In what appears to be a bold step towards sanitising the oil and gas industry, government carries out a major shakeup at the Nigerian National Petroleum Corporation. Will it be business as usual?
Until last week when President Goodluck Jonathan sent Austin Oniwon, group managing director, GMD, Nigerian National Petroleum Corporation, NNPC, and other executive directors packing, the oil behemoth existed in the minds of many Nigerians as the hotbed of corruption. Even international fraudsters paraded themselves as executives of the corporation. And their greedy prey easily fell for it, having been convinced that in the corporation, all things are possible.
Although the decision of the government to change the leadership of NNPC was described by Reuben Abati, presidential spokesman, as one aimed at strengthening the ongoing reform and transformation of the petroleum industry, it is believed in some quarters that there is more to it than achieving the goals of the reform. It was the second time in one week that the President was making sweeping changes in his government, having earlier dropped two key officials – Andrew Azazi, national security adviser, NSA, and Mohammed Bello, defence minister. That came at the peak of security challenges posed by the insurgence of Boko Haram, the Islamic fundamentalist group operating in the northern states. The expectation of many therefore is that government may in due course effect more changes as it strives to turn around the social and economic situation of the country.
Just as the post of NSA went to Sambo Dasuki, a retired colonel and royal prince of Sokoto, Oniwon was replaced by Andrew Yakubu, a chemical engineer from Kaduna, who joined the corporation in 1979. The group executive directors sacked along with Oniwon include Michael Arokodare, finance; Phillip Chukwu, refineries and petrochemicals; and Billy Agha, engineering and technology. Some of the directors are said to be long overdue for retirement. The new executive directors are Bernard Otti, finance and accounts; Abiye Membere, exploration and production; Peter Nmadu, corporate services; Anthony Ogbuigwe, refineries and petrochemicals; Attahir Yusuf, commercial and investments; and David Ige, gas and power.
In recent times, the NNPC has come under intense public criticism and scrutiny, especially since the January 2012 attempt by government to totally remove fuel subsidy from the budget. The move was met with stiff opposition and protest by many Nigerians who rather demanded a concerted effort towards checking corruption in the oil sector. Public anger against the planned removal of petroleum subsidy compelled the House of Representatives to set up an ad hoc committee headed by Farouk Lawan to probe the subsidy regime. The committee conducted a public hearing where the rot in the system was exposed by aggrieved stakeholders. The committee made far-reaching recommendations to sanitise the system, and the report was adopted by the House.
Although allegation of complicity of Lawan in a $3 million bribery scandal now tends to have whittled down the credibility of the report, many Nigerians still believe government should act on its recommendations. Prior to the purge in NNPC, government had established at least two different committees to probe the corporation and the fuel subsidy regime. It is believed that Oniwon and some top executives of the organisation may have been found wanting in one way or the other. NNPC is characterised by lack of transparency in its accounting system, especially as it affects remittance of oil revenue to the federation account. For instance, it has been accused of complicity in the N1.7 trillion oil subsidy scam as discovered by the House ad hoc committee. It is also believed that the executive management of the corporation may have played a subversive role in the Petroleum Industry Bill, PIB, which was only last week said to be on its way to the President after a long drawn intrigue that spanned several years. Even though the President has shown what some Nigerians consider to be a major step towards cleansing the oil industry, there are concerns over the replacement of the GMD with another executive who has been in the corporation for 32 years. It is believed that many top executives of NNPC who have been in service for several decades often overlook the rot in the system when they are appointed to head the corporation.
Long before the public hearing, which now appears to be the last straw that broke the camel’s back, government had commissioned KPMG, a reputable audit firm, to look into the activities of NNPC between 2007 and 2009. The investigation was among other things meant to determine the accuracy of reported crude oil and gas revenues accruing to the Federation Account and NNPC. It was also aimed at establishing the facts behind the inaccuracies in oil revenue. The audit was to identify NNPC officials involved in the irregularities; review the existing governance and institutional arrangements for managing the country’s crude oil and gas revenues through NNPC; and to carry out an assessment of deductions made by NNPC, including petroleum product-related subsidy and joint venture cash calls before remittance to the Federation Account. KPMG was also required to examine other components of NNPC’s operating and capital expenditure within the period and to determine whether discrepancies existed.
