THE Natural Resource Governance Institute (NRGI), on Tuesday, said the Nigeria National Petroleum Corporation (NNPC) failed to remit a total sum of $12.3 billion (N2.5 trillion) crude oil proceeds into the Federation Account over a period of 10 years.
NRGI, an international independent body that monitors the oil and gas sector globally, in a report entitled: “Inside NNPC Oil Sales: A Case for Reform in Nigeria,” said NNPC did not forward any revenue from the sales of Okono crude oil between 2005 and 2014.
According to the report, the sales 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 said.
Knocking the handling of oil sales by the corporation, NRGI said “NNPC’s approach to oil sales suffers from high corruption risks and fails to maximise returns for the nation.
“These shortcomings also characterise NNPC as a whole. Over 38 years, the corporation has neither developed its own commercial or operational capacities, nor facilitated the growth of the sector through external investment.
“Instead, it has spun a legacy of inefficiency and mismanagement. Its faults have been described by a number of scathing reports, many commissioned by government itself.
“Despite NNPC’s debilitating consumption of public revenues and performance failures, successive governments have done little to reform the company,” it further added.
The report also said it was found that the management of NNPC’s oil sales had worsened in recent years, 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 maximising returns,” the report noted.
The report added that “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, as shown, 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,” it added.
In its recommendations to the government on how to correct the ills in the corporation, NRGI said the government should pursue two tracks of reform.
“The first involves urgent reforms to NNPC’s management of oil sales (to ‘stop the bleeding’). At the same time, however, the government should also pursue a course of deeper structural reforms to NNPC (to ‘cure the patient’). If it does not, a new round of costly, ad hoc coping mechanisms will emerge,” the report concluded.