…Deduction Of Production Cost For Crude, Gas Operations In Line With Nigeria’s Constitution
…Transfer Of N4.57bn PPT, CIT To FIRS Complies With NNPC Act
The Nigerian National Petroleum Company Ltd has faulted the queries raised by the Auditor General for the Federation Adolphus Aghughu, in its Audit Report for 2019 that it failed to account for about 107,239,439 barrels of Crude Oil lifted for domestic consumption in 2019.
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The National Oil Company also faulted the observation made by the Auditor-General in the Report that it could not account for 22,929.84. litres of Premium Motor Spirit valued at N7.06bn, pumped to two depots (Ibadan-Ilorin and Aba-Enugu} in June and July 2019.
The clarifications are contained in a letter written by the NNPC to the Auditor General for the Federation dated March 18 2022, which was exclusively obtained by THE WHISTLER.
The letter seeks to provide additional facts and clarity to the Auditor General for the Federation on the audit issues raised on the inflows and outflows into the federation account by the NNPC for the year ended 31st December 2019 including the alleged 107 million barrels ‘Missing/unaccounted’ crude oil.
The letter, the WHISTLER understands became imperative to clear the misconceptions being created as a result of the submissions made by the Auditor-General to the Public Account Committee of the National Assembly.
It was learnt that when the audit queries were initially raised and brought to the attention of the NNPC management, series of engagements were made between officials of the NNPC and that of the Office of the Auditor-General.
The objectives of these series of meetings were to enable the NNPC provide further clarification on the it’s financial statements.
Documents obtained by THE WHISTLER showed that the NNPC and the Audit Team from the Office of the Auditor-General met several times to reconcile the discrepancies raised by the Auditors on the NNPC’s inflows and outflows into the Federation Account.
Following these series of engagements, the NNPC, according to investigations by THE WHISTLER wrote a letter dated August 31, 2021 to the Auditor-General to provide further clarification on the NNPC’s remittances to the Federation Account.
The letter sent to the Director, Treasury Audit Department in the Office of the Auditor-General was received on September 2, 2021.
That letter, according to THE WHISTLER findings was accompanied with schedule of responses and documentation to aid clear understanding of the NNPC’s operations as regards to observations raised by the audit queries of the Auditor-General for the Federation.
It reads, “We refer to your letter dated 28th July 2021, outlining audit issues and recommendations on the inflow and outflow into the Federation Account by NNPC for the year ended 31st December,2019.
“Accordingly, we forward herewith schedule of responses and documentation to aid clear understanding as regards to observations raised.
“We believe that the explanation provided alongside the supporting documents will deliver a better understanding of NNPC operations and exonerate the Corporation from any perceived wrongdoings”
But despite the series of consultations including the exit meeting of Friday, 23 July 2021, and the subsequent explanation submitted to the Auditor-General’s Office dated 31st August 2021 which provided further clarity of NNPC’s position, this Website gathered that the NNPC was taken aback by the subsequent negative headlines triggered by the Auditor-General’s submission to the National Assembly.
The submissions had alleged unresolved discrepancies in the NNPC’s inflows and outflows into the Federation Account, including the ‘missing’ of 107 million barrels of crude oil.
The submission of the Auditor-General to the National Assembly is being seen by stakeholders as part of moves to paint the NNPC in bad light.
Providing more clarification on th development, the NNPC in its latest letter dated March 18 reminded the Auditor-General on the several engagements between its team and the Audit Team from the office of the AuGF.
“For the avoidance of doubt, we have attached further clarification to assist the AUGF in ensuring that correct and valid information concerning the inflows and outflows into the Federation Account by NNPC for the year ended 31st December 2019 is reflected in the AuGF’s reports and presentations to all relevant stakeholders.
“The AUGF is kindly invited to note that NNPC cherishes the enormous trust the Federation has in its capacity to effectively manage Nigeria’s hydrocarbon resources for the benefit of all Nigerians, and as a promoter of transparency and accountability, NNPC will never ignore audit observation of such gravity,” the fresh letter stated.
To buttress its commitment to federation account remittances, the NNPC said it will continue to improve its internal processes and controls through series of process redesign and automation to sustainably drive excellence in both operations and compliance.
“To the best of our knowledge, NNPC’s exit meeting with the office AUGF on NNPC’s inflows & outflows into the federation account for the year ended 31 December 2019 has addressed ail the audit observations under investigation.
“The AUGF may kindly review the premise of the submission to National Assembly which contradicts the exit meeting referred above.
“NNPC welcomes and appreciates the support of all stakeholders in entrenching transparency and accountability in the business we do and is open to provide any additional clarification that may be required by the AUGF in respect of the above subject matter,” it added.
