

    It assured that the exercise will not interfere or be in competition with the National Identity project but instead will be rolled into the later.

    The benefit of the exercise were listed to include helping boost Nigeria’s image internationally, deal with money laundering, deal with fraud, extend credit to people without worrying about where to find them and who they are.

    The project, the brainchild of the CBN and the Bankers’ Committee, is meant to have a central database where all bank customers’ information will be collected and stored.

    Since biometric identifiers are unique to individuals, they remain reliable in verifying identity of each bank customer from bank to bank.

    According to the CBN, the platform, when completed, would help operators and regulators of the financial system address issues of Know Your Customer (KYC), anti-money laundering (AML), and access to credit. This will help fast-track use of channels, such as biometric Automated Teller Machines (ATMs) and Point of Sale (PoS) terminals, among others.

    The apex bank had last year, signed an agreement with Dermalog Identification Systems, a German company for the deployment of biometric data capturing for all bank customers across the country.

    The CBN said it is also planning a Consumer Complaints Management System that will make it possible for it to monitor banks’ breaches in customers’ accounts.

    When completed, the platform will enable the regulator see which customer complaints are being treated, and which are not being considered. The CBN to, with the platform, see the complaints by bank customers and track the turnaround time of their resolution.

  • Sanusi Lamido set to pick a new wife

    Sanusi Lamido set to pick a new wife

    MALLAM Sanusi Lamido, the governor of Central Bank of Nigeria who has a few months to quit office, sources revealed, is planning nuptials.

    The CBN governor, sources squealed, will be hooking the kid sister of the former Director General of The Bureau of Public Enterprises, Mallam Nasir El-Rufai. Already, preparations for the Nikai billed for Daudawa, Faskari Local Government area of Katsina State, we learnt, is in top gear. The Emir-in-waiting, we gathered, is building his harem in preparation for the throne.

     

  • CBN tightens rules for currency dealers to support naira

    CBN tightens rules for currency dealers to support naira

    The  Central Bank of Nigeria (CBN)  yesterday announced new rules  requiring currency dealers to put naira in their

    accounts at the bank two days before bidding in its forex auctions, in a move dealers said was unlikely to stop the local currency from weakening.

    The apex bank has been selling dollars directly to lenders to prop up the naira, which has lost 2.9 percent this year as the U.S. Federal Reserve begins reducing its stimulus, which has led offshore investors to pull money out of local bonds.

    “I don’t think this will stop the naira from weakening. People who have naira and have need for dollars will still buy it,” one dealer told Reuters, referring to importers in the country.

    Nigeria depends on imports for almost 80 percent of goods sold in the country.

    The Naira has hovered around 162.50-163.60 against the Dollar in the past two weeks with a surge in dollar demand from offshore investors exiting local bonds and bureau de change agents buying hard currency on behalf of their customers.

    The new measure, which comes into effect on Monday, is expected to prevent forex speculation at its naira auctions. The regulator sells on average $800 million at its twice-weekly forex auctions on Monday and Wednesday.

    Dealers said the measure means customers bidding for dollars at the CBN would have to put the funds into their account two days before submitting their bids.

    Until now they could bid and fund their accounts on the same day.

    “I doubt if this move will have any impact on the interbank … apart from the opportunity cost for banks for leaving cash with the Central Bank for two days,” another dealer said, noting that the move was aimed at soaking up liquidity.

    On Wednesday, the CBN withdrew 750 billion naira ($5 bln) from the banking system to enforce a new higher cash reserve requirement for lenders to hold government deposits, which accounts for around 10 percent of total banking deposits.

    CBN data this week showed that Nigeria’s foreign reserves fell to $42.69 billion as of Feb. 4 compared with $46.09 billion a year earlier. Reserves fell 1.40 percent in the month to that date, the data showed.

  • CBN is raising false alarm, says NNPC

    CBN is raising false alarm, says NNPC

    Central Bank of Nigeria (CBN) Governor Sanusi Lamido Sanusi appeared on Tuesday at the Senate’s Investigative Public Hearing on Unremitted Oil Revenue. The Nigerian National Petroleum Corporation (NNPC), in a statement yesterday, said Sanusi is just raising false alarm. 

