Ribadu report: Oronsaye’s outburst puts Jonathan in a fix

The Ribadu report will be a litmus test for Jonathan administration’s anti-corruption crusade and reforms.  According to some members of the task force, some interests were not happy with the outcome of the report and that led to the delay in its presentation. It was submitted to the Ministry in September for it to make […]

The Ribadu report will be a litmus test for Jonathan administration’s anti-corruption crusade and reforms.  According to some members of the task force, some interests were not happy with the outcome of the report and that led to the delay in its presentation. It was submitted to the Ministry in September for it to make input and return to the task force to enable it prepare a final copy.  But that didn’t happen, until two weeks ago when a copy was leaked in the media.

 

In the report, it was alleged that Nigeria lost tens of billions of dollar in oil and gas revenues over the last decade from cut price deals struck between multinational oil companies and government officials.

The copy of the report obtained by Sunday Trust shows that government agencies, such as the Nigerian National Petroleum Corporation – the cash cow of the petroleum ministry –  and the Department of Petroleum Resources would be forced to refund over N2 trillion to the Federation Account, if it is implemented.

The division in the committee on the outcome of the report also threw a bad signal. During the submission of the report on Friday, two members of the committee, Messrs Steve Oronsaye and Bernard Otti dissociated themselves from it, alleging that they had not been carried along in drafting the report. But Ribadu accused the two men of trying to rubbish the authenticity of the report to protect the interest of the indicted agencies.

“The last time this committee met was early July when the draft report was to be considered and I raised certain pertinent issues. It was agreed and suggested and accepted at that meeting that a small group be put together to review, modify and return to the report drafting committee before presenting to the whole house. That did not happen. No matter how good the efforts that have been put into this exercise is, as long as the process is flawed and that report is one that cannot be implemented,” said Oronsaye.

Despite the criticisms by Oronsaye, President Jonathan accepted the report and urged any member of the committee who had a contrary opinion to those expressed in the report to submit his opinion to him through his chief of staff or the Minister of Petroleum Resources.

Reacting to the encounter, Barrister Festus Okoye, a Kaduna-based lawyer, told Sunday Trust that he smelt a rat in the altercation at the Villa on Friday. According to him, “Oronsaye was clearly irresponsible. I completely agree with Ribadu that the two were compromised. The procedure in any committee is that if you disagree with a majority report, and your disagreement is fundamental, you write the minority report. Alternatively, you refuse to sign the majority report. The moment the chairman of a committee has submitted the majority report, it is given that it is the committee’s report. No other member should speak after the chairman has submitted the report.”

Barrister Okoye added that he agreed with Ribadu that Oronsaye didn’t participate in the committee’s work and only flew back to the country to protect some vested interests. Also, he observed that immediately Oronsaye accepted an appointment in the NNPC, he should have resigned as a member of the committee, because such an appointment brought about conflict of interests.

According to Okoye, “It is clear that there are some powerful forces who wouldn’t want the report implemented, and they had representatives in the committee. They will do whatever they can to discredit the report so that it is not implemented. But all eyes are on President Goodluck Jonathan. If he wants to do what is good for this country, he has to implement the Ribadu committee report so that the rot in the oil sector can be stopped in the interest of the majority of Nigerians. History will judge him by how he (Jonathan) handles the this report.”

Also, Comrade Shehu Sani, a Kaduna-based activist, said he was not surprised by Oronsaye’s reaction because some elements had been included to act as moles. According to him, “What is happening now was expected because government had never intended the report to be implemented. As you know, several probes had been initiated in the past into the oil industry, and none of the reports have seen the light of day.”

The task force’s key findings are presented below:

–  Proceeds from the sale of Domestic Crude Oil

“As at 31 December 2011, N843 million was due to the Federation in respect of domestic crude oil allocations. The amounts outstanding as at 31 December 2011 represented amounts due for the months of September 2011 to December 2011. In view of the 90-day credit period, the outstanding amount as at 31 December 2011 was not due for payment.

“The task force received representations from the NNPC and other relevant agencies on the corporation’s practice of deducting amounts for subsidy-related expenses prior to remittance of these revenues. In the course of the task force’s work, it did not receive sufficient justification for the practice which does not accord with the law, with particular reference to the Constitution.

PRSTF is aware that further settlement should now have reflected providing figures as at April 2012

The panel said: “Our review of the records received for 2002 to 2011 showed an inconsistent pattern in the implementation of the policy to allocate 445,000bpd allocation to NNPC, with variances found for the ten years reviewed.

“The task force also compared the average price per barrel payable by NNPC for Domestic Crude with the average weekly prices for Nigeria Bonny Light, Forcados, obtained from the Energy Information Administration (EIA). The review revealed that over a 10 year period (2002 – 2011), the State may have been short changed by an estimated sum of US$ 5 billion, although it was understood from discussions with NNPC officials that the pricing of domestic crude oil was based on international prices. Enquiries at NNPC revealed that up until October 2003, NNPC was granted fixed price regimes which explain the wide disparity in prices in the earlier years.

