Audit Query: NNPC’s $1.2bn FAAC Deduction Was NMDPRA’s Share Of Subsidy Payment—Investigation

Facts have emerged that the $1.2bn which was deducted by the Nigerian National Petroleum Company Limited from the federation account in 2019 was the share of fuel subsidy payment by the Department of Petroleum Resources.

The DPR, following the implementation of the Petroleum Industry Act, has now been transformed into the Nigerian Midstream and Downstream Petroleum Regulatory Authority.

Advertisement

The Auditor-General for the Federation, Adolphus Aghughu, in its annual report on the federal government’s consolidated financial statements for the year ended December 31, 2019, which was submitted to the National Assembly on August 18, 2019, had raised the alarm that the NNPC deducted $1,278,364,595.49 from oil and gas royalty assessed by the DPR.

Giving a breakdown of the deductions, the OAuGF had stated, “Distribution of Mid/Downstream Cost $992,693,875.57; Repayment Agreement (RA) – Oil Royalty $215,664,380.91; Modified Carry Agreement (MCA) –Oil Royalty $59,075,576.79 and Modified Carry Agreement (MCA) – Gas Royalty – $10,930,762.22.

“The deductions emanated from the assessments based on the Joint Venture arrangement that NNPC has with other Operators in 2019, and No justifiable reasons were provided for the deductions of the above amount from proceeds of assessments before remittance into the Federation Account.”

The Auditor-General also claimed that in their response, the management of the DPR as it was known then said it had little or nothing to do in this regard.

Advertisement

According to the DPR, the deductions of the amount in question were made in accordance with the directive from the Federation Accounts Allocation Committee, adding that it is difficult to recover the amount from the NNPC.

However, when the management of the NMDPRA appeared before the Public Accounts Committee of the House of Representatives, it claimed that the money deducted by the NNPC were for priority projects of the federal government.

According to officials of the NMDPRA, only the NNPC can explain the deduction.

The NMDPRA also claimed that the money which ought to have been paid into an account belonging to the DPR and controlled by the Accountant General of the Federation never entered into the account.

But investigations by THE WHISTLER revealed that the NNPC got approval of members of the Federation Account Allocation Committee to deduct the $1.2bn as fuel subsidy from the Federation Account.

Advertisement

The FAAC Committee, which is headed by the Minister of Finance, Mrs. Zainab Ahmed, is made up of Commissioners of Finance from the 36 states, representatives of revenue generating agencies such as NNPC, Federal Inland Revenue Service, Department of Petroleum Resources, Central Bank of Nigeria, Nigeria Customs Service among others.

The Federation Account is currently being managed on a legal framework that allows funds to be shared under three major components.

They are statutory allocation, Value Added Tax distribution; and allocation made under the 13 per cent derivation principle.

Under statutory allocation, the Federal Government gets 52.68 per cent of the revenue shared; State Governments, 26.72 per cent; and Local Governments 20.60 per cent.

The revenue distribution framework also provides that Value Added Tax revenue be shared thus: FG, 15 per cent; States, 50 per cent; and LGs, 35 per cent.

Similarly, extra allocation is given to the nine oil producing states based on the 13 per cent derivation principle.

Advertisement

Documents seen by this website showed that the template upon which the deduction for subsidy by the NNPC was made was unanimously adopted by members of FAAC at its meeting held on the 25th of October, 2018.

The adoption by FAAC members followed a directive given to the Federal Ministry of Finance and the NNPC to jointly develop a new template for the Corporation to report revenue into the Federation Account.

This, it was learnt, was to ensure transparency in deductions and remittances of funds into the Federation Account.

It was gathered that the Committee constituted to review the template had members drawn from the FMF; NNPC; Office of the Accountant-General of the Federation; DPR; Federal Inland Revenue Service; Revenue Mobilisation, Allocation & Fiscal Commission; and Chairman, Commissioners of Finance Forum.

The Committee was charged with the responsibility of examining the old template used by the NNPC and developing a new acceptable template.

Findings further revealed that in a bid to implement its assignment, the Committee diligently examined the old template used by the NNPC, and took cognizance of crude oil and gas sales, receipts and deductions made by NNPC before transfer into the Federation Account.

It was revealed that the Committee also took into account some major features that were not adequately addressed in the old template.

These features include Joint Venture cost recovery; operating cost and capital expenditure; crude oil and product loses; Premium Motor Spirit under-recovery (current and arrears); pipeline repairs; pipeline management cost; demurrage cost; strategic holding cost; and government priority projects.

Following the inputs of the relevant stakeholders obtained and harmonized in the design of the new template, it was learnt that all areas of complaints by the States were properly addressed.

As a result of the adoption, the new template, which clearly addressed the deficiencies observed in the old NNPC’S reporting template, accounted for all statutory items such as royalty, taxes and profits affected by the under recovery associated with PMS supply.

It also allowed for clear separation between deductions by the NNPC for current under recovery and arears of under recovery.

It was also gathered that the approved subsidy deduction template also provided for separate reporting of other cost items such as pipeline repairs, pipeline management, demurrage and strategic holding costs; and took into consideration information on profit for oil and gas as well as miscellaneous income.

Other areas of deficiency which the template addressed were the separation of statutory royalty and taxes from profits to enable evaluation of NNPC’s performance in terms of government’s investments.

The approved template also provided for payments of royalty and taxes through DPR and FIRS as statutorily required and showed deductions for government’s priority projects separated from production costs

Following the adoption of the template, THE WHISTLER understands that stakeholders committee was immediately put in place to reconcile on monthly basis revenue from FMF, NNPC, DPR, FIRS, NCS and MMSD.

Leave a comment

Advertisement