NNPC has begun to show its books to members of the public, an act that should increase its efficiency and transparency, writes Chineme Okafor.
The Nigerian National Petroleum Corporation (NNPC) had in the past been associated with allegations of corrupt practices across its operations.
For instance, at the request of the federal government in 2010, two audit firms, KPMG and S.S. Afemikhe & Co (SSA) conducted a process and forensic review of its businesses chiefly to establish the accuracy of reported crude oil and gas revenues which accrued to it between 2007 and 2009.
The firms were also to find out the underlining reasons for major inaccuracies in its accounts, and the officials of the corporation involved in such irregularities, as well as review the governance and institutional arrangements used by the corporation for managing oil revenues.
KPMG and SSA were then, equally asked by the government through the Ministry of Finance to carry out an assessment of deductions made by the NNPC including petrol subsidy and joint venture cash calls before remitting to the Federation Account, the components of NNPC’s operating and capital expenditure between 2007 and 2009, and the discrepancies between reported and declared revenue receipts from the corporation.
In addition, the government had then further requested as part of the auditing pair’s terms of reference, to define and map out the processes and procedures by which the NNPC computed, determined and remitted revenues to it, review the volumetric data involved in the computation of crude oil and gas revenues to validate export and domestic crude oil volumes and their values, as well as review a sample of past transactions of the corporation for accuracy, validity, appropriateness and efficiency in its processes.
From their findings which was handed to the government, the audit team then discovered that on the back of the corporation’s inefficiencies, Nigeria had, “no centralised location for storing electronic copies of historical (oil) production and allocation data,” and that these information were stored on personnel workstations, indicating that in event of staff turnover or system failure, vital historical production data would be lost.
They also established that the corporation recorded significant underpayment of domestic crude oil cost against the federation account being that it often used exchange rates below that which the Central Bank of Nigeria (CBN) published, even though its invoices for domestic crude oil allocated to it were in dollar rates.
Furthermore, the audit process had then highlighted the unwholesome practice of renewing crude oil sales contracts on an annual basis without standard processes as well as the evaluating such contracts for renewal on unclear terms.
While observing NNPC’s systemic accommodation of illegal crude oil off-takers in its contract schedule, the 2010 audit equally found that reconciliation of payments for oil sales were often delayed by the corporation, and this left the country and its subnational entities in distress.
However, nine years after the report was submitted to the government, a new head, Mallam Mele Kyari, was appointed for the NNPC in July 2019, and while promptly admitting that the corporation had ran its operations with little care for accountability, he promised some sweeping changes in its processes.
Kyari had told journalists at the State House shortly after his appointment that, “there is no corruption where there is no discretion; we will work with the EFCC to take out discretion in our system.” Months down the line, he had made some bold steps to suggest that he meant his earliest remarks.
Picking transparency as a bedrock
He had said in his maiden address where he disclosed his plans for the NNPC, that an operational model comprising “Transparency, Accountability and Performance Excellence (TAPE)” would be adopted to make the corporation accountable to Nigerians.
Kyari inferred that the best route to productivity for the NNPC was for it to open itself up for public scrutiny by making its operations and processes transparent to the country.
He proposed that the new system will run alongside well-defined operational processes which are benchmarked against standard industry practices, and that the corporation will restructure its operational costs to give value for every money it spends.
Perhaps equally acknowledging transparency as a workplace virtue which smoothens operations, forces realistic goal-setting habit, makes compliance a lot easier, fosters employee harmony, throws up better candidates and ideas from across board, and ultimately produces more profits from improved productivity, Kyari stated that he will prioritise it in his management of the NNPC.
With this, he opted to end the corporation’s age long character of hiding the inefficiencies of its workforce from Nigerians. Months from when he pushed the NNPC on this route, the corporation has made defining efforts at transparency including publishing audited financial statements of its headquarters and subsidiaries operations in 2018 and 2019, and from which their combined quoted losses dropped from N803 billion to N1.7 billion.
Besides completing its financial audits, the NNPC also moved away from the old-styled process of secretly submitting its financial books to only statutory agencies such as the Office of the Auditor General of the Federation amongst others, to publishing it for Nigerians and relevant business interests to see, study and interrogate. This from existing records was previously almost impossible especially with regards to questions about the status of its refineries in Warri, Port Harcourt and Kaduna.
In its 2019 audited financial statement which was recently published, the corporation unusually moved the needle on its habitually huge general administrative expenses from N894 billion that it was in 2018 to N696 billion in 2019, showing an adjustment of 22 per cent and its ambition on cost optimisation.
Majority of its subsidiaries, except the decrepit refineries which it explained have remained shuttered for rehabilitation, also recorded healthy profit margins; according to the financial statement, the Nigerian Petroleum Development Company (NPDC) recorded N479 billion profit in 2019 compared to N179 billion in 2018 while the Integrated Data Services Limited (IDSL) had N23 billion profit in 2019 compared to the N154 million it made in 2018.
The Pipeline and Products Marketing Company (PPMC) it stated recorded N14.2 billion profit in 2019 compared to the N9.3 billion it made in 2018. And NNPC’s monthly remittances to the Federation Account Allocation Committee (FAAC) are also published for public assessment.
Further steps on transparency
Moving on, the NNPC further underlined its commitment to transparent business practices and enrolled to observe the ideals espoused by the global Extractive Industries Transparency Initiatives (EITI), in which EITI-supporting oil companies are tasked to do more to disclose its operations to the public.
Over 65 extractives companies, state-owned enterprises (SOEs), commodity traders, financial institutions and industry partners including the NNPC have committed to observing the principles of transparent business operations advocated by the EITI and will always publicly promote transparency throughout the extractive industries, help public debate and provide opportunities for sustainable development.
As a guiding principle, the NNPC and other supporting companies will publicly disclose taxes and payments they make to relevant authorities and vendors, and where they choose not to, will have to state why they chose not to follow the expectations or process.
It will also as an EITI-supporting corporation, ensure comprehensive disclosure of taxes and payments made to all EITI implementing countries and publicly disclose beneficial owners as well as take steps initiated to identify the beneficial owners of its direct business partners, including Joint Ventures (JV) operators and contractors.
During procurement processes such as tender for lifting of Nigeria’s oil, construction and repair of pipelines amongst others, the NNPC will also have to engage rigorous procurement processes, including due diligence in respect to partners and vendors.
Additionally, it will support the operationalisation of the decision by EITI-complaint countries to disclose future licenses and contracts entered into that govern the exploration and exploitation of oil, gas and minerals in accordance with recommendations in the EITI Standard.
The EITI in its guidelines for this stated that it expects companies which sign up to be its supporting member to, “recognise that achievement of greater transparency must be set in the context of respect for contracts and laws in accordance with the EITI Principles.”
It explained that it wants to see, “companies working together with governments to deliver natural resources in a manner that benefits societies and communities,” by ensuring that their processes are appropriate to deliver the data required for high standards of accountability.
Kyari, in this regard stated the commitment of the NNPC to further transparency and accountable to the people of Nigeria whose common trust the corporation had lost from its years of underhand business practices.
“Becoming an EITI supporting company aligns with NNPC’s corporate vision and principles of transparency, accountability and performance excellence.
“Our partnership with NEITI and EITI strengthens our commitment towards commodity trading transparency, contract transparency and systematic disclosure of revenues and payments.
“We are on a journey towards greater transparency and look forward to deepening our collaboration with the EITI to further this work,” Kyari said with optimism when he led the corporation to sign up for the EITI process.