    At the public hearing of the Senate Committee on Finance on Tuesday on the unreconciled $10.8 billion, CBN’s position suddenly changed. At a new conference held by the Minister of Finance and Coordinating Minister of the Economy, Dr. Ngozi Okonjo-Iweala, the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, the Governor of Central Bank, Mallam Sanusi Lamido Sanusi and heads of Department of Petroleum Resourses (DPR) and Federal Inland Revenue Service (FIRS), the initial figure of $49.8 billion was reconciled to $10.8 billion. On the same day, at the Senate hearing, the CBN gave a figure of $12 billion which was corrected by the Coordinating Minister of the Economy to $10.8 billion. Yet in today’s presentation the CBN’s figure changed again. This time CBN alleges it is now $20b. This is a clear indication of CBN’s inconsistency, thereby presenting conflicting figures to the generality of Nigerians. We are concerned by the dynamics of the moving numbers as the Central Bank’s figures keep changing. This is a worrying trend coming from an Agency of Government charged with managing the financial affairs of Nigeria.

    While NNPC and other relevant Government Agencies are in the process of reconciling the $10.8 billion as accepted by all parties, we are surprised by the new $20 billion figure introduced by the CBN. According to CBN, the $20 billion is made up of $12b subsidy claim, $6 billion NPDC gross revenue and $2 billion third party revenue. It is worthy to note that the CBN accepted NNPC submission with respect to $16 billion royalty and PPT payments into the federation Account through the FIRS. This indicates that the CBN cherry picks the figures.

    For example in taking the entire $6b gross revenue accruable to NPDC and allocating same to the Federation Account, CBN simply multiplied the gross production by the crude oil price; thereby failing to account for the operating costs (opex) and amortised capital expenditure that underpin the production. In other words, the CBN failed to take into account the cost of production.

    We reiterate that NPDC has been remitting the royalty and petroleum Profit Tax, PPT to the Federation Account. NPDC as a subsidiary of NNPC operates a business model similar to other international companies in Nigeria and abroad and will continue to be governed by these global best practices in the execution of these assets.

    Regarding the subsidy claim on kerosene, it is important to note that NNPC as the supplier of last resort is the only company supplying this product in Nigeria for the benefit of the citizenry. If kerosene has been deregulated, why are the independent marketers not supplying this product in line with what is applicable to diesel (AGO). NNPC owes a duty to Nigerians to ensure that there are adequate products in the country. This mandate has without question been accomplished in the past four years. NNPC deserves to be commended rather than battered, for ensuring adequate supply of kerosene at regulated price of N50.00k.NNPC cannot be held responsible for any differential pricing from non NNPC retailers. This is the basis for NNPC’s claim on kerosene subsidy.

  • $20b oil money missing, Sanusi alleges

    $20b oil money missing, Sanusi alleges

    •NNPC: It’s not true

    Another major row over Nigeria’s cash crisis broke out yesterday.

    Missing from the Federation Account is N20 billion – up from N10.8 billion – Central Bank of Nigerian (CBN) Governor Sanusi Lamido Sanusi claimed.

    Sanusi told members of the Senate Committee on Finance at the National Assembly in Abuja that “it is established that of the $67 billion crude shipped by the Nigeria National Petroleum Corporation (NNPC) between January 2012 and July 2013, $47 billion was remitted to the Federation Account.”

    “It is now up to NNPC, given all the issues raised, to produce the proof that the $20billion unremitted either did not belong to the Federation or was legally and constitutionally spent,” the CBN boss said.

    Sanusi insisted that “there is no dispute that $20 billion out of $67 billion has not been paid into any account with the CBN.”

    Speaking on the supposed inter-agency reconciliation between the ministries of Finance and Petroleum Resources, NNPC, CBN, FIRS, Office of the Accountant General of the Federation and others, Sansui said the NNPC admitted that it lifted $67 billion worth of crude between January 2012 and July 2013. Of this amount, all agreed that the following amounts had been remitted to the Federation Account: “$14 billion as equity crude and $15 billion as payment to FIRS by International Oil Companies (IOCs).

    “They paid in crude, which was lifted by NNPC on behalf of FIRS. There was nothing in our records linking the two transactions; $2 billion Royalty payment to DPR by IOCs under similar arrangements as in (2) above and $16 billion out of the N428 billion taken as Domestic Crude Paid in Naira, not dollar,” Sanusi said.

