Anonymous Sauces Explain The N7trn Deficit

“Weapon no be groundnut, but deficit fit turn to debt” –

Goodluck The Jonathan, First of His Name

Preamble

Let us assume Omo Baba Olowo (OBO) earns N10m annually. He plans to spend N5m on a new car; N2m on rent; and wants to spend N1m per month on small things like buying champagne at Sip, presents for his supermodel girlfriend (Baby Girl), food, petrol in his car and other normal expenses. Since he budgets an income of N10m and an expenditure of N19m, you can say the budget has a deficit of N9m. Now, OBO needs to find N9m from somewhere, so he asks his father Baba Olowo for an advance on his inheritance and gets N5m, But the money is still not complete, so he goes to a bank and borrows N4m.

All is well, so OBO is calm and happy.  In this case, OBO runs a budget deficit of N9m but carries a debt burden of N4m.

The following year, OBO now earns N20m, but since he doesn’t need a car, he moves to a bigger place that costs N4m and buys his baby Girl a N3m engagement ring. He still spends N1m per month so he can drink at Sip and post pictures on Instagram, and also spent N1m repaying part of the bank loan he took.

You can see that earning more money cannot be a bad thing; OBO now has a zero deficit budget, but owes N3m.

Now how does this affect the price of fish in the market? The Chairman of the APC Transition Committee, Ahmed Joda, suggested in an interview with Daily Trust over the weekend that the Federal Government is carrying a deficit of N7 trillion and not the N911 billion contained in the 2015 budget:

We were told at the beginning of the exercise that the government was in deficit of at least N1.3 trillion and by the end people were talking about N7 trillion

According to the previous government, the FGN expected to earn N3.7 trillion in 2015 and spend N4.6 trillion; like OBO, this means it needed to borrow N900 billion to fund the deficit. However, the government is already owing N11 trillion, so the additional deficit of N900 billion will now take the government’s debt to N12 trillion.

How Did We Get To N7trn?

It all seems fairly simple, so where did the N7trn come from? According to the handover notes received from the outgoing government, the Chairman of the APC Transition Committee is suggesting the previous government suppressed the level of debt it carried and has now transferred those rotten tomatoes to the Buhari Government. He didn’t provide a breakdown, but my friend was a waiter serving drinks at the hotel where the committee met and he gave me some interesting details:

Deficit

Ministries can duplicate costs, especially with the Finance Ministry.At first glance, you can see contractor payments account for over 50% of the total amount. Interestingly, the widely circulated interim report of the Transition Committee estimated N800bn was owed to contractors. However, as my sauce says this estimate was revised, using numbers submitted by the ministries in their handover notes.

He was kind enough to share an interesting breakdown of the numbers with me (at great risk to his life). I have reproduced it without editing:

Gbese on Fleek

Points to note on the figures above:

  1. These were the numbers submitted to the Transition Committee in the handover notes. The outgoing government did not provide any ageing on the debts. That is, it is not yet known how old these liabilities are. This will determine how contractors are paid e.g being issued bonds to receive their payments in 24-36 months time when Nigeria’s finances are hopefully healthier.
  2. A detailed list of the contracts was also NOT provided so it is possible that there is some double counting going on in the above numbers.
  3. Some of the balances may also be disputed and some contracts may be cancelled or terminated. No documentation was supplied to show whether the contracts were executed to specification.
Debt or Deficit?

So, now we know where the figures have come from, we need to answer the second question; is this debt or deficit?

The position of the Government seems to lean towards an urgent need to clear these obligations within one budgeting period for a number of reasons. I heard one contractor laid 4,000 casual staff off, because he was being owed billions of Naira and unable to pay salaries. Therefore, the government believes paying contractors will not only keep people in jobs, it will reflate the economy, and ensure outstanding projects are completed.

Also, paying outstanding cash calls to oil companies is important if Nigeria wants to develop new fields, especially for the much-needed boost in gas supply. The other issues like salary payment, subsidy arrears and the North East redevelopment plan are immediate needs that need to be funded.

This means the FG will probably ask its Finance Ministry to prepare a supplementary budget that will look like this:

Deficit Final

 

 

Remember, the country already owes N11trn and if we need to borrow N7trn more, it will take our total debt exposure to N18trn – roughly 18% of GDP.

So, to answer the second question, the APC Transition Committee is suggesting if the FG writes a new budget today, it will show a deficit of N7trn, which could increase Nigeria’s debt to N18trn, depending on how the deficit is financed.

While our debt/GDP ratio is not bad compared to similar countries, the real problem might occur when we work out how to pay these debts. Currently Nigeria spends over 20% of its income servicing debts; if we add another N7trn in fresh debt, this could mean we will spend over 30% of our revenues paying creditors.

Now, imagine OBO spending 30% of his next year’s income to pay his debts, it means things like champagne at Sip and that fancy apartment must be removed from his expenses. For Nigeria it means a lot of non-essential expense lines must disappear: fuel subsidy, huge legislative costs, bloated workforce etc.