After several months of dealing with the issues raised by the government, KPMG returned what, in the opinion of many Nigerians, was like a confirmation of endemic corruption in NNPC. But government held on to the report tenaciously with Ngozi Okonjo-Iweala, finance minister and coordinator of the Economic Management Team, insisting the report must not be made public until such a time when government deemed fit. That was trailed by criticisms. However, KPMG stated in the report that the federal government had noted recent reports of possible inaccuracies in the crude oil and gas revenues remitted to the federation account by the NNPC. The reports stemmed from allegations of wrongful deductions at source by NNPC to fund its operations.
The report also noted government’s concern to the effect that despite the increase in international oil prices and Nigeria’s export volumes, there has not been a commensurate improvement in the position of the country’s external reserves. This was further aggravated by allegations of unauthorised changes made in the management of the foreign bank accounts used for the receipt of the nation’s crude oil and gas sale proceeds by the NNPC as these proceeds are said to be received into NNPC-managed foreign bank accounts. KPMG also found out that there are concerns that the procedures for managing and reporting the country’s crude oil and gas revenues are opaque and characterised by gaps, overlaps and inconsistencies in the role of key parties responsible for the assessment, collection and reporting on these revenue streams.
KPMG also observed that NNPC is invoiced in dollars for domestic crude allocations but is expected to remit the equivalent naira value to the Federation Account. “However we observed that exchange rates used by NNPC were lower than the average exchange rates published by the CBN during the review period. NNPC claimed they obtained the exchange rates from CBN via phone but there was no document to substantiate the claim,” the report said, adding that there were instances where crude oil was allocated to off-takers who were not on the approved list. It went ahead to identify the companies involved.
Aside from discovering that NNPC and joint venture, JV, operators do not perform reconciliation for gas/feedstock sold to Nigeria Liquified Natural Gas, NLNG, KPMG also discovered that there are instances of delays in receipt of subsidy advice from the Petroleum Products Price Regulatory Agency, PPPRA, resulting in the estimation of subsidy claims by NNPC and which results in over/under-deduction from proceeds of domestic crude sales. The auditors cited some examples: N25 billion was deducted as subsidy estimate for September 2009 from domestic crude sales proceeds while PPPRA approved a subsidy of N23.8 billion. Similarly, N35 billion was deducted as subsidy estimate for November 2009 but PPPRA approved a subsidy of N21.3 billion. It then concluded that over-deduction for these two months amounted to N14.9 billion. However, only N4.2 billion was swept into the Federation Account by NNPC as adjustment for subsidy claimable in the two months.
Prior to the KPMG report, NNPC had come under scrutiny by several other agencies, and the corporation did not come out clean. One of such reports is the Nigerian Extractive Industry Transparency Initiative, NEITI, audit report of 2005, carried out by consulting firms of Harts and S S Afemike; and the 2007 auditor general of the federation, AGF, report which also found NNPC wanting in many ways.
Much as the change in the leadership of NNPC is being commended by some Nigerians, several others believe that corruption has so much been institutionalised that a mere change of executive management may not clean up the rot. James Orife, an oil and gas consultant believes that such changes should not be made for the fun of it. Orife, a pioneer staff of NNPC, told the magazine that government has only made a scapegoat of the immediate past executive management of the corporation, given the fact that the rot in NNPC predates the Oniwon regime. He says the change of guard will not address the rot in the system until government summons the political will to address the fundamental problems confronting the NNPC. That perhaps accounts for why there is a high turnover of GMDs in NNPC.
Similarly, Elijah Okougbo, immediate past secretary-general, National Union of Petroleum and Natural Gas workers, NUPENG, said what the government has done is at best cosmetic. His thinking is that government should rather direct its efforts at solving the inherited problems in the oil industry, some of which he identified as wilful destruction of oil facilities; the yet to be resolved subsidy scam; inadequate funding of the sector; the deplorable state of the refineries; and carriageways for the movement of petroleum products. Okougbo is of the view that the frequent changes of the leadership of NNPC is a disincentive to the oil industry as the newly appointed ones would be more concerned about when they will be removed than do the job expected of them. The concern, therefore, is that until a more drastic measure is taken against the oil industry, it is most likely going to be business as usual. For President Jonathan, ending corruption in the sector is a great challenge and how far he goes in tackling it may also determine the success of his reforms.
Additional reports by Tajudeen Suleiman, Chikodi Okereocha and Stella Sawyerr