    “The outstanding $20 billion the whereabouts of which needs to be proven by NNPC include: $12 billion out of domestic crude sales yet to be remitted. NNPC has already disclosed N180 billion as subsidy payment in the first quarter of. 2012. If PPPRA confirms this number, we will adjust the balance accordingly. As for the balance of $10.8 billion, NNPC has publicly disclosed that 80 per cent applied to petrol and kerosene subsidy.

    This explanation, Sanusi said, is “not tenable and the NNPC needs to provide the proof. The $6 billion shipped on behalf of NNPC belongs to the Federation Account and the need to investigate and audit the Strategic Alliance Agreement (SAAs) to recover amounts unconstitutionally diverted and $2 billion “third-party” financing” “we have not been given any documents explaining or proving this along with other claims around pipeline repairs, maintenance, strategic reserves etc. There was no appropriation for these expenses and NNPC also needs to substantiate them,” Sanusi said.

    Sanusi told the Committee that “a major source of revenue leakage from the system is NNPC’s unverified claims for subsidy and unilateral deduction from the Federation Account”. “If we take the PPPRA template, subsidy/litre of PMS is about 1,136litre/MT, the subsidy is around N1.5 billion. This means that for every $1 billion claimed by NNPC as subsidy deduction, the corporation is claiming to have imported at least 100 vessels of PMS.”

    In addition to the N180 billion reported in Q1:2011. NNPC had deducted N845 billion in 2011 and, according to the Farouk Lawan report, NNPC’s deduction for PMS subsidy in 2011 alone amounted to N1.7 trillion, if we add claims on Excess Crude naira account.

    Any serious investigation into these matters, Sanusi said, “will require an audit of NNPC’s database, which it is statutorily required to keep, based on subsidy guidelines. Only verification of the legitimacy of these claims can form the basis for a true reconciliation.”

    The CBN governor added that the NNPC, in paying what it calls kerosene subsidy, is confessing to a number of serious infractions. First, I have shown, based on NBS data, that Kerosene is not a subsidised product, and therefore the so-called subsidy is rent generated for the benefit of those in the kerosene business. Second, there is evidence that President Yar’Adua had issued a presidential directive eliminating this subsidy payment as from July, 2009. Third, these huge losses inflicted on the Federation Account have not been appropriated.”

    The burden of proof, Sanusi exploded, is “on NNPC to show where they obtained authorization to purchase Kerosene at N150/litre from Federation Funds and sell at about N40/litre, knowing well that this product sells in the market at N170-N220/litre. At what point was the presidential directive reversed? NPA records would suggest that NNPC imports about 4-6 vessels of kerosene a month. Industry sources place the value of each vessel at $30 million and the amount of “subsidy” per vessel at $20 million. This means, at an average of five vessels a month, the Federation Account loses $100 million every month to this racket.”

    The CBN governor then recommended that:

    •the NNPC should stop collecting 440,000bbl daily as “Domestic Crude”. The amount of crude should be reduced to the refining capacity of its refineries based on a signed refining contract that clearly states what products are to be delivered for each barrel;

    •Sale proceeds net of recognised processing costs are to go to the Federation Account;

    •All Crude for Product Swaps should be terminated and crude should be exported and sold at market price; and

    •Where NNPC needs to generate cash flow to fund PMS imports, it can “borrow” crude, on the approval of the Finance Minister, for 90 – 120 days. This crude is to be valued at the ruling market price. NNPC may sell the crude, import PMS and sell through its outlets. It should claim subsidy from PPPRA like every other marketer and present all required documents. Thereafter NNPC should pay back the full value of crude lifted to the Federation Account and retain the profit. Where NNPC delays payment, the amount outstanding should attract interest at commercial rates, until payment;

    •All the SAAs entered into by NPDC should be investigated for constitutionality. The production numbers, Opex and Capex, and profit shares should be audited. The tax arrangements entered into with these parties should be reviewed and all revenues due to the Federation collected. If possible, the SAAs should be terminated. Certainly, NNPC should be prohibited from entering into any SAAs in the future and; NNPC should account for subsidies claimed in 2010-13 by producing documentary proof of legitimacy.

    Sanusi said his submission to the committee investigating the whereabouts of the missing funds was to “protect the economy from these unsustainable losses”.

