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  • Facts, figures on alleged $20b missing oil fund, by PwC

    Facts, figures on alleged $20b missing oil fund, by PwC

    Is $20 billion oil cash missing? No, says accounting giant PriceWaterhouseCoopers (PwC), in its forensic audit report on the Nigerian National Petroleum Corporation (NNPC). It said $1.48 billion is missing, and directed NNPC to refund the cash to the Federation Account. It also also recommended how NNPC can be efficiently run to forestall a recurrence. EMEKA UGWUANYI reports.

    After about a year–and–a-half, the allegation of stolen $20 billion oil fund in which the Nigerian National Petroleum Corporation (NNPC) was fingered as the culprit has been laid to rest, following the release of the report of the PriceWaterhouseCoopers (PwC) last month.

    But there is need for the Federal Government to implement some of the auditors’recommendations to enhance the corporation’s efficiency.

    The missing oil money saga started on September 25, 2013, when the former Central Bank of Nigeria (CBN) Governor, now Emir of Kano, Sanusi Lamido Sanusi, wrote President Goodluck Jonathan, alleging that between January 2012 and July 2013, NNPC lifted 594,024,107 barrels of crude oil worth $65,332,350,514.57.

    According to him, of this amount, NNPC paid only $15,528,410,098.77, representing 24 per cent of the value. This indicated that the NNPC was yet to account for, and pay to the Federation Account, over $49.8 billion or 76 per cent of oil lifted in the period.

    On September 27, 2013, the President passed the letter to the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, to explain the allegations against the NNPC. The minister forwarded the letter to the former NNPC Group Managing Director (GMD), Andrew Yakubu, on September 30.

    On October 4, 2013, the minister forwarded the explanations of the GMD to the President. Nothing was heard on the matter for over a month.

    The NNPC presumed the Presidency and CBN were satisfied with the explanations until it was learnt that on December 8, 2013, the contents of the CBN’s letter were leaked to the media, including the online publications. That is how one of the most controversial issues of the nation started. In view of the weighty allegations, the Senate Plenary directed its Committee on Finance to investigate the alleged unremitted $49.8 billion.

    The NNPC also explained to the public what happened. The Corporation stated that the CBN governor did not understand the workings of the oil industry and how revenues from oil lifting were remitted to the Federation Account, adding that the CBN actually understated the figures of the lifting by NNPC by 4.13 per cent. The Corporation explained what equity crude, royalty oil, tax oil, volume for third party financing and NPDC equity volume are, just to buttress its point.

    NPDC (Nigerian Petroleum Development Company) is an arm of NNPC. Yakubu stated that remittances of proceed from each of the five streams are made according to statutory and production arrangements, adding that all remittances due to the Federation Account had been made into that account.

    In the same period, the Coordinating Minister of the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, directed the Inter-Agency Committee comprising the Federal Ministry of Finance, Budget Office of the Federation, Central Bank of Nigeria (CBN), NNPC, Federal Inland Revenue Service (FIRS) and the Department of Petroleum Resources (DPR) to reconcile the various figures given by the two agencies of the government, CBN and NNPC.

    The Inter-Agency Reconciliation Committee had at the end of its job, established that $39 billion of the alleged that $49.8billion had actually been remitted to the Federation Account and Mrs Okonjo-Iweala announced that the Committee was still working to reconcile the balance of $10.8 billion.

    But when the Finance Minister and the CBN Governor appeared before the Senator Ahmed Makarfi- led Senate Committee on Finance, Mrs Okonjo-Iweala held on to the $10.8 billion balance but the former CBN Governor held on to $12 billion as the  unremitted revenue to the Federation Account.

    The Group Executive Director of Finance and Accounts, NNPC, Mr. Bernard Otti, to prove accountability of the alleged missing funds, gave a breakdown of the $10.8 billion unremitted funds as follows: Unpaid subsidy $8.49 billion, Maintenance of National Strategic Reserve$0.37 billion, Product and crude oil losses $0.72 billion and cost of pipeline vandalism and repairs $1.22 billion.

    The CBN Governor later insisted that the amount unremitted to the Federation Account was $20 billion and gave a breakdown as follows: outstanding $12 billion, $6 billion gross revenue earned by NPDC, and $2 billion being payments to third parties. The CBN governor stated that NPDC, being a subsidiary of the NNPC, must remit all its revenue to the Federation Account in line with the constitutional requirement in Section 162 (10) c.

