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NNPC And The Loot Of A Broken Nation!
A number of Nigeria's retired soldiers and a number of civilian executives in the oil industry
has collaborated with their western world allies to milk the sweet Bonny Light crude away
and laughed to the banks while children and women in Nigeria's riverine areas and in the
Sahelian, drought-stricken parts, and indeed, most of the country, went to bed hungry and
with no books to study in school. These allies utilize their deft and far-reaching "logistical
leverage" in Switzerland to "assist" their Nigeria cohorts in making huge deposits in private,
secure accounts. Bribery and massive inducement through hard currency transfers were
staples of the western conspirators' financial machine inside Nigeria , and beyond.

Hierarchies in the NNPC, a monumental failing institution, is being used to loot without
caution, refused to take instances from PETRONAS Malaysia, PETRONAS was set up as
a national organization about the same time as NNPC but today while the former has
helped immensely in the development of Malaysia through the adequate management of the
nations oil and gas resources, our NNPC has become a burden on the nation due to the
ineptitude and greed of these so called directors and politicians. You are all a big shame
Oil and oil service companies frequently confront costly delays and inefficiencies in their
dealings with Nigerian state institutions. Though they do not constitute corruption per se,
such delays create the motive and opportunity for “greasing the wheels”, or paying bribes to
speed along procedures. Three examples illustrate these kinds of inefficiencies: First, oil
companies must gain approval and a visa for each expatriate worker they employ.  In 2007,
the US Department of Justice investigated over 12 oil service companies (including industry
heavyweights Schlumberger and Transocean) for allegedly bribing Nigerian customs officials
via a third-party company. FCPA investigations provide evidence of long-suspected
practices: high-level jobs in customs and the port authority are widely perceived as
immensely profitable for the officials who hold them. Lastly, contracts and other
expenditures above a low threshold require NNPC approval. Most contracts are subject to a
three-tier approval process consisting of NAPIMS, the NNPC Group Executive Council, and
the NNPC Board, with larger awards also requiring Federal Executive Council approval. The
average time for the review of contracts is 24 months, while the global industry average is
closer to six to nine months. This bottleneck ensures that top NNPC officials remain the
gatekeepers of the industry. Protecting this arrangement often contradicts profit
maximization within the national oil company. As a result, its functions remain inefficient,
politicized, and susceptible to capture by individual interests.

Bunkering is the theft of crude oil directly from pipelines, flow stations, and export facilities.
Most sources quote around 100,000 bpd lost via bunkering in Nigeria , a quantity equal to
the entire oil production of Cameroon . Some estimates, however, run as high as 600,000
bpd. It is widely perceived that both government and oil company representatives are
complicit in bunkering activities. Groups of well-armed young men typically execute the
pipeline sabotage, but their activities are overseen by powerful figures. Other methods of
bunkering (e.g. the loading of more crude than is reported onto export vessels) would likely
require some level of official complicity. Bunkering inflicts serious costs. It lowers the
amount of crude Nigeria exports, thereby reducing the revenues which accrue to the state.
The security risks and damage to equipment associated with bunkering dissuade
investment into onshore exploration and production. More perversely, bunkering provides a
steady stream of funding for the militancy movements and corrupt syndicates responsible
for destabilizing the Delta region. Buying arms, paying militant forces, and bribing officials
become easier with readily available cash at hand. Exporting crude and importing refined
products. Each year, NNPC issues “lifting” or export contracts to international oil trading
companies, several NNPC-affiliated companies, and a few foreign governments. The traders
buy the crude from NNPC at market price and sell it on to refineries and other buyers
worldwide.

Similarly, NNPC also awards licenses to import refined petroleum products such as petrol,
kerosene, and diesel. These export and import transactions yield high levels of fungible
returns, and the lack of transparency surrounding them creates considerable opportunities
for corruption. Following a pre–qualification process for the licenses, it is not clear how
winners are selected or how much the contracts are worth. Press reports allege that
officials regularly receive payments by the companies involved. Nigeria ’s four refineries, due
to persistent mismanagement, produce only around half of their combined potential
capacity of 438,000 bpd. As a result, Nigeria imports the majority of the refined petroleum
products used by its population. Petrol and kerosene prices are subsidized by the
government. Proponents of the subsidy argue that it represents the only tangible benefit of
oil wealth for most Nigerians. On the other hand, the subsidy and weak market regulation
create enormous distortions and opportunities for corruption. Distributors import refined
products at the international market price, and sell them on the Nigerian market at the
subsidized price. An NNPC subsidiary reimburses these companies for the difference.
These payments are often delayed for months, creating incentives for the companies to
induce government payments. The subsidy “the bottleneck around reviewing contracts
ensures that top officials remain the gatekeepers of the industry”