    As for what action needed to be taken on what has happened in the past, the decision on what to do in this case rests entirely with the Government, Sanusi said. His task, he said, is limited to raising the alarm over what he thinks is a development that is harmful to the economy, and establishing that the alarm was neither spurious nor baseless.

    He rounded off by insisting “that an investigation is needed to establish the extent of the losses and the nature of offence committed”.

    “The amount in 19 months may be $12 billion or $19 billion or $21 billion, we do not know at this point, but if we extend the period, the amount will increase anyway, since this has been going on for a long time. The first priority is to stop it. It is unsustainable, and it will, ultimately, if not stopped, bring the entire economy to its knees,” Sanusi said.

    The Director General of the Budget Office of the Federation, who represented the Minister of Finance, pleaded with the committee for an additional one week to allow the inter-agency reconciliation team complete its job.

    A similar request was made by the representative of the PPPRA, who said the Authority was working with figures and data on what has been imported, but he expressed hope that it might be concluded next week.

    The committee resumes its investigation on February 13.

     

  • Illegalities in NNPC, by CBN Governor Sanusi

    Illegalities in NNPC, by CBN Governor Sanusi

    Central Bank of Nigeria (CBN) Governor Sanusi Lamido Sanusi appeared yesterday at the Senate’s Investigative Public Hearing on Unremitted Oil Revenue. He gave details of his grouse about the accounting system of the Nigerian National Petroleum Corporation (NNPC).

    I Am pleased to stand before you and present a summary of my latest submission on this subject. The submission itself is about 20 pages long with 30 Appendices, providing documentary backing for all material statements. The background to this session remains my letter to the President in which I indicated that there was a difference between the value of crude lifted by NNPC between January 2012 and July 2013 and the amount of foreign exchange repatriated into the Federation Account. This difference was placed at almost $50 billion and I respectfully advised the President to order an investigation into a number of areas I suspected were responsible for leakages in oil revenue.

    My letter was, sadly, leaked and published in a highly politically-charged atmosphere. The Central Bank was practically accused of involvement in politics and in December it was clear to me that no tempered and positive discussion would take place. In order to calm nerves and avert major crisis I agreed to a joint press conference with Finance Ministry, the Petroleum Ministry and also to present a common front at the National Assembly.

    Since December, however, there has been an orchestrated campaign aimed at undermining our credibility and misleading Nigerians into believing that all monies due to the Federation Account have been either remitted or accounted for. I am, therefore, compelled to present to this committee detailed evidence that NNPC has in violation of the law and constitution been diverting money from the Federation Account, and involving itself in activities that warrant full investigation for more serious violations of the law.

    I have established, in my presentation, the following:

    1. That NNPC, in paying what it calls kerosene subsidy, is confessing to a number of serious infractions. First, I have shown, based on NBS data, that kerosene is not a subsidised product, and, therefore, the so-called subsidy is rent generated for the benefit of those in the kerosene business. Second, I have produced evidence that President Yar’Adua had issued a presidential directive eliminating this subsidy payment as from July, 2009. Third, these huge losses inflicted on the Federation Account have not been appropriated.

    The burden of proof on NNPC is to show where they obtained authorisation to purchase kerosene at N150/litre from Federation Funds and sell at about N40/litre, knowing fully well that this product sells in the market at N170-N220/litre. At what point was the presidential directive revered? NPA records would suggest that NNPC imports about 4-6 vessels of kerosene a month. Industry sources place the value of each vessel at $30m and the amount of “subsidy” per vessel at $20m. This means, at an average of 5 vessels a month, the Federation Account loses $100m every month to this racket.

    2. I have also shown, in my submission, that claims by NNPC of spending the money on PMS subsidy are not credible. I have submitted proof that as from April, 2012, NNPC has consistently rendered returns to FAC indicating that it made no deduction for subsidy. This is after rendering returns on amount deducted monthly for 20 consecutive months to March, 2012. NNPC had previously explained that it had stopped deductions from 2011 and that the N180b taken in Q1:2012 related to fuel imports for Q4:2011. As from 2012, the directive was for NNPC to submit its papers to PPPRA, the relevant government agency set up and given the responsibility for verifying and paying subsidy claims. Having officially reported that it was not making deduction for fuel in 2012 and 2013, it is surprising that the GMD and GED of NNPC would now claim that $8.49b was used to pay for subsidy.

