NEITI’s 2015 audit report: Reforms yet to deliver promise

According to the Nigeria Extractive Industries Transparency Initiative (NEITI) 2015 Oil and Gas Industry Audit Report, Nigeria’s oil and gas revenues plunged from $54.5 billion in 2014 to $24.8 billion in 2015, while the country’s oil production fell from 798 million barrels in 2014 to 776 million barrels in 2015.

These losses were seen in various crude sales arrangements Nigeria subscribes to and theft. The volume of crude oil declared lost to theft by 13 operators in 2015 was 27.1 million barrels. Though this amounted to only 3.5 percent of oil production, the loss was valued at $1.4 billion.

But this was not all the losses recorded in the period. The Petroleum Products Marketing Control (PPMC) also declared loss of crude worth $25 million, bringing the total declared losses to $1.45 billion.

NEITI says this brings the established loss to theft from 2011 to 2015 to a total of 113.1 million barrels valued at $11billion. Also, PPMC declared losing products worth N56.4 billion, broken down as follows: N52 billion for losses on petrol, N3.8 billion for losses on diesel, and N123 million for losses on kerosene. Deferred production on account of sabotage or repairs came to 57 million barrels.

NEITI reiterates its call for effective and adequate metering infrastructure and enhanced security of our oil and gas assets.

Domestic Crude Allocation

In 2015, 153.92 million barrels of crude was allocated for domestic consumption (at 445, 000 barrels per day), of this figure, 56.11 million barrels or 37 percent went to PPMC for export; 89 million barrels or 57 percent for Offshore Processing Arrangement (OPA) and 8.74 million barrels or 5.6 percent for local refineries. The total value of the domestic allocation came to $7.77 billion or N1.5 trillion.

When combined with the closing balance for the previous year and with allowance made for liability acknowledged and upfront deductions by NNPC, there was an un-reconciled sum of N317 billion from the value of crude allocated for domestic consumption. NNPC acknowledges having a liability of N418 billion as at 31st December 2015. Also, NNPC deducted the following upfront from domestic crude account: N60.9 billion for losses; N316.7 billion for subsidy; and N112 billion for repairs and maintenance.

A breakdown of the repairs and maintenance expenses shows that N24.2 billion was spent on crude movements; N22.1 billion on fund releases for salaries; N15.6 billion on demurrage; N13.2 billion on share of upfront; N11.37 billion on product distribution; N10.5 billion on through/marine; N4.12 billion on facility repairs; N3.27 billion on operations; N1.9 billion on security; and N1.3 billion on projects, among others.

NEITI recommends that upfront deductions should be discontinued and that NNPC should settle its liabilities and reconcile the unreconciled amount. NEITI also recommends that detailed records of losses and repairs be kept to ensure transparency and accountability.

Non-Cash Call Items

The total cash calls paid to joint venture operators in 2015 was $4.37 billion. Out of this, $597.8m was paid on what the report considers non-cash call items. This included $307.83 million paid to the National Intelligence Agency (NIA) and Navy for security; $238 million collected by NAPIMS as administrative charges; $7.2 million for travelling and accommodation; and $4.8 million for consultancy, among others.

NEITI recommends that non-cash call expenses should be paid from NNPC overhead budget, and payment to NIA and others from cash call account should be discontinued.

OPA and Other Losses

The report shows that in 2015 the country recorded a net loss of $723 million from getting refined products through Offshore Processing Arrangement (OPA). This means that the value of refined products that the country received through OPA was less than the value of the crude given by $723 million, even after allowances had been made for costs and margins. The President Muhammadu Buhari administration cancelled the OPA in November 2015 for being uneconomical.

However, there was an outstanding liability of $498 million by companies contracted under OPA from under-delivery of imported products. The report shows that $90m was lost through a practice where NNPC used a revised/lower pricing option at the point of payment instead of the higher price at the point of purchase. NNPC has stopped the practice of double valuation with the coming of the present administration.

NEITI recommends close monitoring of the Direct Sale Direct Purchase (DSDP) arrangement that replaced the OPA to ensure the country is not being shortchanged. It also calls for government to recover the $498m OPA liabilities from the affected companies.

ISAAC ANYAOGU