Allegedly, distributors collect the subsidy reimbursement on imported products, or buy
them from Nigerian refineries at the subsidized price. They then re-import the same
products so as to receive the subsidy refund again or sell them for much higher prices on
the black market or abroad. Corruption, either involving public sector actors or enabled by
their weakness, constrains the Nigerian oil industry’s earning potential by misallocating
funds and contracts, rewarding inefficiency, and permitting the theft of oil. Oil-related
corruption also harms the national interest by increasing the amount of wealth available
through illicit means. This problem, however, should be neither conceived of nor tackled in a
vacuum. A perfectly managed oil sector will do little to further national development if the
resulting revenues are mismanaged or lost due to corruption. The management and
allocation of oil revenues require much greater oversight than is presently the case.
Government and companies allocate some oil earnings to the Niger Delta Development
Commission (NDDC) and the Petroleum Technology Development Fund (PTDF). Serious
accusations of fraud have surrounded both institutions in recent years. NNPC, which earns
revenues through a number of its subsidiaries, is subject to unusually limited budgetary and
expenditure oversight. However, beyond these specific challenges, the utility of oil revenues
depends on the wider practices of budgetary planning, execution, and oversight at the
federal, state, and local levels of government. Reducing oil sector corruption and improving
the quality of oil revenue expenditure remain great challenges. Nigeria exhibits
characteristics of the “rentier state”: the driving logic of governance is the allocation of
resources and opportunities in ways that strengthen the position of those in power. Such a
system, operating over decades, creates seats of wealth and influence which depend on
these distributional patterns for their continued existence. Reforms that advance due
process, transparency, and oversight threaten this state of affairs. The second Brief in this
series will describe efforts to reform the existing system for regulating oil in Nigeria , the
obstacles faced by reformists, and how external actors might boost their chances at
success.

In what is considered alarming and shocking, Nigeria must have lost millions of dollars of
revenue due from contractors lifting Nigeria 's crude oil, who are not being assessed for tax
and so have been avoiding taxes due to the federation account. This revelation is contained
in an interim report of the ongoing audit of the NNPC and the entire Nigerian oil and gas
industry. A copy of the report made available to this reporter showed that the Federal Inland
Revenue Services, FIRS, Nigeria's own IRS, has been encountering difficulty in assessing
crude lifting contractors for tax purposes, "due to problems identifying who they are, and
the amount of freight income they receive."

Crude oil lifting contractors in the oil sectors are those licensed by the federal government,
mainly directly from the president who remains the substantial Oil Minister, and given the
authority to transport and sell the crude on behalf of NNPC in the open market. Normally
they are given a selling price of up to $9-10 less than the market price to enable them make
a profit.

The disclosure of the report which is marked confidential follows this reporter's story on the
mess encountered by the external auditors of NNPC book. The report listed the taxes in the
oil and gas sector as including Petroleum Profit Tax, PPT, Withholding Tax, WHT, Value
Added Tax, VAT, Royalties, Licensing fees, Company Income Tax, CIT, among others. All
are payable to the federal government either through payment to NNPC or directly to the
federation account.

Although the Company Income tax Act, CITA requires companies operating within Nigeria
territorial waters to pay tax on freight income they earn lifting Nigerian crude oil, the
auditors from Hart Group of the UK found out that "it has not been possible to assess these
companies to Nigeria tax as a result of lack of information as to their name, address and
amount of freight income received by them."

This is the case even though these contractors are licensed by the same government that
oversees the FIRS which needs the information to assess their taxes. An incorrect data,
the auditors also revealed, is being applied in the computation done by DPR, of royalties
paid by the international oil companies to the federation account of Nigeria . Relying on the
DPR manual, the auditors noted regarding royalty computation: "The Petroleum Act of 1969
provides that a certain per cent be paid as Royalty on the chargeable value of crude oil/or
casing head petroleum spirit production in a relevant period."

This is the provision that DPR uses in calculating royalty for fiscal purposes. But the
auditors also noted that the Petroleum Proft Tax Act Cap 354 LFN of 1990 section 2 states
that royalty is calculated on 'casinghead petroleum spirit' or 'chargeable oil', which clarifies
that royalty should have been calculated at least on production at the gathering/flow station
at separation point which is the first available metered casinghead(wellhead) separation
data upstream.Not doing this meant that government's income from the royalty had been
undermined because the information used by DPR to fiscalize oil production varies from the
volume at the oil wellhead.

The auditors also lamented what it described as "inadequate interface" between FIRS, CBN
and other government offices in the oil sector, which is responsible for FIRS inability to
asses crude oil lifting contractors for tax purposes. According to the auditors "several
points of difficulty and/or systems weaknesses arise from the lack of information sharing
between Govt entities.

Specifically regarding the interface between FIRS and CBN, the auditors noted that "there
are difficulties of various kinds in tracking, monitoring and reconciling payments between
FIRS and CBN. For instance it was noted that "the foreign current payment of WHT, VAT
and CIT is collected by local designated which instruct their correspondent bank to remit
this to the relevant CBN foreign account.” The auditors continue: "For instance USD are
remitted to Reserve Bank of New York and Pound Sterling are remitted to Bank of England.
CBN advises FIRS through a columnar Foreign Operations Department statement. All these
taxes are lumped under the miscellaneous column."