    I am convinced that a major source of revenue leakage from the system is NNPC’s unverified claims for subsidy and unilateral deduction from the Federation Account. If we take the PPPRA template, subsidy/litre of PMS is about 1,136litre/MT, the subsidy is around N1.5b. This means that for every $1b claimed by NNPC as subsidy deduction, the corporation is claiming to have imported at least 100 vessels of PMS. In addition to the N180b reported in Q1:2011, NNPC had deducted N845 billion in 2011. According to the Farouk Lawan report, NNPC deduction for PMS subsidy in 2011 alone amounted to N1.7 trillion, if we add claims on Excess crude naira account. Any serious investigation into these matters will require an audit of NNPC’s database which it is statutorily required to keep based on subsidy guidelines. Only verification of the legitimacy of these claims can form the basis for a true reconciliation.

    3. Based on NNPC’s disclosure to the effect that it shipped $6b worth of crude oil on behalf of NPDC, I have argued here that at least a part of this amount is due to the Federation Account. This part relates to oil produced from blocks operated under “Strategic Alliance Agreement”. I have given you three legal opinions that unanimously argue that these agreements merely serve to transfer revenue due to the Federation to private hands. I have also shown how, based on these arguments, NNPC has effectively given tax relief and concessions to its business partners.

    Also customs duties and levies are treated as “development costs” and recouped from “cost oil” and “cost gas”. These companies recover OPEX and COPEX from production, take 20-70 per cent of the profit and pay no tax, on JVs in which the Federation was previously entitled to 55 per cent of the entire profit oil when Shell was the operator. I have given details of these transactions and my concerns in the paper.

    4. Although the above 3 areas exhaust the areas covered in NNPC’s explanations, I have also taken time to submit my analysis of the crude-for-refined-product swap contracts entered into by PPMC. This is because a significant part of the domestic crude taken by NNPC is in these transactions. I have indicated where i believe we are losing money in these transactions.

     

    Reconciliation

     

    Having thus explained my major opinions on NNPC‘s explanations, I will come to the reconciliation.

    NNPC itself has submitted that it lifted $67b worth of Crude between January 2012 and July 2013. Of this, we have been able to agree that the following amounts have been remitted to the Federation Account:

    1. $14 billion as equity crude

    2. $15 billion as payment to FIRS by IOCs. They paid in crude which was lifted by NNPC on behalf of FIRS. There was nothing in our records linking the two transactions.

    3. $2 billion Royalty payment to DPR by IOCs under similar arrangements as in (2) above.

    4. $16 billion out of the 428b taken as Domestic Crude Paid in Naira, not dollar.

    The following items are outstanding and need to be proven by NNPC:

    1. $12 billion out of domestic crude sales yet to be remitted. NNPC has already disclosed N180 billion as subsidy payment in Q1.2012. If PPPRA confirms this number, we will adjust the balance accordingly. As for the balance of $10.8 billion, NNPC has publicly disclosed that 80 per cent applied to petrol and kerosene subsidy. We have already explained why this explanation is untenable and NNPC needs to provide the relevant proofs.

    2. $6 billion shipped on behalf of NNPC. We have explained why some this belongs to the Federation and the need to investigate and audit the SAAS to recover amounts unconstitutionally diverted.

    3. $2 billion “third-party” financing” we have not been given any documents explaining or proving this along with other claims around pipeline repairs, maintenance, strategic reserves etc.

    There was no appropriation for these expenses and NNPC also needs to substantiate them.

    In summary, it is established that of the $67 billion crude shipped by NNPC between January 2012 and July 2013, $47 billion was remitted to the Federation Account. It is now up to NNPC, given all the issues raised, to produce the proof that the $20billion unremitted either did not belong to the Federation or was legally and constitutionally spent. There is no dispute that $20 billion out of $67 billion has not been paid into any account with the CBN.

    Our recommendation remains that this matter requires thorough independent investigation, as simple explanation will not suffice.

    I concluded my submission with recommendation for the future, to protect the economy from these unsustainable losses.