    He also questioned the legality of NNPC floating subsidiaries to do business and keep their funds, and also the propriety of the process of incorporating NPDC and the strategic Agreements it entered into.

    The issue of subsidising kerosene also came up before the Senate Committee as well as the resistance by Nigerians when the government wanted to stop fuel subsidy, including kerosene in 2012. The report of the Committee was debated on the floor of the Senate at plenary and it adopted most of the recommendations of the Committee. It, particularly, resolved, based on the recommendations of the Committee, that the allegation of the former CBN governor that some money was missing was false and that no money (be it $49.8billion, $20billion, $12billion, or $10.8billion) was missing.

    On kerosene subsidy, the Committee observed that the government policy on the issue was ambiguous, an issue which made the Ministry of Finance and the Ministry of Petroleum to toe different lines on the matter.

    To ensure transparency and clarity on the issue, PriceWaterhouse Coopers (PwC) was appointed to look into the allegation and come out with an independent findings. According to the findings, total revenue generated, including additional revenue upon investigation, was $69.34 billion while actual remittance was $50.81 billion. Unremitted revenues by NPDC were $5.11 billion while petrol (PMS) and kerosene (DPK) subsidy was $8.70 billion. The costs attributed to domestic crude was $2.65 billion and other costs not directly related to domestic crude oil operations was $2.81 billion) while salaries and benefits was $1.52 billion.

    Monthly operations was $0.48 billion and other third party payments, including training course fees, estacode, and consultancy fees, and other vendor payments was $0.81 billion while the NPDC signature bonus was $1.75 billion and its taxes and royalties $0.47 billion. Therefore, updated expected refunds by NNPC/NPDC to Federal Government is $1.48 billion, the report stated.

     

    The facts, figures

     

    The PwC submitted its report on February 2, this year. The auditing firm stated that its findings bear out some of the key points that were made on proper reconciliation and accounting for crude oil revenues and related subsidy claims, costs and expenses defrayed, and the matter of Oil Mining Leases (OMLs) transferred to the NPDC. It said that the gross revenue generated from Federal Government’s crude lifting for January 1, 2012 to July 31, 2013, was $67 billion reported by the Reconciliation Committee and the total cash remitted into the Federation Accounts in relation to these crude oil lifting, was $50.81 billion and not $47 billion as earlier reported by the Reconciliation Committee.

    “The balance of the generated revenue is accounted for as follows: Revenue reported by NPDC of $5.11 billion by its then Managing Director Mr. Victor Briggs during the Senate hearings will be accounted for through the financial statements of NPDC, and any dividend declared will flow into the federation account. Premium Motor Spirit (PMS) and Dual Purpose Kerosene (DPK) subsidy was $8.7 billion, NNPC’s initial costs verified and accepted by the Senate of $2.65 billion, additional NNPC costs, following the audit $2.81 billion.

    “Added to the revenue is the unremitted NPDC signature bonus due for divested assets and taxes/royalties totalling $2.22 billion. Hence the net amount attributable to the Federation Account following the above summary is $1.48 billion,” the report stated.

    PwC further stated that NNPC  provided information and explanations on the difference between the gross revenues and aggregate remittances leading to a potential excess remittance by NNPC of $0.74 billion, without considering the expected remittances from NPDC. Other indirect costs of $2.81 billion which were not part of the submissions to the Senate Committee hearings have been defrayed to arrive at this position.

    “NNPC and NPDC should refund an aggregate amount of $1.48 billion; this is after taking account of the excess remittance described above and outstanding self-assessed taxes, royalties and signature bonuses for divested assets transferred to NPDC. The transfer to NPDC of remainder interests in Oil Mining Leases (OMLs) divested by Shell were validly made to NPDC on the basis of a legal opinion provided by the Attorney-General of the Federation (AGF) to the Senate Committee on the matter.

