An independent audit report of financial flows into the Federation Account from operations in the oil and gas sector has revealed that a total of N22.165 trillion ($143.5 billion) was earned as revenue from the sector from 2009 to 2011.
The audit, among others, revealed that the total accrual was four per cent short of the $148.8 billion earned by the country from the sector from 2006 to 2008.
The oil and gas industry audit, which was commissioned by the Nigeria Extractive Industries Transparency Initiative (NEITI) in line with its mandate for the period 2009 to 2011, was Thursday presented to the public in Abuja.
The audit, which was for the first time undertaken by an indigenous accounting and auditing firm, Sada Idris & Co, showed that proceeds from the sale of equity crude, royalty, signature bonus, concession rentals, gas flaring penalties, Petroleum Profit Tax (PPT) and companies’ income tax contributed to Nigeria’s earnings from the sector. The audit was concluded in nine months.
Other areas that contributed to these earnings included earnings from Pay As You Earn (PAYE), Value Added Tax (VAT), dividends and repayment of loans by the Nigerian Liquefied Natural Gas (NLNG), contributions to the Niger Delta Development Commission (NDDC) and the Education Tax Fund (ETF).
While presenting the audit report, Chairman of the National Stakeholders Working Group (NSWG) of NEITI, Mr. Ledum Mitee, said the financial audit had equally delved into the management of the controversial fuel subsidy scheme in which it discovered that the Nigerian National Petroleum Corporation (NNPC) had claimed a total of N1.40 trillion as subsidy payments directly from proceeds from domestic crude sales before remittance to the Federation Account.
Mitee stated that the report found out that subsidy payments claimed by the NNPC had increased by 110 per cent, that is, from its claims of N198 billion in 2009 and N416 billion in 2010 to N786 billion in 2011.
The report further showed that NNPC owed the federation N1.3 trillion from unremitted crude oil sales in the three-year period. An NNPC spokeswoman said the firm could not comment on the findings because it had not seen the report yet, Reuters reported Thursday.
“From this report, the total financial flows to the Federation Account from the oil and gas sector from 2009 to 2011 were $143.5 billion. This amount is made up of proceeds from the sales of equity crude, royalty, signature bonus, concession rentals, gas flaring penalties, PPT and companies income tax.
“A breakdown of these earnings shows that sales of crude oil and gas within the period under review amounted to $81.9 billion and the total revenue that accrued to government from PPT, royalty, signature bonus, gas flaring penalties and concessional rentals amounted to $45.7 billion.
“Also, revenue from companies’ income tax, VAT and withholding tax within the two-year period amounted to $6.1 billion, while $4.8 billion was reported as revenue from dividends and repayments of loans by NLNG.
“From the report, the total revenue flow to states arising from withholding tax and PAYE was $1.5 billion, while the total revenue flow to other entities arising from the contributions to NDDC and ETF was $3.2 billion.
“The total financial flows represent a decrease of four per cent from what government earned in the sector in 2006-2008 when compared to total flows of $148.8 billion as against the reported government earnings of $143.5 for the period 2009-2011.
“The audit explained the decrease as largely due to adjustments in the applicable average oil price despite fairly consistent production volumes,” Mitee explained.
Another important revelation in the report is that financial flows from NLNG included dividends and repayment of loans of $4.84 billion and a further $3.99 billion from the liquefied natural producer received by NNPC.
The report confirmed that these amounts have neither been remitted to the CBN/NNPC JP Morgan account nor to the Federation Account.
On the subsidy payment claims made by the NNPC, Mitee said: “The financial report clearly underlines that contrary to the practice where subsidy payments are claimed from the Petroleum Support Fund (PSF) through the PPPRA by all qualifying oil marketing companies, NNPC draws subsidy payments directly from domestic crude sales proceeds before remittance to the Federation Account.
“As a result, a sum of N1.40 trillion was claimed during the period by NNPC as oil subsidy payments.
“Subsidy payments claimed by NNPC increased by 110 per cent. For example, it rose from N198 billion in 2009 to N416 billion in 2010. In 2011 alone, it rose to N786 billion. The increase between 2009 and 2011 alone was 186 per cent.”
Other highlights of the report, as explained by Mitee, included unresolved differences between what government received and what companies claimed they paid into government’s account which amounted to $68.4 million and $311.85 million respectively, as well as the loss of N98.3 billion from NNPC’s applied average conversion rate which differed from the annual average of the Central Bank of Nigeria (CBN) rate.
Mitee also disclosed that the quartet of Neconde Energy Ltd, Septa Energy Ltd, Energia Ltd and Emerald Energy Resources had refused the auditors access to their financial books, adding that the defaulting companies will face the appropriate sanctions in accordance with NEITI Act, 2007.
In a related development, Ecobank has predicted that the Nigerian oil and gas industry could face a difficult 2013 as shale oil in the US takes an increasing share of the North American market, reported the Financial Times Thursday.
The bank estimated that Nigerian crude oil exports to the US could fall by over a quarter this year, from 800,000 barrels per day (bpd) in 2012 to as low as 580,000bpd in 2013.
Already in January, there were signs of stress. Crude oil shipments from Nigeria have, Ecobank said, declined from 75 cargoes in January to a scheduled 59 in March, and there is an unsold overhang of 21 out of 65 February cargoes.
This is an unusual situation given that the cargoes contain Nigeria’s premium grades of sweet and light crude, which are usually very much in demand.
As Head of Energy Research at Ecobank, Rolake Akinkugbe, explained, refiners in Asia are increasingly capable of handling larger volumes of sour crude oil grades, while European refiners are facing pressure on their margins and seeking lower-priced inputs.
Neither are looking favourably upon Nigerian oil grades, which are priced at a substantial premium to the sour grades from the Middle East.
“Nigeria and other oil producers in West Africa had a window of opportunity during the Libya crisis when the country’s (Libya's) supply was taken off the market,” she said.
“There was a great switch to African crude grades, which partly accounts for their pricing premium at the moment,” she added.
Libyan oil is now coming back on stream, but the major problem for Nigerian crude is the soaring volumes of shale oil being produced in the US.
The US is still Nigeria’s biggest oil export destination, but the relationship can no longer be taken for granted.
“A decade ago” said Akinkugbe, “the industry thought that by 2015 around 25 per cent of America’s oil would come from West Africa, but now there’s a dramatic change in that picture. African governments need to look for alternatives destinations.”
In recent years, she said, producers in West Africa and the Gulf of Guinea have exported around 2mbpd of oil to North America, but this has fallen to around 1mbpd, with the slump in Nigerian exports to the US being particularly severe due to the steeper price of its crude.
Having accounted for 12 per cent of US crude imports in 2011, Nigeria’s share fell to 6 per cent in 2012.
Nigeria’s oil exports to the US, Ecobank said, have already slumped to 700,000 bpd from the 2012 average of 800,000 bpd, and that could fall as far as 580,000bpd in 2013 as US domestic oil producers add an expected 800,000 bpd of new capacity