On Thursday December 1, the Minister of Finance, Ngozi Okonjo-Iweala,
cringed when the senate joint committee investigating the management of
funds set aside for petroleum subsidy handed her a seven-day ultimatum
to produce a secret forensic report on the Nigerian National Petroleum
Corporation in her custody.
The audit (click to download): Consolidated Detailed Findings-v1,
done for her ministry by renowned audit and advisory consultancy, KPMG,
which exposed the massive financial malfeasance and monumental
corruption in the NNPC, is one document the federal government, the
petroleum ministry and the NNPC have worked hard to conceal for a little
over a year now.
The report, which could trigger a fierce face-off between the federal
and state governments, is one of the most closely guarded secrets in
Nigeria today. It contains shocking details of how the NNPC, and by
implication, the federal government has been swindling the states.
So when the committee requested Mrs. Okonjo-Iweala to produce it, she
became a bit uneasy, knowing that doing so might embarrass the
administration and sparked some troubles for the NNPC, a source close to
her told the Times. Initially the minister didn’t make any commitment,
but when pressed by committee members, she reluctantly acceded to the
request.
It is not known at press time whether she has sent the document to
the committee. Contacted yesterday, her spokesperson, Paul Nwabuikwu,
said he had no information on the matter. Calls to the chairman of the
senate joint committee, Magnus Abe (PDP, Rivers), were unanswered. But
as at noon today, long after the ultimatum given to Mrs. Okonjo-iweala
expired, a source close to the committee said the minister was yet to
make the report available. He said there was high-powered lobby by the
NNPC not to make the document public.
The damning report
But the Times has scooped the report for you in case the minister fails to produce it or does so to the committee in camera.
As far as the 41-page report is concerned, the NNPC is a cesspool of
monumental corruption and fraud. The report detailed the corporation’s
sharp business practices, violation of laid down rules and regulations,
illegal deductions of funds belonging to the state, and failure to
account for several billions of naira that should go to the federation
account.
The agency, the report says, has also severely defrauded our country
in subsidy claims. Auditors found that between 2007 and 2009 alone, the
NNPC over-deducted funds in subsidy claims to the tune of N28.5bn. It
has not been able to account for the sum ever since.
The over-deduction from its remittance to the federation account for
2010 and 2011, believed to be in several billions of naira, is not
captured in the report.
The Federal Government, through the Federal Ministry of Finance,
hired KPMG and another Nigerian auditing firm, S.S. Afemikhe & Co.,
in July 2010, to look into the books of the corporation following
allegations of “wrongful deductions at source by the NNPC to fund its
operations” by the 36 state governors.
There were also concerns at the time that “the procedures for
managing and reporting the country’s crude oil and gas revenues are
opaque and characterized by gaps, overlaps and inconsistencies in the
role of key parties responsible for the assessment, collection and
reporting on these revenue streams.”
Officials of the petroleum ministry and the NNPC, a source at the
finance ministry disclosed, developed cold feet after the auditors were
sent in, and indeed tried hard to frustrate the representatives of the
two audit firms by failing to supply evaluation criteria for commercial
bids submitted in respect of petroleum products importation.
Believing that would turn the auditors away, our source further
explained, the corporation also failed to provide them with other
relevant documents such as the criteria for allocation of products and
product volumes to importers/suppliers and periodic prequalification
list of approved products importers/suppliers.
But in spite of the difficulty they faced, the auditors were able to
determine that the NNPC had been anything but transparent in the
management of our country’s oil resources.
The report that emerged from the audit was just too damning that the
leadership of the petroleum ministry, the NNPC and some few other
elements in the Federal Government have worked hard to keep it away from
the 36 state governors and federal lawmakers in particular and
Nigerians in general.
Stealing the states blind
In what is likely to anger state governors, the audit established
that the corporation was in the habit of arbitrarily estimating subsidy
claims and then over-deducting funds from proceeds of domestic crude
sales.
“For example,” the report said, N25bn was deducted as subsidy
estimate for September 2009 from domestic crude sales proceeds while
PPPRA approved a subsidy of N23.8bn. N35bn was also deducted as subsidy
estimate fro November 2009 but PPPRA approved of N21.3bn.”
The auditors’ analysis indicates “over-deduction for these two months
amounted to N14.9bn. However, only N4.2.bn was swept into the
Federation Account by the NNPC as adjustment for subsidy claimable in
the two months.” That is beside the N11.8bn subsidy claim the NNPC
claimed it paid for imported products that didn’t reach consumers.
State governors have always complained that the NNPC was
shortchanging them through illegal deductions from revenues payable to
the federation account.
Fraudulent underhand tactics
Over-deduction is however not the only way the corporation is
defrauding the federal and state governments. According to laid down
regulations, the NNPC is invoiced in dollars for domestic crude
allocations but is expected to remit the equivalent naira value to the
Federation Account. But auditors found to their chagrin that in doing
that, the corporation used exchange rates far lower than those published
by the Central Bank of Nigeria.
Using this “fraudulent underhand tactics”, the NNPC succeeded in
cheating the three levels of government of a whooping N85.2bn in three
years – N25.7bn in 2007, N33.8bn in 2008 and N26.7bn in 2009.
When the auditors requested explanations for these exchange rate
disparities, the NNPC claimed it obtained the exchange rates it used
from the CBN via telephone.
The report also severely indicted the NNPC over the shoddy and
non-transparent manner it renews crude sale contracts every year. The
auditors noted that “evaluation criteria for renewal of contracts are
not clearly stated in the contract document”, and that the selection
exercises were based on individual discretion and wrong assumptions and
criteria.”
The NNPC claims that renewal of contract was based on performance of
off-takers (buyers). But the auditors observed that the basis and
process for determining performance were not clearly defined.
The auditors wondered why in 2007 and 2008, some companies not on the
approved list of buyers for that year were allocated crude, a practice
the examiners believe had led to crude being sold to non-credible
buyers, even with relevant guarantees and safeguards not implemented.
Specifically the auditors queried the allocation of crude to Ovlas
Trading (2, 852,316 barrels in 2007 and 906, 269 barrels in 2008)
Petrojam (2,818,914 in 2007), Oil Fields (950,166 barrels in 2007) and
Zenon (906,000 barrels in 2008) even when they were not on the list of
authorized buyers for that year.
Contracts for the importation of products, the auditors wrote, were
also routinely awarded without regard for approved guidelines and
procedures. “We observed that contracts for the importation of petroleum
products were awarded to companies and suppliers not listed in the
approved prequalification list used for the fourth quarter 2008
importation,” the report noted.
The auditors specifically queried the award of contracts in that
manner to Astana Oil Corporation Limited, Natural Energy and Oando, when
they were not prequalified for patronage that year.
Among other forms of misdemeanour, ranging from poor accounting to
shoddy record keeping, the auditors also indicted the corporation for
leaving its own storage facilities, unused, and then proceeding to incur
additional cost from leasing of third party storage facilities.
The auditors reported that DPK tanks (with storage capacity of 18,000
cubic metres) at the PPMC depots within the Mosimi Area had not been
used for three years even though there were in good condition. Yet the
corporation, the examiners added, had been leasing storage facilities
from third parties.
The spokesperson of the NNPC, Levi Ajuonuma, declined to comment on
the report, saying he had nothing to say until the government releases
it officially.
( culled from : Premium times and African spotlight )
God bless KPMG
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