Nigeria’s depleting oil revenue could be worse if the lingering dispute between the International Oil Companies (IOCs) and Crude Oil Marketing Division of the Nigerian National Petroleum Corporation (NNPC) is not settled soon. This disclosure is contained in the 2013 Nigerian Extractive Industries Transparency Initiative (NEITI) report.
According to the report, Nigeria may have lost an estimated N2.56 trillion (about $8trn at current exchange rate) as a result of the unresolved dispute. The huge amount which is more than 30 percent of the 2016 Federal Budget, is said to represent the project cumulative revenue losses from the under-assessment of the fiscal valuation of crude oil for a 7-year period (2006 – 2013).
NEITI, has in its report, claimed that based on the official selling price, at least $1bn is lost yearly to crude price under-assessment. The report reveals that the Joint Ventures (JVs) recorded the highest under-assessment of over $410.9 million. This is followed by the Production Sharing Contracts (PSCs) with over $13.8 million and marginal fields/sole risk. The worry for Nigeria, NEITI report stated, is that if the parties in the dispute failed to resolve it, the shrinking profile of our economy may look bleaker. This is very likely in view of reports of last week showing a dip in profits reported by oil majors in their second quarter of 2016 outlook. That can also affect 2017 budget projections.
But, the oil majors have faulted the template reportedly used by NNPC in arriving at the N2.56trn. In a joint statement faulting the methodology, the IOCs maintain that the template used contravened the provisions of the Petroleum Profits Tax Act 1959. For instance, the Shell Petroleum Development Company (SPDC), one of the oil majors in Nigeria, reportedly applied a different pricing template against the prices put in place by NNPC which resulted in revenue losses estimated at over $6.2bn within the period in dispute.
But NNPC insists that the under-assessments were computed based on the existing pricing method. This, it says, is in contrast to the template adopted by the oil majors.
The argument has lingered for some time now. This is not in the best interest of the economy. Undoubtedly, the amount involved is huge, and therefore unacceptable. There is need to reconcile the discrepancies.
We call on the Federal Government to engage the service of a renowned auditing firm to further look into the different claims by NNPC and the oil majors to ascertain what exactly went wrong.
Nonetheless, it is public knowledge that the operations of the oil companies in the country are far from being transparent. Their accounts are even opaque; a situation that permits a revolving door of corruption. There is need to ensure accountability and transparency in the oil sector. It will be recalled that last month, NEITI audit report for 2015 revealed that oil firms in the country did not pay over $11bn (about N3trn) to the Federal Government.
The amount, which includes revenue reportedly owed by NNPC, are mostly from under-assessment and under-payment of taxes, royalties and other requisite payments by the IOCs from their operations in Nigeria. It is good that NEITI is collaborating with the Economic and Financial Crimes Commission (EFCC) to recover the monies and possibly prosecute the culprits since the Act establishing it does not give it the mandate to prosecute culprits.
While this move is a step in the right direction, the dispute over oil pricing underscores the need for a well defined pricing template. This has made the passage of the Petroleum Industry Bill (PIB) imperative. This is also why the National Assembly should fast-track the passage of the PIB to correct some of the issues often in dispute between the IOCs and NNPC. We believe that it will help sanitize the oil sector.