The task force found that the exchange rates used in arriving at the Naira equivalent of the amounts payable differed from the CBN rates for six (6) of the ten (10) years reviewed. The potential underpayment of amounts payable to the Federation Account over the 10- year period was estimated at N86.6 billion. Also, the task force’s review of the domestic crude utilisation showed that the percentage not refined in- country ranged from between 50% to 88% over the 10 year period.

–  Proceeds from Equity Crude Oil Sales:

“Equity Crude represents government’s share of crude oil production (excluding domestic crude) obtained mainly from three (3) arrangements: Joint Operating Agreements (JOA) with IOCs, Production Sharing Contracts (PSC) and Service Contracts. Equity Crude Oil proceeds are remitted into the Federation account as export proceeds, DPR accounts as Royalties and FIRS accounts as Petroleum Profit Tax.

“The task force observed that there was no single point accountability for the income and expenditure streams of upstream petroleum operations, compounded by the current structure of NNPC such as multiple roles executed through NAPIMS and its COMD.

“A decline was also observed in national investments that would increase the nation’s proven reserves. Accordingly, despite the increase in crude oil production in Nigeria over the years, the nation’s entitlement has decreased as a result of various alternative funding arrangements for its upstream investments.

The task force found that legislation governing the industry and agreements with third parties were outdated, did not reflect current economic or legal realities; or included ambiguous clauses. Also, there were some provisions within the legislation that could significantly improve government’s revenue that the government was yet to take advantage of. Examples included a provision to ensure that the share of the Government of the Federation in the additional revenue shall be adjusted under the Production Sharing Contracts if the price of crude oil at any time exceeded $20 per barrel; and the requirement for a periodic review of provisions in specified time frames.”

“It was also observed that some traders lifted crude oil although they were not listed on the approved master list of customers who had a valid contract and were selected through an annual bidding process. The task force research also found that quite a number of traders did not demonstrate requisite expertise in the business of crude oil trading.

“Furthermore, the task force found that the use of crude oil traders was contrary to the global trend wherein national oil companies develop their own trading arms, such as the various NNPC trading subsidiaries which currently have limited capacity. The task force identified various concerns in this area with Nigeria being the world’s only major oil producer that sells 100 percent of its crude to private commodities traders, rather than directly to refineries.

“Various submissions to the task force demonstrated the potential for lost margins to middlemen, manipulation of pricing, suboptimal returns and market fraud as emanating from this policy and practice.

A review of NAPIMS’s audited financial statements as at December 31, 2009 showed that Joint Venture cash calls payable was N459.568 billion. Since 2006, government had not allocated enough funds to cover these amounts and NNPC had entered into a range of borrowing arrangements referred to as Alternative Financing Arrangements with the costs of financing this debt (estimated at around 8%) continuously mounting. This cycle will continue to increase in the coming years unless a systemic solution is found.

As JV partners there is a need for the effective management and oversight of oil companies’ operating costs which affects revenues accruable to Nigeria. There is also a clear training, technology and human capacity gap between NAPIMS staff and their counterparts in the private oil and gas sector.

– Proceeds from the Sale of the National Entitlement (Gas):

The task force aided by consultants, identified a total of N137.572 billion ($946.878 million) due to the Federation from SNEPCO, representing the proceeds of gas sales from the Bonga oil field; according to the NNPC (NAPIMS) Financial Statements for the year ended 31 December 2009.

For Liquefied Natural Gas, the price observed at which the feedstock gas was sold to NLNG seemed too generous, compared to prices obtainable on the international market. The estimated cumulation of the deficit between value obtainable on the international market and what is currently being obtained from NLNG, over the 10 year period, amounted to approximately US$29 billion.

– Proceeds from Sale of Petroleum Products:

From the task force’s review, NNPC is owed N27 billion including current debt, total overdue, disputed debt and total debt outstanding, by the major marketers of petroleum products. We also found that amounts payable to suppliers of petroleum products, as at 31 December 2011 amounts to approximately US$3.6 billion, of which US$2.7 billion represented amounted outstanding for over 365 days. The task force also observed that pipeline product loss had steadily increased over the years.

– NNPC and Subsidiaries:

From the review of the latest available audited financial statements (2009) it was noted that NNPC has sixteen (16) subsidiaries. The financial performance of the Corporation and its subsidiaries in 2009 showed the Group had a deficit of approximately N298 billion for the period. Various reviews conducted by the task force showed that the NNPC did not receive the required capital to grow its assets or meet operating costs. NNPC had therefore increasingly relied on the FGN for lines of credit, and deduction of oil revenue due to the Federation Account. In the review, the panel said, the legal basis for this practice was unclear.

–  Signature Bonus:

“The task force found that discretionary decision-making in the award of oil blocks could result in revenue losses for Nigeria. Our review also showed that the management of past bid rounds had resulted in lower demand and fewer qualified bidders, uncompleted deals weakened government returns, and lower development of acreage.

