The outcome of an audit report, following an investigation into the activities of the Nigerian National Petroleum Corporation (NNPC), which led to its indebtedness to the federation account, has indicted the NNPC with stunning revelations, Huhuonline.com can report.

Recall that the Federal Government, had through the Federal Ministry of Finance, hired KPMG and another Nigerian auditing firm, S.S. Afemikhe & Co., in July 2010, to look into the books of the corporation following allegations of “wrongful deductions at source by the NNPC to fund its operations” by the 36 state governors.

In a 41-page report made available to Huhuonline.com, it explained that the NNPC had ‘deliberately’ turned the corporation into an established drain pipe on the nations’ oil and gas earnings, and an avenue for perpetrating corruption and fraud.

While adding that the NNPC has been enmeshed sharp business practices, violation of laid down rules and regulations, illegal deductions of funds belonging to the state, and failure to account for several billions of naira that should go to the federation account, the audit report says, “NNPC has also severely defrauded our country in subsidy claims. Auditors found that between 2007 and 2009 alone, the NNPC over-deducted funds in subsidy claims to the tune of N28.5bn. It has not been able to account for the sum ever since.”

Findings also point to the fact that the Federal Government, national lawmakers and Nigerians’ having observed that “the procedures for managing and reporting the country’s crude oil and gas revenues are opaque and characterized by gaps, overlaps and inconsistencies in the role of key parties responsible for the assessment, collection and reporting on these revenue streams”, there became the need to peep into the emerging gaping holes in the NNPC’s undertakings.

Meanwhile, Huhuonline.com source at the federal ministry finance said that officials of the petroleum ministry and the NNPC were uncomfortable with the auditors’ intent to verify the books, and had tried to frustrate the auditors by failing to supply evaluation criteria for commercial bids submitted in respect of petroleum products importation as well as other relevant documents such as the criteria for allocation of products and product volumes to importers/suppliers and periodic prequalification list of approved products importers/suppliers.

Although the over-deduction from its remittance to the federation account for 2010 and 2011, believed to be in several billions of naira, is not captured in the report, the audit established that the corporation was in the habit of arbitrarily estimating subsidy claims and then over-deducting funds from proceeds of domestic crude sales, an act which State governors have vehemently complained about, that “the NNPC was short-changing them through illegal deductions from revenues payable to the federation account.”

According to the audit report, “N25bn was deducted as subsidy estimate for September 2009 from domestic crude sales proceeds while PPPRA approved a subsidy of N23.8bn. N35bn was also deducted as subsidy estimate from November 2009 but PPPRA approved of N21.3bn.”

The auditors’ analysis further shows “over-deduction for these two months amounted to N14.9bn. However, only N4.2.bn was swept into the Federation Account by the NNPC as adjustment for subsidy claimable in the two months.” That is beside the N11.8bn subsidy claim the NNPC claimed it paid for imported products that didn’t reach consumers.

The auditors have also discovered that the NNPC had used exchange rates far lower than those published by the Central Bank of Nigeria even when the corporation is known to be invoiced in dollars for domestic crude allocations and expected to remit the equivalent naira value to the Federation Account.

Using this “fraudulent underhand tactics”, the NNPC succeeded in cheating the three levels of government (federal, states and local governments) of a whooping N85.2bn in three years – N25.7bn in 2007, N33.8bn in 2008 and N26.7bn in 2009. However, when the auditors queried the exchange rate disparities, the NNPC claimed it obtained the exchange rates it used from the CBN via telephone.

The report also severely indicted the NNPC over the shoddy and non-transparent manner it renews crude sale contracts every year. The auditors noted that “evaluation criteria for renewal of contracts are not clearly stated in the contract document”, and that the selection exercises were based on individual discretion and wrong assumptions and criteria”, just as the NNPC claims that renewal of contract was based on performance of off-takers (buyers). But the auditors observed that the basis and process for determining performance were not clearly defined.

The auditors wondered why in 2007 and 2008, some companies not on the approved list of buyers for that year were allocated crude, a practice the examiners believe had led to crude being sold to non-credible buyers, even with relevant guarantees and safeguards not implemented.

Specifically the auditors queried the allocation of crude to Ovlas Trading (2, 852,316 barrels in 2007 and 906, 269 barrels in 2008) Petrojam (2,818,914 in 2007), Oil Fields (950,166 barrels in 2007) and Zenon (906,000 barrels in 2008) even when they were not on the list of authorized buyers for that year.

Contracts for the importation of products, the auditors wrote, were also routinely awarded without regard for approved guidelines and procedures. “We observed that contracts for the importation of petroleum products were awarded to companies and suppliers not listed in the approved prequalification list used for the fourth quarter 2008 importation,” the report noted.

The auditors specifically queried the award of contracts in that manner to Astana Oil Corporation Limited, Natural Energy and Oando, when they were not prequalified for patronage that year.

Among other forms of misdemeanour, ranging from poor accounting and shoddy record keeping, the auditors also indicted the corporation for leaving its own storage facilities, unused, and then proceeding to incur additional cost from leasing of third party storage facilities.

The auditors reported that DPK tanks (with storage capacity of 18,000 cubic metres) at the PPMC depots within the Mosimi Area had not been used for three years even though there were in good condition. Yet the corporation, the examiners added, had been leasing storage facilities from third parties.

Source: huhuonline.com