Nigerian National Petroleum Corporation (NNPC) and plug the leakages in the state-run
oil firm, its new Group Managing Director, Dr. Emmanuel Kachikwu, will from this week
start inviting oil traders who were awarded crude oil swaps and offshore processing
contracts by NNPC during the administration of President Goodluck Jonathan.
The goal, THISDAY learnt from top NNPC sources, is to reopen the reconciliation
process for the oil swaps and offshore processing agreements (OPAs) to determine if
the oil traders met the terms of the contracts in terms of delivery of fuel product
cargoes to NNPC’s subsidiary the Pipelines and Products Marketing Company (PPMC).
THISDAY last June had exclusively reported that the Department of State Services (DSS)
had opened a probe into the crude oil swaps and OPAs entered into by NNPC and oil
traders.
But the traders claimed that the probe was a witch-hunt triggered by one of their
competitors in the industry and argued that swaps and OPAs were covered by
irrevocable standing letters of credit to the value of the crude of lifted or petroleum
products scheduled for delivery to PPMC.
The traders also explained that a quarterly reconciliation process is carried out by NNPC
to ascertain under or over-deliveries of product cargoes, following which refunds are
made to the corporation and vice versa.
However, the suspicion is that some of the traders lifted crude oil and sold it, but
under-delivered product cargoes to NNPC, thus costing the country several billions of
dollars.
This was given fillip by a report released last week by New York-based Natural
Resource Governance Institute (NRGI) which claimed that Nigeria lost over $32 billion oil
revenue due to the mismanagement of domestic crude allocations (DCA) by NNPC, as
well as the opaque revenue retention practices and oil-for-product swap agreements
signed between the corporation and some oil traders.
Accordingly, a top NNPC official informed THISDAY at the weekend that Kachikwu
intends to start a probe this week by inviting the oil traders to account for the crude oil
they lifted and products that were delivered in return.
He said where it is established that they under-delivered fuel cargoes, they would be
asked to repay NNPC what they owe, failing which they shall be handed over to the law
enforcement agencies for prosecution.
He said: “The goal is to make them pay up once it is ascertained that they under-
delivered product cargoes and not to send them to jail. Kachikwu is even willing to
accept a payment plan that would ensure that their companies do not go under
because they are going concerns and he recognises that they are employers of labour.
“So all he wants is for them to refund what they owe NNPC (or PPMC). However, where
they prove to be stubborn, he will not hesitate to call in the law enforcement agencies
to prosecute them for failing to deliver the cargoes due to the corporation.”
Kachikwu, he explained, would also be investigating what became of the funds meant
to have been paid to or swapped on behalf of PPMC on retained petroleum products
such as low pour fuel oil (LPFO), naphtha, bitumen and other heavy fuels that the oil
traders were not required to deliver.
“PPMC usually orders for just petrol and kerosene under the oil swaps and offshore
processing contracts, as there is high domestic demand for these two products, while
diesel which is completely deregulated is imported independently by oil marketers.
“However in the refining process, other distillates are produced which may not be
required by PPMC. These distillates comprise the heavy liquids, also known as retained
products, which are either supposed to be sold and the proceeds from the sale
returned to PPMC or swapped for more petrol and kerosene, failing which oil traders will
remain indebted to the corporation,” he explained.
Of Nigeria’s total oil output, NNPC is allocated 445,000 barrels of crude oil per day
(bpd), being the nameplate capacity of its four refineries.
The rule of thumb is that NNPC is required to pay for the 445,000bpd at the going
price of crude oil in the international market and remit the proceeds to Federation
Account, but often failed to remit the funds to the treasury.
Also, owing to Nigeria’s low refining output, NNPC has operated the crude swaps and
offshore processing contracts for decades.
Under the swaps, NNPC used to allocate about 50 per cent of its 445,000bpd to oil
traders who in turn sold the crude oil and were expected to import petroleum products
or enter into contracts with offshore refineries that produce the products for delivery to
Nigeria.
By 2014, however, NNPC was allocating its entire 445,000bpd to traders who were
alleged to have sold the crude oil but under-delivered product cargoes, thus increasing
Nigeria’s losses.
Meanwhile, the Federal Inland Revenue Service (FIRS) has said it plans to increase the
value added tax (VAT) on goods and service from the five per cent to 10 per cent.
The acting chairman of the FIRS, Mr. Sunday Ogungbesan, disclosed this during an
interactive session with journalists in Lagos at the weekend.
He said FIRS was consulting with the relevant agencies in government on the need to
increase VAT in view of falling oil prices, which has adversely affected the economy.
Nigeria has one of the lowest VAT regimes on the African continent. Long before oil
prices crashed, several economists had called on the federal government to review its
VAT levy in line with what obtains in smaller economies on the continent such as South
Africa, Egypt, Morocco and Kenya, among others.
Also, FIRS said it might clamp down on recalcitrant companies that have been evading
tax in the country.
Ogungbesan disclosed that of about 450,000 corporate entities in the country, only
about 125,000 pay taxes to the government coffers.
According to him, one of the greatest challenges facing the FIRS was tax evasion by
most companies and briefcase concerns that cannot be traced.
He explained that the FIRS had resorted to engagement to get tax defaulters to change
by paying their taxes as and when due.
The FIRS boss said the agency had tried different options in the past to enforce
compliance, including the option of sealing companies that evade taxes, but discovered
that it adversely affected man hours and Nigeria’s gross domestic product.
He maintained that he would continue with the option of engagement rather than
clamping down on defaulters, pointing out that the former was already yielding results.
He however declared that the FIRS would not hesitate to clamp down on those who
remain recalcitrant and refuse to comply with the law.
He said the desire of the FIRS was to meet set revenue targets, pointing out that it
would help shore up Nigeria’s finances.
He said: “If we achieve our revenue targets, to a large extent government deficits will be
reduced,”
“Our plan is to bring every business into the tax net, because this economy can survive
outside oil."
Ogungbesan said the FIRS was doing everything possible to encourage payment of
taxes, including allowing companies to pay in installments and more.
“I am ready to allow companies that are willing to pay up to 20 installments,” he
declared.
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