Providing specific details to claims that the NNPC Ltd failed to account for about 107,239,439 bbls of Crude Oil lifted for domestic consumption in 2019, the NNPC according to documents obtained by THE WHISTLER showed that as of 2019, the total domestic crude of 107,239,439 bbls was lifted, valued at N2,145,512,821,445.49.
These comprise of 104,475,169 barrels for Direct Sale Direct Purchase and 2,764,267 barrels to local Refineries
THE WHISTLER‘s findings revealed that these figures were fully accounted for and adopted at the monthly Federation Account Allocation Committee meetings.
The Committee, 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.
On the Auditor-General’s observation about the unaccounted 22,929.84. litres of PMS, worth N7.06bn, pumped to two depots (Ibadan Ilorin & Aba Enugu} in June and July 2019, the NNPC in its response clarified that 22,929.84 litres were PMS losses attributable to various reasons.
It said there were 37 points of pipeline vandalism in July 2019 which led to product losses, adding that there was a major fire incident at Kom Kom during pumping operations due to valve insertions and leakages.
Other reasons for the PMS losses, are the insertions of 24 valve from illegal tapping while seven weld failures occured from the old saddle weld.
It added that there were failures by two old peg from previously pegged points, while 11 old valve also failed.
Furthermore, the NNPC urged the Auditor-General to note that PMS was introduced to the line after many months of inactivity, adding that figures quoted for the 3-pipeline segment should be in m3 and not litres but valued in litres.
The document further explained that 496.84m3 of PMS pumped on this axis was in the month of July 2019 and not June 2019, stating that 4619m3 of PMS was however received at Aba in September 2019 from that batch pumping.
It stated further that total amount from the transaction was N7,056, 137,190 as against the N7,056, 137,180 quoted by the Auditors.
On the N663,896,567,227.58 discrepancies between the amount reported by the NNPC as remittances to Federation Account in 2019 and what was reported by the Accountant General of the Federation, the document stated that the NNPC maintains proper records of transfers to the Federation Account.
It added that the actual reconciled balance as per the OAGF and NNPC was N1,146,493,281,781.26 as against the N1,272,606,864,000 which was being quoted.
From the document, it was revealed that NNPC FAAC Reports and NAPIMS Annual Reports showed the total remittance to Federation Account which included NNPC Profit Oil, JV Royalty and JV Tax; while the OAGF Report showed the above as a separate line items.
It added that based on the NNPC figure per transfer mandate, the remittance amounted to N568,269,416,640.86 as against N519,922,433,918.46.
From the document, it was revealed that the schedule of transfers which the NNPC made to Federation Account were in alignment with the records provided as per OAGF FAAC Report.
On the difference between NAPIMS Financials and OAGF report, the document revealed that this was based on a number of reasons such as timing difference as a result of the basis of accounting of the revenue/receipt due to the Federation.
The document added that while the NNPC accounts for the federation revenue on accruals basis, the OAGF account is on actual month of collection (cash basis).
The difference between NAPIMS Financials and OAGF Report, according to findings was also due to funding of pre-export financing in line with appropriation which was classified as remittance to the federation in the financials.
This, it added, has been adjusted appropriately.
The discrepancy also arose as a result of CBN’s reversal of over payment of Cash Call arrears which, according to the NNPC’s submission had been appropriately adjusted.
“Based on these responses, no amounts are to be remitted. NNPC maintains proper records of transfers to the Federation Account,” the document added.
On the Auditor-General’s observation that the NNPC effected deductions from Federation Revenue before remittances to Federation Accounts, investigations further revealed that the NNPC duly complied with the provisions of the Constitution.
By the provisions of th constitution, Joint Venture Cash Call is regarded as production cost and a first line charge from Federation Revenue upon which government priority projects and pipeline maintenance expenses are budgeted for.
The NNPC, according to findings is only acting as agent of the Federation a responsibility that enables it transfer the balance of this charge to the Federation Account for distribution to the three tiers of Government.
The document also noted that the production cost deduction (JV Cash Call amount) by NNPC and other deduction incidental to Crude Oil and Gas activities does not contradict the 1999 Constitution or any other Act and is in line with the provisions of NNPC Act Section 7(4){b).
On the observation of irregular transfer of the sum of N4,572,844,962.25 to the Federal Inland Revenue Service, the document showed that the NNPC is obligated on behalf of the Federation, to pay Petroluem Profit Tax from Crude Oil proceeds and Companies Income Tax from gas proceeds on JV operations.
It stated further that the total sum of N29,470,250, 296.88 was for both PPT and CIT for the period under review,
“Accordingly, the payments were made from the two revenue streams of the JV operations in the sum of N24,897,405,334.33 plus N4,572,844,962.25 from Crude Revenue Account and Gas Revenue Account respectively.
“The amount was paid to FIRS for subsequent remittance to Federation as appropriate,” it added.