    “By reference to the submission to the Senate Committee, NPDC reported crude oil revenues of $5.11 billion (net of taxes and royalties) in the period. Subject to defrayment of its costs, the AGF’s opinion holds that NPDC/NNPC are expected to, ultimately, effect a remittance to the Federation Accounts by way of net revenue (dividend) payment to NNPC. NPDC has not declared a dividend to NNPC on the basis of which remittances are to be made to the Federation Accounts in line with the AGF’s opinion. The matter of dividend (net revenue) from NPDC should be followed up for final resolution.”

    The auditing firm said that on the  subsidy on DPK (kerosene), the Presidential Directive of October 19, 2009 was not gazetted and there is no legal instrument cancelling the subsidy on DPK. The Senate Committee had also concluded that all that was required was for the Federal Government to propose appropriation for the unappropriated subsidy for the period in a supplemental budget. DPK subsidies in the review period amounted to $3.38 billion, according to the Petroleum Products Pricing Regulatory Agency (PPPRA).

    The report further stated that the NNPC Act provides that “… Such money as may be received by the Corporation in its operations or in relation to the exercise by the Corporation of any of its functions under this Act, and from such fund there shall be defrayed all expenses incurred by the Corporation.”The Corporation defrays its costs and expenses (including the costs of its loss making subsidiaries), from crude oil revenues in line with the provisions of the NNPC Act.

     

    Recommendations

     

    The report noted that the application of the foregoing principle has resulted in the potential excess remittance situation, and indicates that NNPC operates an unsustainable model. It stated that 46 per cent of proceeds of domestic crude oil revenues for the period was spent on operations and subsidies. The Corporation is unable to sustain monthly remittances to the Federal Account Allocation Committee (FAAC) and also meet its operational costs from the proceeds of domestic crude oil revenues and have to resort to third parties to bridge the funding gap.

    “At today’s crude oil prices at 62 per cent drop from 2012 levels), if NNPC’s subsidies and operational costs are maintained and crude oil production volumes are maintained at current levels, the Corporation will exhaust all the proceeds of domestic crude oil sales and still require additional third party funding for the deficit.  This means that the Corporation will have no funds to make any remittances to FAAC.

    “In view of the provisions of the NNPC Act which appears to grant NNPC a “blank” cheque to spend money without limit or control, and the gravity of the unsustainability of the NNPC operating model and its implications for remittances (or potential lack thereof) going forward, the NNPC Model must be reviewed and restructured as a matter of urgency. The NNPC Act should be reviewed as its visions contradict the requirement that NNPC be run as a commercially viable entity.”

    The forensic audit report, like the Senate Committee on Finance’s Probe report, clearly stated that all the revenue generated from Federal Government crude lifting for the period of January 1, 2012 to July 31,  2013 amounting to $69.34 billion was fully accounted for. The report also didn’t indict the NNPC over the allegation of unremitted or missing oil revenue. Therefore, anyone or organisation still circulating information about any unremitted or missing oil revenue or that NNPC was indicted in any report over the allegation is only either being mischievous or displaying disdain for truth, the NNPC boss stated at a forum in Lagos.

     

  • PwC faults bill seeking compulsory listing on NSE

    A Bill known as Private Companies Conversion and Listing Bill, 2013 is undergoing legislative proceedings at the National Assembly, Head of Tax at PricewaterhouseCoopers (PwC) Nigeria, Taiwo Oyedele, has said.

    In an emailed report, the tax expert said the Bill seeks to compel private companies to convert to public companies by becoming listed on the Nigerian Stock Exchange (NSE). The thresholds for the mandatory conversion are shareholders fund in excess of N40 billion turnover or total assets of N80 billion, he explained.

    He said compelling private companies to list their securities contradicts extant laws such as Section 25 of the Nigerian Investment Promotion Commission Act which states unequivocally that “no person who owns, whether wholly or in part, the capital of any enterprise shall be compelled by law to surrender his interest in the capital to any other person”.

    Oyedele said that on face value, the Bill looks like a good initiative but a careful analysis suggests otherwise. “Nigeria with a Gross Domestic Product of $510 billion is the largest economy in Africa but the country’s capital market with a total capitalisation of about $80 billion is dwarfed by the Johannesburg Stock Exchange with market capitalisation of over $1 trillion as at the end of last year.

    South Africa did not achieve this by forcing private companies to list but rather through impeccable regulatory enforcement. The country is ranked first in the world in terms of regulation of securities exchanges in the World Economic Forum’s Global Competitiveness Survey for 2013 to 2014,” he said.