    I would like to make the following recommendations going forward:

     

    Recommendations

     

    NNPC should stop collecting 440,000bbl daily as “Domestic Crude”. The amount of crude should be reduced to the refining capacity of its refineries based on a signed refining contract that clearly states what products are to be delivered for each barrel. Sale proceeds net of recognised processing costs are to go to the Federation Account;

    All Crude for Product Swaps should be terminated and crude should be exported and sold at market price.

    Where NNPC needs to generate cash flow to fund PMS imports, it can “borrow” crude, on the approval of the Finance Minister, for 90 – 120 days. This crude is to be valued at the ruling market price. NNPC may sell the crude, import PMS and sell through its outlets. It should claim subsidy from PPPRA like every other marketer and present all required documents. Thereafter, NNPC should pay back the full value of crude lifted to the Federation Account and retain the profit. Where NNPC delays payment, the amount outstanding should attract interest at commercial rates until payment.

    All the SAAs entered into by NPDC should be investigated for constitutionality. The production numbers, Opex and Capex, and profit shares should be audited. The tax arrangements entered into with these parties should be reviewed and all revenues due to the Federation collected. If possible the SAAs should be terminated. Certainly, NNPC should be prohibited from entering into any SAAs in the future.

    NNPC to account for subsidies claimed in 2010-13 by producing documentary proof of legitimacy.

    As for what action needs to be taken on what has happened in the past, we express no opinion. The decision on what to do in this case rests entirely with the Government. My task is limited to raising an alarm over what I think is a development that is harmful to the economy, and establishing that the alarm was neither spurious nor baseless. I still insist that an investigation is needed to establish the extent of the losses and the nature of offence committed.

    I believe I have placed enough information before this committee to make the point. The amount in 19 months may be $12 billion or $19 billion or $21 billion, we do not know at this point but if we extend the period the amount will increase anyway, since this has been going on for a long time. The first priority is to stop it. It is unsustainable, and it will ultimately, if not stopped, bring the entire economy to its knees.

     

     

  • NNPC denies CBN governor’s claims

    NNPC denies CBN governor’s claims

    At the public hearing of the Senate Committee on Finance on Tuesday on the unreconciled $10.8B,CBN’s position suddenly changed. It will be recalled, that at a news conference held by the Minister of Finance and Coordinating Minister of the Economy, the Minister of Petroleum Resources, the Governor of Central Bank and heads of DPR and FIRS, the initial figure of $49.8B was reconciled to $10.8B. On the same day, at the Senate hearing, the CBN gave a figure of $12B which was corrected by the Coordinating Minister of the Economy to $10.8B. . Yet in today’s presentation, the CBN’s figure changed again. This time the CBN alleged it is now $20B. This is a clear indication of CBN’s inconsistency, thereby presenting conflicting figures to the generality of Nigerians. We are concerned by the dynamics of the moving numbers as the Central Bank’s figures keep changing. This is a worrying trend coming from an Agency of Government charged with managing the financial affairs of Nigeria.

    “While the NNPC and other relevant government agencies are in the process of reconciling the $10.8B as accepted by all parties, we are surprised by the new $20B figure introduced by the CBN. According to the CBN,” the $20B is made up of $12B subsidy claim, $6B NPDC gross revenue and $2B third party revenue. It is worthy to note that the CBN accepted NNPC submission with respect to $16B royalty and PPT payments into the Federation Account through the FIRS. This indicates that the CBN cherry picks the figures. .

    “For example in taking the entire $6B gross revenue accruable to NPDC and allocating same to the Federation Account, CBN simply multiplied the gross production by the crude oil price; thereby failing to account for the operating costs (opex) and amortized capital expenditure that underpin the production. In other words, the CBN failed to take into account the cost of production.

    “We reiterate that NPDC has been remitting the royalty and Petroleum Profit Tax (PPT) to the Federation Account. NPDC as a subsidiary of NNPC operates a business model similar to other international companies in Nigeria and abroad and will continue to be governed by these global best practices in the execution of these assets.

    “Regarding the subsidy claim on kerosene, it is important to note that the NNPC as the supplier of last resort is the only company supplying this product in Nigeria for the benefit of the citizenry. If kerosene has been deregulated why are the independent marketers not supplying this product in line with what is applicable to diesel (AGO). NNPC owes a duty to Nigerians to ensure that there are adequate products in the country. This mandate has without question been accomplished in the past four years. The NNPC deserves to be commended rather than battered, for ensuring adequate supply of kerosene at regulated price of N50.00k.NNPC cannot be held responsible for any differential pricing from non-NNPC retailers. This is the basis for NNPC’s claim on kerosene subsidy.

