Oil companies underpaid FG $2.33 billion, as NNPC pocketed $3.789bn dividend from LNG

By Omoh Gabriel

Nigeria Extractive Industry Transparency Initiative has disclosed that from its audit report between 2006 and 2008 the Nigerian National Petroleum Corporation received $3.789 billion as dividends from Nigeria Liquefied Natural Gas NLNG which it did not confirm that the payments were made to the Federation account. The report also said that NEITI audit recalculations of royalty for the years 2006-2008 estimate an underpayment of $2.33billion arising from subjective interpretation of volume, pricing and API (American Petroleum Institute grading variable).

It further stated that under assessment of $690 million in Petroleum Profit Tax due to pricing mechanism used (Realizable Price instead of Official Selling Price). Also due to discrepancies between annual PPT returns and Annual Financial Statements there has been an under assessment of $424.6 million in the determination of Petroleum profit tax (PPT) value. It said that Operating Expenses (OPEX) indicate a possible under assessment of $364.9 million. Following the disclosures, NEITI is currently working with the Federal Inland Revenue Service (FIRS) and the Department of Petroleum Resources (DPR) to review the assessments as well as recover these underpayments from companies and remit same to the Federation account” the report said.

The report further disclosed that the NNPC owed the Federation for domestic crude the sum of N842.7 billion as at 31st December, 2008. The NNPC it said deducted the subsidy claims of N816.55 billion directly from the domestic crude proceeds before remitting the balance to the Federation Account without authorization.
According to the NEITI report the total financial inflows to the Federation from the oil industry was $148.832billion.This was made up of $44.687billion for 2006, $43.781 billion for 2007 and $60.364billion for 2008, respectively. According to the NEITI report just released a copy of which Vanguard sighted “from the 2006-2008 Audit Report, the un reconciled ‘‘differences’’ between what was paid in by companies and what was declared as received by government are: Royalty; in 2006 companies paid in $4,457.9million while government received $4,418.5million leaving an unreconciled difference of $ 39.4 million. This difference in what companies paid in 2007 and 2008, and what government received was found to be below the set materiality level.

“Signature bonuses; from 2006 to 2008, the companies paid a total of $1,470.80million to government, while government received $1,523.3million as bonuses. This leaves a difference of $52.5million; Income from oil in settlement of Royalty and Petroleum Profit Tax(PPT) given by the Report was in 2006 there was no such record. In 2007 $1,673.9 million was received as income in settlement of royalty and petroleum profit tax. In 2008 the amount went up to $6,577.8 million
The Audit observed that “the legal basis for petroleum sharing contract (PSC), Royalty, and petroleum profit tax (PPT) calculations were in dispute between NNPC and the contractors and before an arbitration panel. This transcend to cost and fiscal entitlements with a possible contingent liability of up to $8billion if NNPC loses the arbitration. NEITI said that “The Reports of the Audit so far conducted and published have been internationally acclaimed and lauded by the EITI International. Most recently an independent Consultant- SCAN TEAM that was commissioned by EITI to assess amongst other things the effectiveness of the audits among all the 45 member countries using Nigeria, Mongolia and Gabon as case studies endorsed NEITI and its operations as the best, most comprehensive and complex”
It further said that Necessity for increased transparency has now come to be accepted by key actors in Nigeria’s Oil and Gas industry, particularly the Oil companies who have come to embrace the Audit processes and also support the detailed reporting demanded in the NEITI Audit processes. There is recognition of the influence the Audits had on the contents of the Petroleum Industry Bill (PIB)”.