    He said a private company that meets any of the thresholds must be converted to a public company and be listed on the NSE within 12 months.

    According to the Bill, the conversion is aimed at promoting growth for both the company and the capital market.

  • PwC faults bill seeking compulsory listing on NSE

    PwC faults bill seeking compulsory listing on NSE

    A Bill known as Private Companies Conversion and Listing Bill, 2013, is undergoing legislative proceedings at the National Assembly, Head of Tax at PricewaterhouseCoopers (PwC) Nigeria, Taiwo Oyedele, has said.

    In an emailed report, the tax expert, said the Bill seeks to compel private companies to convert to public companies by listing on the Nigerian Stock Exchange (NSE). The thresholds for the mandatory conversion are shareholders fund in excess of N40 billion turnover, or total assets of N80 billion, he explained.

    He said that compelling private companies to list their securities, contradicts extant laws, such as Section 25 of the Nigerian Investment Promotion Commission Act which states unequivocally, that “no person who owns, whether wholly or in part, the capital of any enterprise shall be compelled by law to surrender his interest in the capital to any other person.”

    Oyedele said that on its face value, the Bill looks like a good initiative, but a careful analysis suggests otherwise. “Nigeria with a Gross Domestic Product of $510 billion, is the largest economy in Africa, but the country’s capital market with a total capitalisation of about $80 billion is dwarfed by the Johannesburg Stock Exchange with market capitalisation of over $1 trillion, as at the end of 2013.

    South Africa did not achieve this by forcing private companies to list, but rather through impeccable regulatory enforcement. The country is ranked first in the world in terms of regulation of securities exchanges in the World Economic Forum’s Global Competitiveness Survey for 2013 to 2014,” he said.

    He said a private company that meets any of the thresholds, must be converted to a public company and be listed on the NSE within 12 months. As stated in the Bill, the conversion is aimed at promoting growth for both the company and the Nigerian capital market.

    But Oyedele said it is counterintuitive for the sponsors of the Bill to expect an increase in tax revenue by granting tax waivers that do not necessarily increase the country’s tax base.

    He said the Bill indicates that asset value of a company is based on the gross value of the company’s assets as recorded in its balance sheet at the end of the last audited financial year; and annual turnover is based on the gross revenue of the company arising from the sale and rendering of goods and services; and the use of the company’s assets in a manner that yields interest, royalties and dividends.

    Also, the Bill extends the definition of private companies beyond the provisions of the Companies and Allied Matters Act (CAMA) to cover any body corporate, firm or partnership or any other entity. A fine of 10 per cent of annual turnover and imprisonment of at least two years may be imposed for non-compliance.

  • PwC to audit NNPC – Okonjo-Iweala

    PwC to audit NNPC – Okonjo-Iweala

    The Federal Government Thursday said it has appointed forensic auditors to investigate the activities of the Nigerian National Petroleum Corporation.

    The disclosure was made by the Minister of Finance, Dr. Ngozi Okonjo-Iweala, who also revealed that accounting firm – PriceWaterhouseCoopers (PwC) has been appointed to carry out the exercise.

    She spoke during a debate at the 24the edition of the World Economic Forum for Africa with theme: “Forging inclusive growth, creating jobs.”

    Okonjo-Iweala said the exercise would be carried out within 16 weeks under the supervision of the Office of the Auditor General of the Federation.

    The suspended Governor of the Central Bank of Nigeria, Mallam Sanusi Lamido Sanusi, had blown the whistle on a missing $20 billion, which he claimed was not remitted to the federation account by the NNPC.

    Following the controversy generated by the revelation, Okonjo-Iweala said the forensic audit would help unravel all mystery surrounding the missing fund.

    “On the issue of holding government to account, I don’t think Nigerians are laying back. We need that transparency and we welcome it. The (suspended) CBN Governor raised issues on unaccounted amount from the federation account and we at the ministry of finance have for two years been reconciling these figures with the NNPC to know what they are supposed to remit to the federation account.

    “Our feeling is that the only way is to have a forensic audit that would let Nigerians know the issue,” the minister said.

