How much oil revenue has Nigeria lost?

Nigeria makes a lot of money from the sale of oil; such that revenue from the oil industry accounts for almost 75% of the Budget. Now, read about the various causes of oil revenue loss.

These numbers are extracts from the NEITI report

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Issues with the oil & gas industry?

The Nigerian oil Industry has been reported to have lost quite a large amount and NEITI in its publication has helped to pinpoint the various causes of the loss in oil revenue within the country. These are listed below:

Nigeria spends a lot of money on funding operations in the upstream sector; these funds are usually used to cover cash calls from the different Joint Venture (JV) agreements in existence and they are of an “opaque” nature. Within the PWC audit; the NNPC Act, which requires that the FGN funds operations carried out by the NNPC, was condemned as this encourages the existence of a “blank cheque” situation between them at the disadvantage of the FGN and consequently the Nigerian people. For example, NEITI reports that within the 2009 – 2011 period $16 billion was deducted for cash calls. A total of $6.8 billion is the estimated unmet payments the FGN has accumulated over time, the administration of Dr. Kachikwu were able to negotiate a reduction to $5..1 billion. This means that, even though the the arrangements have been cancelled; Nigeria will continue paying the debts off with crude oil sales revenue.

This refers to the amount of money which the FGN allocates for payment to independent petroleum products importers or refineries within Nigeria in order to provide support for consumers of these products within Nigeria. This subsidy is paid by the FGN through the Petroleum Products Pricing Regulatory Agency (PPPRA) into the Petroleum Support Fund (PSF). As was depicted during the subsidy scam period, the records of these payments are poorly kept and as a result of the lack of an efficient method of calculating the amount due to each seller, some sellers have collected more than they should. PPPRA has been able to recover some of these moneys, but it did not remit N4.423 billion to the FGN. In addition to this, the subsidy payments has been skyrocketing over the years - in 2009, N198 billion was paid for subsidy of petroleum products, and in 2010, this increased by more than 100% to N416 billion. NEITI audit reports shows a disparity of N175 million between the figures reported by OAGF and PPPRA with regards to the total subsidy paid within the years of 2009 and 2011. N1.3 trillion was reported as paid in 2013 and N1.2 trillion in 2014. The Petroleum products market was liberalized, subsidy cancelled by the Buhari administration in 2016, leading to an immediate and continuous hike in the price of petroleum products. However, there have not been enough recovery or punishment for persons involved in fraudulent oil subsidy payments.

Oil is measured at terminals but not at well heads of flow stations. Around 10% of oil is estimated to be lost or stolen between these points resulting in lost revenue for the government. This absence of a proper method of measuring the amount of oil that is mined makes it difficult to quantify the losses or calculating the amount stolen at the source. Unverified data from NNPC and other stakeholders suggest that almost $4.069 billion was stolen in 2011 alone. In addition to that, various audit reports have shown that there are often conflicting data submitted by the different stakeholders involved in the core areas in the extractive industry – like in the production, lifting and refinery deliveries area. These issues still persisted in the NEITI 2014 Audit Report.

The 2009 -2011 NEITI Audit report showed that the sum of $1.746 billion was withdrawn from the cash call account of NNPC without any proper documentation of its use but with an inadequate explanation of use for ad hoc activities. The Former governor of the Central Bank of Nigeria raised an alarm of a missing $20 billion from the oil sales receipts of the NNPC. He came under serious heat at that period, getting fired by the former President Goodluck Jonathan. However, some senior officials from NNPC during that period are being investigated by the Economic and Financial Crimes Commission (EFCC); the ex-GMD of NNPC, Andrew Yakubu, was recently arrested after $9.2 million and £74, 000 was discovered in his house with no justifiable explanation.

N98 billion ($653 million) was lost by the FGN in the periods between 2009 – 2011 as a result of the favourable exchange rates being utilized by NNPC to pay back its debts to the FGN. NEITI and a couple of other bodies have raised the alarm on this practice. NNPC finally stopped selling at N196 to a Dollar in August 2016, however the new exchange rate is still favourable to them and it does not reflect the reality of exchange rate in Nigeria. The NNPC November financial and operations report shows that N304.29 per dollar was used as exchange rate in the month of November. NEITI 2014 report still showed consistencies in use of exchange rates.

NNPC receives about 450, 000 barrels of crude oil per day for processing at the country’s refineries, yet the refineries process less than that amount leaving NNPC with extra crude which is then exported. NEITI reports that within 2009 – 2011, only an average of 20% was delivered to local refineries, the rest was exported or used for offshore processing, crude oil exchange and product exchange. This amounted to more than $866 million lost by the country in this period. In the latest NNPC financial and operations report, it is reported that 11.9 million barrels of crude oil was lifted in the month of November, only 19.8% of that was refined by the domestic refineries, 72.1% was processed by the Direct Sales Direct Purchase agreement which has replaced the Offshore Processing Agreement and 7.89% was exported unutilized. The report was silent on how beneficial the DSDP arrangements were compared to the OPA arrangements it is supposed to replace. There have been reports that certain entities engaged in fraudulent schemes in the previous regime were included in the current crude oil sale regime.

Nigeria’s petroleum industry is still governed by the 1969 Petroleum Act with the Petroleum Industrial Bill (PIB) spending almost a decade in the National Assembly without being passed;. It has gone through the 2nd reading at the National Assembly, In addition, some aspects of tax legislation in Nigeria are unclear and this has led to beneficial interpretations of taxes by oil companies resulting in reduced revenue for government both from PPT and Royalty payments. The tax regime of the sector is one characterised by ‘unregulated self-assessment’. In order to maximize the collection of royalties from oil production, the NNPC recently proposed an increase in oil royalty with regards to PSC arrangements. In addition to that, incentives associated to this arrangement will also be eradicated in order to maximise the maximize the benefits from this sector to the FGN.

NNNPC owes the FGN an amount of N1 trillion each year and this is merely a part of the many debts owed to the FGN. Oil companies are also included in the list of debtors to the FGN, even though they have tried to superficially address this issue, there are still other methods being utilized to short change FGN, through practices such as:- tax deductions (about $604 million was reported to have been lost through improper tax deductions) , some of these companies do not pay the full amount they are obligated to pay for the education tax (this amount to a total of $512, 812, 744 for the periods of 2009 – 2011), unpaid NDDC contributions also make up the total amount of money owed to the FGN.

Most of the transactions involving crude oil undertaken by NNPC is carried out using methods which require more layers of fiscal dealings, difficult calculations and greater opacity in them. There are never any direct methods utilized, examples of these methods include - Alternative JV finance, Product exchange contracts, Offshore processing contracts, In-kind payments of operation tax and royalty debts. NNPC commenced the publication of their financial and operations report in the last quarter of 2015. These reports have been fairly consistent, giving undetailed and unaudited reports of the financial and operational transactions that occur within the Corporation. While these reports are a definite improvement on the previous opacity that surrounded the oil and gas industry in Nigeria, as it has provided information previously available to a select few, it is still more than a step away from achieving relevant accountability and transparency as accounts are not detailed or publicly audited.

The few refineries we have in Nigeria are mostly not functional, causing the importation of refined crude oil products incurring more expenses rather than generating revenue. Refining crude oil locally could eliminate the cost of transportation added on the international option invariably reducing subsidy payment significantly and increasing opportunities for employment within the country. The Buhari administration started a Turn-Around Maintenance on these refineries which is yet to reveal any apparent improvements in the state of the refineries. The latest NNPC report revealed that only one refinery processed any crude in the month of November.

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