Audit indicts DPR for poor oil licence records

Oniwon-NNPCNNPC owes govt N588b, says report

SINCE the country is virtually dependent on oil for the bulk of its revenue, it is expected that a key government agency like the Department of Petroleum Resources (DPR) would have the best of records on activities in the sector. But in a most alarming disclosure, an audit report on the oil sector has indicated that the DPR has no accurate database on oil licences issued to prospective investors in the industry.

The audit report, prepared by Hart Group of the United Kingdom and S.S. Afemikhe and Co. of Nigeria, a copy of which was obtained by The Guardian, has it that DPR had difficulties in presenting the documents when the auditors asked for them in the course of conducting the exercise.              

“DPR experiences challenges in making available a comprehensive database of those Oil Mining Licence (OML) and Oil Prospecting Licence (OPL) in the sector with the consequence that complete information on all stakeholders in the sector cannot be readily obtained,” the report said.

The auditors also expressed concern over the extant Production Sharing Contracts (PSCs), noting that they could lead to loss of huge revenue.

They wrote: “The PSCs signed to date do not provide for how the parties to the contract should deal with any gas which is discovered and is available for commercial exploitation, except to say that the parties should conclude a separate agreement. For example, a contractual agreement is required for the commercialisation of Bonga gas production.                

“This gas is being piped to Nigeria Liquefied Natural Gas (NLNG) but the commercial arrangement is undefined and we were not able to determine whether there was, or should have been, a financial flow to the Federation from this activity. This can therefore result in a loss of income to the country.”

Calling for the replacement of the extant Memorandum of Understanding (MoU) between the Nigerian National Petroleum Corporation (NNPC) and the Joint Venture Partners (JVPs), the report stated: “The fiscal regime set out in the 2000 MoU between NNPC and the JVPs should be replaced.

“The MoU has been cancelled but, in accordance with its terms, it can be argued that a replacement (new) fiscal regime has not yet been determined with the result that the MoU terms continue to apply.”

The auditors also expressed concern over alleged conflict of interest in the NNPC, saying: “The corporation should not both (a) buy Federation crude oil and (b) sell the same crude on behalf of the Federation.

“NNPC obtains a financial benefit by delaying sales documentation until it can choose an advantageous pricing option and make additional profit with the benefit of hindsight.

“This is contrary to the spirit of the decision taken in 2002 that NNPC should pay the market price for domestic crude. In some instances, the valuation prices are not translated to the lifting profiles from where the receivable by the Federation for crude sold to NNPC is updated, leading to prices paid by NNPC lower than those charged to other off-takers.”              

The report added: “NNPC should pay for domestic crude in accordance with the correct credit period. NNPC has delayed payments to the Federation beyond the agreed terms. The arrears (amounts outstanding longer than the authorised credit period) at December 31, 2008 amounted to N588 billion. Restructuring of NNPC would provide an institutional foundation for the two separate activities and help ensure arms-length dealing between the Federation and NNPC in relation to the sale of crude.”

The report equally faulted the way NNPC deducts subsidy payments, saying: “Subsidy payment should normally be made from the Central Bank of Nigeria (CBN) through the Petroleum Support Fund (PSF) on the approval of the Accountant-General of the Federation based on claims by Petroleum Products Pricing Regulatory Agency (PPPRA).  “However, we observed that NNPC deducts the subsidy claims directly from the domestic crude proceeds before remitting to the Federation Accounts. We recommend that NNPC, like other petroleum product importers, should draw claims for subsidy from the PSF.”                    


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