     

  • Tax: Nigeria ranked 170 out of 189 countries

    Nigeria has been ranked 170 out of 189 countries evaluated for their tax regime.

    The exercise which evaluated tax practices in the countries covered  was conducted by the World Bank and PriceWaterhouseCoopers (PwC).

    Addressing journalists in Abuja during the presentation of the report on Tuesday, the Head, Tax and Corporate Advisory Service of PwC, Taiwo Oyedele, lamented that Nigeria is not doing well in that regard.

    He said, “The previous year’s report covered 185 countries and Nigeria was 155 so we’ve lost some places and moved down to 170. But we must bear in mind that last year only 185 economies were evaluated.

    “Nigeria got this latest ranking because the time it takes for small companies to comply with tax payment in the country is much compare to other nations. It takes a small company 956 hours a year to comply with tax payment procedures and the average for worldwide is 268 hours. The average for Africa is 230 hours and Nigeria is more than four times the average for Africa.

    Oyedele said they have seen a correlation between a good tax system compliance rate and growth in the Gross Domestic Product.

     

     

  • PwC chief advocates tax reforms to aid economic growth

    PwC chief advocates tax reforms to aid economic growth

    PricewaterhouseCoopers (PwC) Nigeria has called on the government to overhaul the country’s tax system to ensure that taxes are used to bring about sustainable economic growth.

    The Country Leader for PwC Nigeria and Regional Senior Partner, West Africa, Ken Igbokwe, made the call in a paper, titled: Hallmarks of a good tax system he presented at the launch of the Nigeria Leadership Initiative’s (NLI) White Papers Volume 2.

    He observed that taxes should be raised to meet social needs, develop infrastructure and influence economic decisions without discouraging investments or stifling growth.

    He argued that sensible tax reforms would pave the way to a sustainable economic growth in the country.

     PwC Partner and Head of Tax, Taiwo Oyedele, said the task of governments in meeting these requirements is not easy, particularly in the economic circumstances, adding that what is important is ensuring that the tax system encourages, and not discourages, business growth.

     He pointed out that the most important aspect of achieving a good tax system is having the right legal framework in place, and called on the legislative arms of government to consciously make laws that are clear and easy to understand. He called for the establishment of a specific committee of the National and State Assemblies on Tax Matters; and empowering the Joint Tax Board to enforce compliance with tax laws, rather than merely acting in an advisory capacity.

     Oyedele defined a good tax system as one that has a clear purpose – strategic, coherent, efficient, fair and transparent – and urged the three arms of government to carry out their respective roles in building a good tax system.

     He tasked the executive arm of government to ensure an efficient tax administration. “The tax authorities must treat taxpayers as customers, trusting them but verifying the information provided within appropriate benchmarks.”

     The judiciary, according to him, must ensure fairness and transparency. To be able to effectively play this role, he urged the judiciary to develop the requisite tax knowledge and skills, and promptly dispense with tax cases.

     “There are bound to be tax controversies and disputes between tax authorities and taxpayers,” he said. “The tax system relies on the judiciary as the last resort – whether arising from ambiguities in the law, misapplication by the tax authorities or other irreconcilable differences.”

     Oyedele continued, “PwC’s sponsorship of the White Papers is an indication of the firm’s commitment to contributing to an enabling business environment in Nigeria. I urge all stakeholders especially tax administrators to avail themselves of the knowledge contained in the White Papers in formulating better tax policies for the country.

    “Today’s launch of the White Papers is not intended to be an end in itself but a forum to spur the many stakeholders in the country’s tax system – policymakers, members of the organised private sector, individuals, civil society groups and even religious leaders – to come together and devise better ways of making the country’s tax system work,” he said.

     In his introduction to the White Papers, Yinka Oyinlola, the Chief Executive Officer of NLI, said that although Nigeria has made great strides in reforming its tax legislation and administration over the years, considerable improvements need to be made in the areas of fair taxation and usage of taxes to transform the economy.

     He informed the participants that the White Papers, which are conceived as thought papers capable of contributing to leadership, values, and knowledge in Nigeria, are the NLI’s contribution to a long-term improvement of the Nigerian tax system.

     The NLI is an international non-profit and non-partisan organisation that provides a platform for Nigerian leaders to enhance or develop their values-based skills and to assume a transformative role.