The DPR provided the task force with information indicating that 67 licenses were awarded between 1 January 2005 and 31 December 2011; with an outstanding balance of $566 million unpaid in signature bonuses. For the 7 discretionary allocations reviewed, the task force found $183million outstanding and due to the nation’s treasury. We were however informed that of the total $749 million outstanding in signature bonuses, $321 million was legally disputed.

–  Royalties (Crude Oil and Gas):

The task force found that $3.027billion was outstanding from the operators for crude oil royalties as at 31 December 2011 per the DPR’s records. Of this amount, the DPR had stipulated that ADDAX is liable to pay $1.5billion royalties under the 2003 fiscal regime and there is currently a dispute between Addax and NNPC on the one hand, and the DPR on the other. In the course of the review, the task force also encountered differences in records of payments made to the CBN vis-a-vis DPR records, and lack of independent gas production and sales data.

– Gas Flare Penalties:

The Task Force found that the DPR is currently unable to independently track and measure gas volumes produced and flared and depends largely on the information provided by the operators.

We also observed that the periodic reconciliation meetings with the operators to address the gas flare volumes were delayed with only 6 completed of 36 at the time of our review.

The total revenue from gas flaring during the review period was $175 million with the balance outstanding as unpaid was approximately $58 million indicating that $115 million had been received by the DPR. We however reviewed payments received by the CBN in respect of gas flare penalties. However a review of CBN records showed that $137 million was received between 1 January 2005 and 31 December 2011. The DPR was not able to reconcile the $115 million with the $137 million. Lastly, operators have not complied with the recent Ministerial directive signed on 15 August 2011 increasing the gas penalty fee from N10.00 to $3.50. The operators have continued to flare gas at the rate of N10 and records at the DPR reveal that none of the companies had paid any gas penalty fee in 2012.

– Miscellaneous Oil Revenues:

The task force was unable to obtain a comprehensive miscellaneous oil revenue schedule from the officials of the DPR, although a review of CBN’s records provided some information albeit with unexplained variances. The amounts due in respect of the various fees relating to the miscellaneous oil revenues are also not reflective of the current economic realities.

Revenue losses in the nigerian petroleum industry the task force identified sources of revenue losses in the industry, with a view to identify opportunity areas for major reform in boosting resources obtainable from the sector for national development. These include the following.

– Crude Oil Theft and Associated Revenue Losses:

Hydrocarbon theft was found by the task force as being a major and chronic source of revenue loss to Nigeria. Theft of crude oil and refined petroleum products may be reaching emergency levels in Nigeria.

The task force observed various estimates by International Oil Companies and government officials of the scale and volume of crude theft which ranged from 6 to 30 percent of production. While the task force did not endorse any of the numbers it received, we notes that it could actually be as high as 250,000 barrels per day closer to 10% of daily productions amounting to as high as N1 trillion annually. This issue therefore requires immediate attention.

–  Lost Refined Products and Associated Revenue Losses

The task force did not receive comprehensive figures documenting volumes of refined products stolen or spilled.

NNPC reported that thieves stole 3.2 million metric tons of products from its pipeline network between 2001 and 2010 and that about 40 percent of products currently channelled through pipelines were lost to theft and sabotage.

PPMC also recorded 4,468 product pipeline breaks in 2011, 98 percent of them from sabotage; and values the products stolen from its pipeline network between 2001 and 2010 at N178 billion.

Crude Oil Theft and Associated Revenue Losses:

Hydrocarbon theft was found by the task force as being a major and chronic source of revenue loss to Nigeria. Theft of crude oil and refined petroleum products may be reaching emergency levels in Nigeria.

The task force observed various estimates by international oil companies and government officials of the scale and volume of crude theft which ranged from 6 to 30 percent of production. While the task force did not endorse any of the numbers it received, we noted that it could actually be as high as 250,000 barrels per day closer to 10% of daily productions amounting to as high as N1 trillion annually. This issue therefore requires immediate attention.

Observers fear that attack on the report by some committee members might affect government’s decision on it. The NNPC, which is the cash caw of the ministry had since been struggling to get out of the debts it, owes the federation account.

Many people are watching to see what would be the input by the petroleum minister. Is the review by the ministry going to lead to the removal some vital parts of the recommendations?

“It is a draft,” Alison-Madueke told Reuters. “There will be some areas where the government may have a slightly different opinion … (and) will put its point of view to the committee.”

A civil society coalition, under the umbrella of End Impunity Now, said any attempt by the minister to water-down the report will be resisted.

According to the group’s statement, signed by David Ugolor of the Campaign Secretariat, and Jaye Gaskia, the spokesperson of the campaign, the findings of the task force had further substantiated the claims of massive, unprecedented, endemic, systemic and historic level of fraud, corruption and impunity in the petroleum sector!

“The implication of the extent of the fraud and corruption that has been exposed in the petroleum sector by the various committees is that in the last 10 years alone, and in just the petroleum sector, Nigeria had lost the total sum of a minimum of $8bn (the oil subsidy fraud for 2011 alone) plus $3 billion plus $29 billion plus $60 billion amounting to $100 billion or over N16.8trillion; the equivalent of four annual federal budgets”.