     

  • Banks to raise interest rate, credit facility

    Banks to raise interest rate, credit facility

    • ‘How FirstBank, GTBank, others can become stronger’

    Banks will this year raise in terest rates and the volume of loans.

    According to an Equities Analyst at Renaissance Capital (RenCap), Adesoji Solanke, lenders are going to implement strong loan growth, as they try to offset the lost income from higher Cash Reserve Ratio (CRR) implemented by the Central Bank of Nigeria (CBN).

    In a report titled: ‘Nigerian banks: Tier-one-growth precariously balanced’, Solanke said with an average CRR of 20 per cent, the banking environment does not allow for significant earnings growth, a trend that would be felt by the banks.

    He explained that with yields on Treasury bills having declined, the scope for lower funding costs remains feasible.

    He said Access Bank should begin to witness improved earnings with most of its Asset Management Corporation of Nigeria (AMCON) bonds having been redeemed at end of December 2013 for more liquid assets. “These assets could be deployed into higher-yielding loans while reducing the bank’s reliance on expensive fixed-term funding. The key risk to our forecast is execution; in the past we have expected improved performance only to be disappointed as the year progresses. Nevertheless, we believe Access’s valuation is attractive,” he said.

    For FirstBank, RenCap said although the bank’s September 2013 result was disappointing, a better result is being expected going forward, given its scale and cheap funding base. “We believe management will have to rebuild investor confidence in the Group’s strategy. In our view, the market needs a clear understanding of First Bank’s competitive edge and how this is being exploited to deliver attractive returns to shareholders,” it advised.

    Its report on Guaranty Trust Bank said the lender continues to deliver the best quality of earnings and most sustainable returns. “For investors who want hassle-free exposure to the sector, this remains our top choice,” he said.

    The report said although United Bank for Africa returns have rebounded from the 2011 losses, its Return on Assets (RoAs) require further improvement to drive an ongoing re-rating in the stock.

    For Zenith Bank, Solanke said the lender’s liquid and highly capitalised balance sheet was a key part of its strength in a challenging 2013 banking environment.

    “We expect 2014 to be tougher for the bank, given the decline in Treasury yields and its high exposure to CoT revenue as against other banks. We note that management is confident it can offset these revenue challenges with new sources of income, but delivery will be key to a continued re-rating of the stock,” he said.

    The Nigerian banks have had to operate in an environment of tightening monetary policy for the past three years, which in relative terms has been unfavourable to the tier two banks.

    Also, he said the big banks, otherwise called tier-one lenders, must watch their cost of operations and manage asset depreciation charges to remain profitable, an Equities Analyst at Renaissance Capital (RenCap), Adesoji Solanke, has said.

    The tier-one banks include FirstBank of Nigeria, Guaranty Trust Bank, Zenith Bank, United Bank for Africa and Access Bank. He said the banks’ headache remained the impact of higher Cash Reserve Ratio (CRR) on public sector deposits, now at 75 per cent and cuts in commission-on-turnover (CoT).

    The CRR is a portion of banks’ deposits kept as reserves with the CBN and remains at 12 per cent for all other deposits. The CoT which was N5 per mille was last year cut to N3 per mille and is currently at N2 per mille until next year when it will be zero CoT on all transactions.

    Solanke advised that the lenders must be disciplined on the cost line and properly manage their depreciation charges before they could deliver earnings growth. “We think there is a precarious balance between these headwinds and a number of tailwinds, and think it remains challenging for banks to deliver attractive earnings growth; the risk of another year of flat-to-negative earnings growth cannot be ruled out,” he said.

    The CBN had at the last Monetary Policy Committee (MPC) meeting raised the CRR on public sector deposits from 50 to 75 per cent. That was after initial increase from 12 per cent to 50 per cent in July last year. The CRR is a portion of banks’ deposits kept with the CBN. Analysts said these policy changes in less than a year represent a major policy challenge for the lenders.

    Also, the banks’ heavier reliance on term deposits has left many of some of them competitively disadvantaged as against the scale banks, and the concentration of market share by tier one banks has forced tier two banks to work harder to deliver improved returns in this environment.