The audit report then stated that the one effect of such an arrangement is that foreign
currency payment of WHT, VAT and CIT cannot be reconciled to the tax types and the
payer by FIRS. There is also a reported delay in the issuance of PPT payment advice by
the CBN to FIRS, taking as long as 15 and 30 days in some cased, something that is done
on daily basis in other countries. Another significant concern expressed by the auditors
whose final report is due in Feb 2006, but is expected to issue government another of its
regular interim reports in December is on the issue of "possible low producer estimates of
monthly PPT." According to the interim report: The PPT Act and the FIRS do not specify
any standard template for producing companies to estimate monthly PPT for filing and
payment. As a result, companies are free to use different parameters which could in some
cases generate low monthly PPT payments followed by a large adjusting (13th month)
payment on final assessment."

The auditors were seemingly alarmed that “There are no penalties for under estimation of
interim payments," and added that although this "weakness does not affect the aggregate
amount of PPT collected but might adversely affect the timing of payment. The timing
difference may be exploited to the benefit of companies and corresponding disbenefit of the
FGN."

Other significant worries expressed by the auditors include the fact that the Nigerian
Petroleum Development Company, NPDC, have been making royalty and PPT payments in
local currency "even though the payments are supposed to be made in the currency of
transaction," which is US dollars. Equally worrying is the fact that the CBN is said to be
unable "to reconcile NNPC payments for domestic crude to its constituent elements," be it
crude consumed by local refineries or exported and ultimately paid for by NNPC, confirming
the story of The Guardian on Sunday on October 23 that the NNPC audit is in a mess.

The auditors therefore recommended that the composition of the Crude Oil Accounts
Reconciliation Committee be reviewed. Currently the committee is made up of top level
government officials but the auditors noted that such senior people in government "may not
have time for detailed and extensive reconciliation. Therefore the Hart Group suggested that
"officers that directly execute the process should be members of the committee for effective
reconciliation.

Revenue losses associated with tax havens and offshore centres cannot be considered in
isolation. They interact with problems of unsustainable debt, deteriorating terms of trade,
and declining revenue. But there is no doubt the implied human development costs of tax
havens are large. The US$50 billion loss is equivalent to six times the estimated annual
costs of achieving universal primary education, and almost three times the cost of universal
primary health coverage. Of course, ending the diversion of resources from governments
into corporate profit margins and offshore bank accounts provides no guarantee that the
funds released will be used for poverty reduction purposes. This will depend on governments
developing effective poverty reduction strategies. But allowing current practices to continue
will undermine the successful implementation of such strategies.

Despite all of the debt, Nigeria remains an under-developed country with very weak physical
infrastructure and an outrageously low human development index. Although a lot of money
was spent on education, particularly in mid-70s to early 80s, much of the money owed was
spent on conspicuous consumption and unproductive salary increases in the public sector.
However, more outrageously, for the overwhelming portion of the debt, it is estimated that
over the years US $98.8 billion is stashed away by Nigerians in foreign banks, illegally
acquired money by its leaders, family members and cronies. During the Gulf Crisis of the
early 90s, about $12 billion of Nigeria 's oil windfall went missing. In five years alone (1993-
1998) General Abacha and some members of his family are now confirmed to have salted
away as much as $5 billion in Swiss, German, UK and American banks, among several
other countries. Abacha's son, currently on trial in Nigeria for other suspected crimes,
recently confessed to moving $700 million in cash from his home in Abuja through several
such banks, all on behalf of his father, no questions asked.
It is mind-boggling. One wonders how these large sums of monies from developing
countries are moved between banks in Western countries without eyebrows being raised,
when within the US , for example, a bank has to report to the US Reserve Bank if more
than $9,999 is transferred from a single account!

Nigeria’s biggest minus is its corruption reputation. Corruption has not only stigmatized the
country as untrustworthy but also earned it a third ranking as the world's most corrupt
nation on Transparency International's corruption index. .The question which millions of
concerned and informed Nigerians will be asking, today and later, is not only whether the
government of Yar'Adua should immediately seek financial remedy for unpaid millions in
royalties and false declarations of quantities of crude lifted by these oil thieves in
government.

Initiatives are useful up to a point, but they primarily reflect the concerns of northern
governments. Ironically, these governments are in a far stronger position than their
counterparts in developing countries. If revenue authorities in Britain and Germany feel
threatened by offshore activity, how much more severe are the problems facing countries
with weak systems of tax administration? And if governments in rich countries see tax
havens as a threat to their capacity to finance basic services, how much more serious are
the threats facing Nigeria? After all, these are countries in which 1.2 billion people have no
access to a health facility, in which 125 million primary school age children are not in
school, and in which one out of every five people live below the poverty line.

Lack of attention to poverty is only one part of the problem with current initiatives. Another
is their lack of balance. Nigeria ’s havens justifiably see the actions of northern
governments as being unbalanced and partial. Financial havens are part of a much wider
problem that extends beyond the 'offshore' activity of small island states to ‘onshore’
activity in major economies such as the City of London and New York . Yet OECD efforts to
address harmful tax competition have involved a crackdown on small state financial havens,
while a far more light-handed approach has been applied to member countries engaging in
harmful tax practices. Tax havens may seem far removed from the problem of poverty, but
they are intimately connected. There are three major ways in which multinational offices
undermine the interests of Nigeria .