An international governance watchdog, the Natural Resource Governance Institute, NRGI, Tuesday, accused the NNPC of failing to remit $12.3 billion, about N2.46 trillion into the Federation Account, being proceeds of sales of one of Nigeria’s crude oil grade over the last ten years.
The NRGI, in a report titled, “Inside NNPC Oil Sales: A Case for Reform in Nigeria’, said its research found no evidence that NNPC forwarded to the treasury any revenues from sales of Okono crude between 2005 and 2014, volumes which totaled over 100 million barrels with an estimated value of $12.3 billion.
“In other words, the corporation has provided no public accounting of how it used a decade’s worth of revenues from an entire stream of the country’s oil production,” the report stated.
The report further disclosed that the NNPC’s approach to oil sales suffers from high corruption risks, adding that company had failed to maximize returns for the nation.
According to the report over the last 38 years, the NNPC has neither developed its own commercial or operational capacities, nor facilitated the growth of the sector through external investment, noting that instead, it has spun a legacy of inefficiency and mismanagement.
The report lamented that in spite of the failings of the NNPC, especially in its debilitating consumption of public revenues, successive governments have made no effort to undertake a reform of the corporation.
It said, “We find that management of NNPC’s oil sales has worsened in recent years—and particularly since 2010. The largest problems stem from the rising number of ad hoc, makeshift practices the corporation has introduced to work around its deeper structural problems.
“For instance, NNPC entered into poorly designed oil-for-product swap deals when it could no longer meet the country’s fuel needs. Similarly, it began unilaterally spending billions of dollars in crude oil revenues each year, rather than transferring them to the treasury, because NNPC’s actual budget process fails to cover operating expenses.
“Some of these makeshift practices began with credible goals. But over time, their operation became overly discretionary and complex, as political and patronage agendas surpassed the importance of maximizing returns.
“These poor practices come with high costs. Average prices for the country’s light sweet crude topped $110 per barrel during the boom of 2011 to 2014. Yet during that same period, treasury receipts from oil sales fell significantly.
“While volumes lost to oil theft explain some of the decline, NNPC’s massive revenue withholdings and an increase in suboptimal sales arrangements are also to blame. “Mismanagement of NNPC oil sales also raises commercial, reputational and legal risk for actors worldwide: the sales involve some of the world’s largest commodity trading houses, are financed by top banks, and result in the delivery of crude to countries across the globe.”
To this end, the report called for an urgent deeper structural reform of the NNPC, especially in its management of oil sales, warning that if a reform is not undertaken, the country risks a new round of coping mechanism.
Continuing, the report said, “NNPC oil sales are Nigeria’s largest revenue stream and face severe problems. Fixing them should come first in the reform queue, before revisiting upstream contracts with international oil companies.
“Repairing oil sale governance does not require omnibus legislation like the Petroleum Industry Bill (PIB). Rather, a bold and targeted agenda with a one-to-two-year timeline better suits Nigeria’s political timetables.
“When overhauling oil sales, the government should prioritize simplicity throughout. Current governance problems thrive on byzantine arrangements which only a handful of people understand.
“The bad practices that undermine NNPC oil sale performance all have political interference at their root. Only sustained leadership from the very top will shift incentives towards performance and away from patronage.”