Wednesday, March 7, 2012

Ten shocking inefficiencies in NNPC as revealed by the KPMG report

As the  Ribadu led Petroleum Revenue Special Task Force gets down to business on unveiling the mystery of the Nigeria petroleum industry, here are ten shocking revelations contained in the yet to be published KPMG report on NNPC that will help make their job easier.
Diezani Alison-Madueke, Minister of Petroleum Resources 

1.       The Nigeria National Petroleum Corporation (NNPC) has no centralized means of storing electronic copies historical production and allocation data. Individual staff store these files on their computers which means that when a staff computer crashes or alternatively he or she leaves NNPC, the data may not be recoverable. It also means if you need historical production and allocation data from NNPC, you may have to talk to as many staff as possible that have it on their computer to get the information

Nuhu Ribadu, Chair Petroleum  Revenue Special Task Force 

2.       NNPC buys crude oil for domestic consumption in dollars from the Federal Government but pays in Naira. KPMG however found out that the exchange rate at which the NNPC pay for domestic Crude Oil in Naira was lower than what the CBN published on the same date. This resulted in NNPC underpaying the Federal Government by N86.2 billion in three years from 2007 to 2009. Shockingly, the NNPC says it got the exchange rate on which it made its payments by phone from the Central Bank of Nigeria (CBN). However, it does not have records of such phone calls. Interesting. Right?

 Austen Oniwon Group Managing Director, NNPC 

3.       There is no stated criteria on how NNPC selects companies that lift Nigeria’s crude oil despite the fact the NNPC reviews the contract for lifting crude on an annual basis. KPMG states that NNPC claims the renewal of lifting contracts for Nigeria’s crude oil on a yearly basis is based on performance of the lifters yet NNPC was not able to define the basis and criteria for determining performance. KPMG was able to observe instances where NNPC allocated crude oil lifting contracts to off takers even when they were not on the approved list.  Ovals trading, for example lifted almost four million barrels of crude in 2007 and 2008 without being on the approved list. Other companies that lifted crude without being on the approved list include Petrojam (2.8 million barrels in 2007), Oil fields (950,166 barrels in 2007) Zenon (906,000 barrels in 2008)

4.       Shocking instances where the KPMG discovered the invoiced amount of crude oil lifted was lower than the value of crude oil actually lifted. There was the case where KPMG discovered an invoice that stated that the amount of oil lifted was $85,000,000 whereas the actual value of crude oil cargo lifted was $95,396,587 representing a significant difference of $10,396,587 or N1.63 billion at current exchange rate.

5.       Crude oil and sales and collection are not captured in NNPC accounting system until two months after the deal is done. Payment for domestic crude by NPPC to the Federation account takes an average of 110 to 120 days (three months)

6.       Process of selecting suppliers of imported products is done at Management discretion. Documented procedures are ignored by management. Instances of petroleum product import contracts awarded to companies not on approved pre-qualification list. In the fourth quarter of 2008, three companies not on the approved prequalification list were allowed to bring in imported petroleum products. The companies are Astana Oil Corporate Limited, Natural Energy and Oando.

7.       NNPC incurred demurrage cost of $198 million (N31 billion) from January 2008 to June 2010 due to delays in discharge of imported petroleum products at the Ports.

8.       Capacity utilization of Nigeria’s refineries ranged from a low of 11.2% to a high of 25.3% in the review period from 2008 to 2009. Also, the processing fees paid by NNPC to local refineries for refining crude is not enough to cover the operating cost of the refineries.  The last time the processing fees were reviewed was in 2005. This is why the refineries are operating at loss and also contributing significantly to their inefficiency. They are set up to fail.

9.       Fuel subsidy payments are based on products imported into the country rather than products actually sold in the country leading to possibility of subsidy being paid on products not sold in the country. KPMG found out the shocking fact that DPK tanks with total storage capacity of 18,000 cubic metres at PPMC depots were not utilized for storing DPK in the last three years despite the fact they were in good condition. Instead, third party facilities were being hired for the same purpose.

10.   NNPC shockingly has no proper system of filing. KPMG found instances where documents were stacked in bags instead of being properly filed. Add to this the fact that other electronic data are not also centrally stored in an electronic data base and you get a nightmare situation of trying to find out what really goes on at NNPC. It is therefore not surprising that the corporations operation has always remained a mystery to the uninitiated. 

Watch You Tube video here on Nigeria's House of Representatives probe of management of fuel subsidy. 

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