CBN Governor proposes solution on how to stop NNPC cabal from milking Nigeria dry By Sanusi Lamido Sanusi

I am pleased to stand before you and present a
summary of my latest submission on this subject.
The submission itself is about 20 pages long with 30
Appendices, providing documentary backing for all
material statements. The background to this session
remains my letter to the President in which I
indicated that there was a difference between the
value of crude lifted by NNPC between January 2012
and July 2013 and the amount of foreign exchange
repatriated into the Federation Account. This
difference was placed at almost $50 billion and I
respectfully advised the President to order an
investigation into a number of areas I suspected were
responsible for leakages in oil revenue.
My letter was, sadly, leaked and published in a highly
politically-charged atmosphere. The Central Bank
was practically accused of involvement in politics and
in December it was clear to me that no tempered and
positive discussion would take place. In order to calm
nerves and avert major crisis I agreed to a joint press
conference with Finance Ministry, the Petroleum
Ministry and also to present a common front at the
National Assembly.
Since December, however, there has been an
orchestrated campaign aimed at undermining our
credibility and misleading Nigerians into believing
that all monies due to the Federation Account have
been either remitted or accounted for. I am,
therefore, compelled to present to this committee
detailed evidence that NNPC has in violation of the
law and constitution been diverting money from the
Federation Account, and involving itself in activities
that warrant full investigation for more serious
violations of the law.
I have established, in my presentation, the
following:
1. That NNPC, in paying what it calls kerosene
subsidy, is confessing to a number of serious
infractions. First, I have shown, based on NBS data,
that kerosene is not a subsidised product, and,
therefore, the so-called subsidy is rent generated for
the benefit of those in the kerosene business.
Second, I have produced evidence that President
Yar'Adua had issued a presidential directive
eliminating this subsidy payment as from July, 2009.
Third, these huge losses inflicted on the Federation
Account have not been appropriated.
The burden of proof on NNPC is to show where they
obtained authorization to purchase kerosene at
N150/litre from Federation Funds and sell at about
N40/litre, knowing fully well that this product sells in
the market at N170-N220/litre. At what point was the
presidential directive revered? NPA records would
suggest that NNPC imports about 4-6 vessels of
kerosene a month. Industry sources place the value
of each vessel at $30m and the amount of "subsidy"
per vessel at $20m. This means, at an average of 5
vessels a month, the Federation Account loses $
100m every month to this racket.
2. I have also shown, in my submission, that claims
by NNPC of spending the money on PMS subsidy are
not credible. I have submitted proof that as from
April, 2012, NNPC has consistently rendered returns
to FAC indicating that it made no deduction for
subsidy. This is after rendering returns on amount
deducted monthly for 20 consecutive months to
March, 2012. NNPC had previously explained that it
had stopped deductions from 2011 and that the
N180b taken in Q1:2012 related to fuel imports for
Q4:2011. As from 2012, the directive was for NNPC
to submit its papers to PPPRA, the relevant
government agency set up and given the
responsibility for verifying and paying subsidy
claims. Having officially reported that it was not
making deduction for fuel in 2012 and 2013, it is
surprising that the GMD and GED of NNPC would now
claim that $8.49b was used to pay for subsidy.
I am convinced that a major source of revenue
leakage from the system is NNPC's unverified claims
for subsidy and unilateral deduction from the
Federation Account. If we take the PPPRA template,
subsidy/litre of PMS is about 1,136litre/MT, the
subsidy is around N1.5b. This means that for every $
1b claimed by NNPC as subsidy deduction, the
corporation is claiming to have imported at least 100
vessels of PMS. In addition to the N180b reported in
Q1:2011, NNPC had deducted N845 billion in 2011.
According to the Farouk Lawan report, NNPC
deduction for PMS subsidy in 2011 alone amounted
to N1.7 trillion, if we add claims on Excess crude
naira account. Any serious investigation into these
matters will require an audit of NNPC's database
which it is statutorily required to keep based on
subsidy guidelines. Only verification of the legitimacy
of these claims can form the basis for a true
reconciliation.
3. Based on NNPC's disclosure to the effect that it
shipped $6b worth of crude oil on behalf of NPDC, I
have argued here that at least a part of this amount
is due to the Federation Account. This part relates to
oil produced from blocks operated under "Strategic
Alliance Agreement". I have given you three legal
opinions that unanimously argue that these
agreements merely serve to transfer revenue due to
the Federation to private hands. I have also shown
how, based on these arguments, NNPC has
effectively given tax relief and concessions to its
business partners.
