IMPLEMENTING NEITI AUDIT RECOMMENDATIONS

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IMPLEMENTING NEITI AUDIT RECOMMENDATIONS

• KEY ISSUES FOR
• REMEDIATION
• Arinze Agbim
• 3 Nov. 2009

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REMEDIATION

• Preventing recurrence of audit findings
• Enhancing revenues

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REMEDIATION ISSUES

• Physical
• Upstream Crude Oil Measurement
• Downstream Importation of Refined Products
• Financial
• Under collection of Govt. revenues
• Capital allowances claimed on uncompleted
  construction
• Process
• Process of marketing Federation equity crude
  needs improvement
• Need to get JDA to cooperate with audits

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REMEDIATION ISSUES

• Physical
• Upstream Crude Oil Measurement
• Downstream Importation of Refined Products
• Financial
• Under collection of Govt. revenues
• Capital allowances claimed on uncompleted
  construction
• Process
• Process of marketing Federation equity crude
  needs improvement
• Need to get JDA to cooperate with audits

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Review of Measurement Processes

• Crude Oil
• No substantial change from unsatisfactory
  situation highlighted in 1999 2004 audit.
• Lack of in-field measurement as a basis for the
  determination of wellhead production remains the
  major issue.

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Physical Audit MEASUREMENTS

• Upstream
• How do we know what we produce?
• How do we know how much crude is lost through
  theft or spills?
• Should we install meters on wells?
• How do other oil producing countries measure what
  they produce?

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Upstream Flow Sequence

• Oil Gas Wells (Well Platforms)
• Flow Station (Production Platforms)
• Terminal (Measurement Point)
• Export Tanker

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Physical Audit MEASUREMENTS

• Upstream Remediation
• Norwegian government offering assistance based on
  their experience.
• NEITI has initiated a DfID-sponsored study on
  measurements.

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Review of Measurement Processes

• Downstream (Refined Products)
• PPMC measurement practices are weak
• Lack of knowledge of regulatory guidelines
• No culture of striving to follow international
  best practices.

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Physical Audit MEASUREMENTS

• Downstream
• Measurement methods used by PPMC DPR for
  imported products are outdated and unreliable.
• Quality of data available from PPMC and used for
  audit is questionable
• Systems for recording the movement of refined
  products through PPMCs pipeline network are
  out-dated and paper based.

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REFINED PRODUCTS IMPORTATION ISSUES

• About 90 of PMS used in Nigeria is imported.
• Domestic refineries supply about 10
• PPMC (thro a tender process) plays a dominant
  role in product importation.
• Nigeria the only OPEC country dependent on
  importation for refined products.

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IMPORTATION OF REFINED PRODUCTS

• In 2005
• Importation of refined products dominated by a
  few traders (Vitol Trafigura accounted for 43
  of all product imports).
• Huge losses in product distribution system (239
  million estimated as unexplained losses during
  the year).

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Downstream Flow Sequence(as originally intended)

• Refineries
• Pipeline Network (5,100 km.)
• Storage Depots (22 depots nationwide)
• Retail Outlets (000s of stations)

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Downstream Flow Sequence(for imported products)

• Product Imports thro Jetties
• Floating Shore-based Storage
• Road Tankers (mostly out of Apapa PH)
• Retail Outlets (000s of stations)

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Physical Audit MEASUREMENTS

• Downstream Remediation
• The PIB an Inter-Agency memo to the National
  Assembly seeks to address several of the
  weaknesses in DPR PPMC.
• NEITIs study on measurements will also cover the
  downstream..

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REMEDIATION ISSUES

• Physical
• Upstream Crude Oil Measurement
• Downstream Importation of Refined Products
• Financial
• Under collection of Govt. revenues
• Capital allowances claimed on uncompleted
  construction
• Process
• Process of marketing Federation equity crude
  needs improvement
• Need to get JDA to cooperate with audits

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Financial Audit UNDER COLLECTION OF GOVT.
REVENUES

• IOCs
• Unregulated self-assessment regime for taxes
  royalties not working.
• Over 600 million claimed by IOCs due to
  misapplication of MOU. (RP v. OSP)
• Treatment of capital/construction work in
  progress as fixed assets qualifying for Captl.
  Allce. claims is questionable.

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Financial Audit UNDER COLLECTION OF GOVT.
REVENUES

• Indigenous Small Operators
• Tax returns and royalty payments need to be
  rigorously analysed.
• Need to instill a culture of paying taxes and
  royalties.

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PAYMENTS TO NDDC

• During the year 2005, NNDC declared that they
  received from the companies
• 135 million and N 8.4 billion
• The companies submitted that they paid amounts
  slightly lower than these.

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FINANCIAL ISSUES WITH NNPC

• NNPC has not confirmed what happened to the
  dividend payment of 207 million it received from
  NLNG.
• NNPC received 4,065 million for JV cash calls
  but paid out only 3,469 million to its JV
  partners. Did not return balance to Federation.
• NNPC owes the federation N654.8 billion for
  domestic crude it lifted for the refineries.
  Under a 90-day credit arrangement, N331.8 billion
  of this amount was overdue by year-end 2005.

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Financial Audit REMEDIATION

• Capacity Building
• Need to strengthen technical capacity in FIRS,
  OAGF and other agencies responsible for
  assessing, collecting, and managing govt.
  revenues.
• World Bank providing facility and advise for
  this.

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Financial Audit REMEDIATION

• Data Management Control
• Attempts are being made for on-line sharing of
  data between agencies, but there is still a long
  way to go.
• OAGF to be more proactive in managing Federation
  Account.

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REMEDIATION ISSUES

• Physical
• Upstream Crude Oil Measurement
• Downstream Importation of Refined Products
• Financial
• Under collection of Govt. revenues
• Capital allowances claimed on uncompleted
  construction
• Process
• Process of marketing Federation equity crude
  needs improvement
• Need to get JDA to cooperate with audits

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Process of Licensing in the JDZ

• Joint Development Zone (JDZ) is owned by
  governments of Nigeria (60) and Sao Tome
  Principe (40).
• JDZ is administered by Abuja-based Joint
  Development Authority (JDA).
• Hart Groups Contract included audit of 2005 JDZ
  licensing process, but JDA did not cooperate.
• As a consequence, Hart Groups audit of the JDZ
  was based on unverified published data.

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Summary

• Capacity building in government agencies should
  be pursued vigorously.
• These agencies must attain technical capability
  comparable with those in the companies they seek
  to regulate.
• Under-collection of govt. revenues should be
  revisited with a view to making recoveries.

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THE END