Nigerian Extractive Industry Transparent Initiative, NEITI has disclosed that the Nigerian National Petroleum Corporation NNPC has received the sum of $8.836 billion dividend from NLNG accrued to the federal government but has not been remitted into the Federation account as required by law. This was made known at the latest audit reports of the agency posted yesterday.

Following the finding, Government has been advised to ensure that NNPC remits the funds to the Federation account.

The report which NEITI claims that followed Extractive Industry Transparency Initiative standard and best practice also revealed that persistent disputes arising from capital allowances and Royalty Liabilities between NNPC and the contractors would cost the country a huge sum if the litigations go against the federal government.

“These disputes are presently before an arbitration panel. Several arbitral wards have been given against NNPC: total potential contingent liability against the NNPC currently stands at USD9 billion with annual increase of USD3 billion if the adverse rulings are not reversed” according to the report.

It further stated that in the 2007 licensing round, the ‘Right of First Refusal’ was introduced with preference to bidders offering to construct downstream processing projects and infrastructure.

Litigation and other issues arising from the bids have affected the takeoff of the projects.

For instance, dispute as to the use of Realisable Price (RP) or the Official Selling Price OSP for PPT fiscal value led to an underpayment of $690,104,000.

It however added that the Inter-Ministerial Task Team, IMTT is in the process of setting up a working group to propose a draft guideline on how future bidding process can be carried out on right of first refusal for the future.

NNPC has carried agreements with some of its Joint Venture partners.

Some significant amount of PPT under assessment was noticed by the audits in this arrangement.

An estimated sum of US$2,333 million was under assessment of royalty payments for the 2006-2008 due to inappropriate application of price variable in the determination of fiscal value for royalty calculation.

The report also stated that a new MOU is required to determine the fiscal regime relating to the dispute between RP and OSP.

Other important findings of the report stated that the PSCs do not make any provision for the treatment gas available for commercial exploitation, other than that, the parties should execute separate agreements. Such agreements have not been expected. And as such the industry has no uniform and consistent practice regarding the point at which production is measured for royalty purposes DPR is to provide a uniform basis for measurement of crude oil.

It was also discovered that metering and measurement process for upstream and downstream were lacking in terms of access, reliability and quality controls among others things. Measurement guidelines not updated by DPR. DPR is to ensure the measurement process is according to international standards.

The report also advised that NNPC should be stopped from continuing to pay domestic crude allocations less subsidy claims into the Federation Account without legal backing and authority to make such deductions.

In addition to that the report revealed that the dollar/ naira foreign exchange rate used by the NNPC to pay for domestic crude oil allocation into the Federation Account is lower than Central Bank of Nigeria (CBN) advised rates. It therefore advised that NNPC should apply the CBN exchange rate in invoicing domestic crude allocation.

•Sourced from Nigerian Pilot.

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