The math on NNPC’s FAAC remittances doesn’t add up

State Commissioners of finance from Nigeria’s 36 states feel the corporation is short-changing them as FAAC remittances continues to dip even as Nigeria sells more crude from higher oil prices, writes ISAAC ANYAOGU.

Commissioners for finance from the 36 states of the federation recently said their state governments would not accept anything short of the NNPC fully remitting N20 billion outstanding to the Federation Account.

They had gone into the monthly Federal Allocations Account Commitee (FAAC) meeting along with Kemi Adeosun, minister of finance expecting to share N147billion being proceeds from oil sales for the month of May but found that the NNPC remitted only N127 billion. Seething, they walked out of the meeting.

Addressing journalists after the fallout, Mamood Yunusa, chairman of the Finance Commissioners Forum, alleged that the national oil company remitted N127 billion as May earnings instead of N147 billion, leaving a shortfall of N20 billion.

“Based on all provable assumption parameters, the Nigerian National Petroleum Corporation (NNPC) is to remit N60 billion as Royalty based on the verbal admission of the Department of Petroleum Resources (DPR) and based on the MTEF (Medium Term Expenditure Framework) submitted by NNPC. The Petroleum Profit Tax (PPT) expected was to be 1.46 multiplied by 60 billion amounting to N87.6 billion; amounting to N147 billion expected in the federation account as against N127 billion paid by NNPC,” Yinusa said.

Yinusa further said, “NNPC claimed it spent N3.5 billion on product leakages, pipline vandalism, but the Department of Petroleum Resources (DPR), an agency that is supposed to keep such record claimed ignorance of the amount.”

The commissioners were especially miffed that they got more revenue from NNPC when crude oil was $50 per/barrel. It seemed strange that they are now receiving far less when the commodity is over $70/barrel.

“As equal stakeholders in the business, NNPC owes it a duty to Nigerians in the spirit of openness and transparency and by the Act that established it to be open and transparent to all stakeholders but states as stakeholders in federation account are not expected to take NNPC’s account hook, line and sinker but are allowed by law to ask questions for clarity.”

But the NNPC does not exactly deal in clarity. It explained in a release that it reached an understanding with the governors to accept a monthly remittance of N112 billion until revenue improves because it is paying cash call obligations on Joint Ventures and deducting fuel cost under recovery and pipeline maintenance fees.

The state-owned corporation says it should be patted on the back for increasing the FAAC haul by N35billion. Federating states share proceeds from oil income at monthly FAAC meetings. But the meeting for June to share May oil revenue ended in deadlock.

However, data obtained from the NNPC’s monthly financial reports indicate gaps in its claims.

Faltering Cash calls

Nigeria announced exit from cash call arrears in January last year, a debt burden that rose to $6.7bn according to NNPC data, by reaching an agreement with the International Oil Companies (IOCs) to trim down the amount to $5.1bn knocking off $1.6bn.

By the terms of the agreement, Nigeria would repay the $5.1bn over a period of five years. This means that the NNPC must pay at least $1.02billion each year to cover the debt.

But according to Maikanti Baru, the NNPC group managing director, the corporation has only paid $1billion out of these arrears since January 2017 indicating that the corporation has already fallen behind in payments by $530million as at July 2018.

Meanwhile the volume of remittances the NNPC claims it is paying for Joint venture cash call funding to guarantee future and present production is trending north.

BusinessDay analysis of NNPC Monthly Financial and Operations report for March which contains figures for January to March indicates that the state-owned oil corporation has more explaining to do.

The table below shows that the NNPC claimed it paid N460.9bn for JV cash funding for oil production with upstream operators and cost of production on domestic crude allocated to Nigeria. Yet the corporation remitted only N298.59bn to FAAC within the three months.

It is very unusual that the corporation is spending almost two times what it is realising from producing oil at a time it said it had reduced cost of production to $20 per barrel from around $32.

The auditor General report for 2016 also raised this concern. It demanded from the corporation “explanation(s) as to why the amounts paid out as Joint Venture Cash Calls were exactly the same as the proceeds from Crude Oil throughout the year 2016, why the JVs are not making/declaring profits, and all records, accounts and returns held by NNPC in respect of the JVs for audit examination,”

The corporation is yet to produce the information.

The accusation of under remittance by the NNPC to the federation account is hardly a new one, what has been lacking is the political will to effect change.

“It was observed from the examination of NNPC report to Technical Sub- Committee of Federation Account Allocation Committee meeting held in December 2016 that a cumulative total of N4,076,548,336,749.75 remained unremitted to the Federation Account by NNPC as at 31st December 2016,” said the Auditor General’s annual report on the accounts of the Federation.

NNPC’s position

Ndu Ughamadu, the NPC Group General Manager, Group Public Affairs, in release said the agreement NNPC had with the governors was that the corporation would make a monthly remittance of N112billion to FAAC subject to sufficient funds from sales of domestic crude oil allocation for the corresponding month after meeting cash call obligations on JVs, deductions of Premium Motor Spirit (PMS)-cost under recovery and pipeline maintenance.

The NNPC further said it has surpassed the terms of agreement with the governors on the monthly remittance for the month of June by N35billion, having taken a cue from their postures by taking from the sum meant for settling cash call obligations.

The corporation regretted the Governors’ additional request of N40billion, saying it was unfortunate, given the fact that NNPC is set to exit the cash call phenomenon

But the NNPC is not in a hurry to exit the cash call phenomenon considering that it is not even meeting its obligation as it has an outstanding of $530million from last year till date.

Figures given for under-recovery, pipeline vandalism and crude losses have continued to astound. Between January and March 2018, the NNPC claimed it spent N139.3billion on under recoveries which is an expense head where fuel subsidies are subsumed.

NNPC also reported crude losses of N1.17billion, product loss of N81.1million and pipeline repairs and management cost of N8.5billion. The absence of clarity over what constitutes these expenses is a key reason why the corporation is often termed opaque and unwilling to reform.

The NNPC says payments it is making to fund joint venture operations is key reason why national oil income is on the decline and the IOCs seem to agree.

Osagie Okunbor, country chair, Shell Companies in Nigeria and managing director, SPDC at a recent oil and gas conference in Abuja said, “For as long as I have been in this industry, we have been discussing cash call as a never-ending issue. I think that we were able to sit down together as an industry and government to try and tackle that issue and we should not underrate the importance of that.

“What that has done is that it opens up the appetite to have a conversation about investment. Nigeria is competing for capital with every other country in the world and, sometimes, we forget that and think that we are world unto ourselves. But the reality is that each of these companies (IOCs) operate in 20, 30, 80 countries and people are competing for capital.”

Osunbor further said that for the first time in a long while, some IOCs in Nigeria recently closed their year financial year without being owed cash call obligations by the NNPC

However, this does not absolve the corporation of its obligation to explain how national income is being spent.

ISAAC ANYAOGU