Also customs duties and levies are treated as
"development costs" and recouped from "cost oil"
and "cost gas". These companies recover OPEX and
COPEX from production, take 20-70 per cent of the
profit and pay no tax, on JVs in which the Federation
was previously entitled to 55 per cent of the entire
profit oil when Shell was the operator. I have given
details of these transactions and my concerns in the
paper.
4. Although the above 3 areas exhaust the areas
covered in NNPC's explanations, I have also taken
time to submit my analysis of the crude-for-refined-
product swap contracts entered into by PPMC. This is
because a significant part of the domestic crude
taken by NNPC is in these transactions. I have
indicated where i believe we are losing money in
these transactions.
Reconciliation :
Having thus explained my major opinions on NNPC's
explanations, I will come to the reconciliation.
NNPC itself has submitted that it lifted $67b worth of
Crude between January 2012 and July 2013. Of this,
we have been able to agree that the following
amounts have been remitted to the Federation
Account:
1. $14 billion as equity crude
2. $15 billion as payment to FIRS by IOCs. They paid
in crude which was lifted by NNPC on behalf of FIRS.
There was nothing in our records linking the two
transactions.
3. $2 billion Royalty payment to DPR by IOCs under
similar arrangements as in (2) above.
4. $16 billion out of the 428b taken as Domestic
Crude Paid in Naira, not dollar.
The following items are outstanding and need to be
proven by NNPC:
1. $12 billion out of domestic crude sales yet to be
remitted. NNPC has already disclosed N180 billion as
subsidy payment in Q1.2012. If PPPRA confirms this
number, we will adjust the balance accordingly. As
for the balance of $10.8 billion, NNPC has publicly
disclosed that 80 per cent applied to petrol and
kerosene subsidy. We have already explained why
this explanation is untenable and NNPC needs to
provide the relevant proofs.
2. $6 billion shipped on behalf of NNPC. We have
explained why some this belongs to the Federation
and the need to investigate and audit the SAAS to
recover amounts unconstitutionally diverted.
3. $2 billion "third-party" financing" we have not
been given any documents explaining or proving this
along with other claims around pipeline repairs,
maintenance, strategic reserves etc.
There was no appropriation for these expenses and
NNPC also needs to substantiate them.
In summary, it is established that of the $67 billion
crude shipped by NNPC between January 2012 and
July 2013, $47 billion was remitted to the Federation
Account. It is now up to NNPC, given all the issues
raised, to produce the proof that the $20billion
unremitted either did not belong to the Federation or
was legally and constitutionally spent. There is no
dispute that $20 billion out of $67 billion has not
been paid into any account with the CBN.
Our recommendation remains that this matter
requires thorough independent investigation, as
simple explanation will not suffice.
I concluded my submission with recommendation for
the future, to protect the economy from these
unsustainable losses.
I would like to make the following recommendations
going forward:
Recommendations :
NNPC should stop collecting 440,000bbl daily as
"Domestic Crude". The amount of crude should be
reduced to the refining capacity of its refineries
based on a signed refining contract that clearly
states what products are to be delivered for each
barrel. Sale proceeds net of recognised processing
costs are to go to the Federation Account;
All Crude for Product Swaps should be terminated
and crude should be exported and sold at market
price.
Where NNPC needs to generate cash flow to fund
PMS imports, it can "borrow" crude, on the approval
of the Finance Minister, for 90 – 120 days. This crude
is to be valued at the ruling market price. NNPC may
sell the crude, import PMS and sell through its
outlets. It should claim subsidy from PPPRA like every
other marketer and present all required documents.
Thereafter, NNPC should pay back the full value of
crude lifted to the Federation Account and retain the
profit. Where NNPC delays payment, the amount
outstanding should attract interest at commercial
rates until payment.
All the SAAs entered into by NPDC should be
investigated for constitutionality. The production
numbers, Opex and Capex, and profit shares should
be audited. The tax arrangements entered into with
these parties should be reviewed and all revenues
due to the Federation collected. If possible the SAAs
should be terminated. Certainly, NNPC should be
prohibited from entering into any SAAs in the future.
NNPC to account for subsidies claimed in 2010-13 by
producing documentary proof of legitimacy.
As for what action needs to be taken on what has
happened in the past, we express no opinion. The
decision on what to do in this case rests entirely with
the Government. My task is limited to raising an
alarm over what I think is a development that is
harmful to the economy, and establishing that the
alarm was neither spurious nor baseless. I still insist
that an investigation is needed to establish the
extent of the losses and the nature of offence
committed.
I believe I have placed enough information before
this committee to make the point. The amount in 19
months may be $12 billion or $19 billion or $21
billion, we do not know at this point but if we extend
the period the amount will increase anyway, since
this has been going on for a long time. The first
priority is to stop it. It is unsustainable, and it will
ultimately, if not stopped, bring the entire economy
to its knees.