If the three things noted in the caveat to the contractor debts above happen, the FG might reduce contractor debts from N4trn to N1.5trn (nothing suggests this is possible, but we are allowed to hope and pray a little).

If this happens, the deficit will drop to N4.4trn. Not bad, but still needs some work.

This is where yesterday’s post on Mr Wang is very useful. Imagine we have our own Mr Wang, who can either get corrupt people to lose their ill-gotten wealth through a transparent legal process or just come to submit those assets after being shown what a prison cell looks like.

If our version of Mr Wang does a great job, he might raise another N2trn for the government, leading to this type of budget:

Deficit New

If we end up with this type of deficit, then hope springs eternal. It means the government can now finance this using a number of available options:

BUDGET SUPPORT FACILITY: The government can take the planned budget support facility from the World Bank and African Development to shore up its funding gap. This facility was originated by the previous government, but I was told the lenders stalled on disbursement till the new Government was in place.

Result: $2bn or N400bn

NLNG Dividend: The NNPC claims the committee working on the alleged unremitted dividend from the Nigerian Liquefied Natural Gas Company.  The Inter Ministerial Task Team has operated like a cross-breed between a tortoise and snail up till now, maybe the arrival of a new sheriff will quicken this reconciliation.

Result: $11bn or N2.2trn

Securitization: The government can release cash by pledging a portion of future payments from guaranteed revenue sources. For example, the government could pledge a share of guaranteed revenues from annual operational levy paid by GSM operators; dividend and taxes from NLNG; and a percentage of NNPC’s share of crude oil sales (remember those 445,000 barrels sent to domestic refineries?). Since these are guaranteed revenue streams, lenders will be quite pleased to provide debt upfront.

Result: $5bn or N1trn

Sale of Equity in Selected Assets: I’m no expert but those who know suggest NNPC/NPDC stake in those JV assets might be worth about $30 billion. The Government can sell 20% of its stake to investors and host communities to raise immediate revenues and also reduce the FG’s future cash call burden on these assets.

Result: $6bn or N1.2trn

Fiscal Responsibility Act: Section 21 Section 21 of the FRA states that: “Notwithstanding the provisions of any written law governing the corporation, each corporation shall establish a general reserve fund and shall allocate thereto at the end of each financial year, one-fifth of its operating surplus for the year.” Of course, most of the MDAs pretend this Act was never passed and continue to keep their surpluses in Ghana Must Go bags. If enforced, MDAs like CBN, NIMASA, BOI, NPA, TETFUND, FAAN, JAMB and WAEC can add some “change” to Government’s coffers.

Result: $1bn or N200bn

Conclusion

The options above can yield N5trn. But then, this is all on paper and reality will be far harder.

I certainly don’t envy Muhammadu Buhari, but if you’re his friend, perhaps you can whisper the words of Guiseppe Garibaldi in his ears; “a bold onset is half the battle.”

***

The above was sent to me by a mysterious sauce. I don’t even know how they got my email address but here we are. It’s a useful summary of where Nigeria currently is financially and where it needs to go.

As usual on aguntasolo.com, we like to thank people who contribute wisdom for the edification of the body politic (what does this even mean?), so join me in thanking them

FF

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What If Mr. Wang of The CCDI Comes For Your Daddy?

Mr. Wang Qishan is a member of China’s seven man Politburo Standing Committee – sort of their equivalent of Nigeria’s FEC. He is also the Secretary of the Central Commission for Discipline Inspection (CCDI) – think of this as China’s EFCC.

Given that China has only one party, everyone in government from civil servants to ministers to the President – is a member of the 80 million member strong Communist Party. What this means is that from the time you sign up as a member of the party, you are subject to the rules and regulations as enforced by the CCDI; take it or leave it. The CCDI is supposed to be a way by which the Communist Party cleans itself and prevents decay.

But as with all things, it ends up depending on the leadership of the country and how seriously they want to deal with corruption. China is deeply corrupt although not as visible as Nigeria (policemen don’t take bribes on the highway) and certainly their corruption is of a higher quality than the variety you find in Nigeria as I tried to explain in a previous piece here.

Enter President Xi Jinping – or Xi Big Big (习大大) as Chinese people have taken to calling him. In January 2013, a couple of months after taking office, he declared that his government would go after ‘flies’ (low ranking civil servants) and ‘tigers’ (ministers and big boys). Nothing new there as every Chinese leader always declares war on corruption. He said:

We must uphold the fighting of tigers and flies at the same time, resolutely investigating law-breaking cases of leading officials and also earnestly resolving the unhealthy tendencies and corruption problems which happen all around people.

The style in which you work is no small matter, and if we don’t redress unhealthy tendencies and allow them to develop, it will be like putting up a wall between our party and the people, and we will lose our roots, our lifeblood and our strength

If President Xi was serious about this, it was going to be a big job for Wang Qishan. So more than 2 years after the Tigers and Flies campaign started, how has it fared? Here are some highlights

1. Previously, there was an unspoken rule in China that members of the Politburo Standing Committee do not get investigated for corruption. Zhou Yongkang became the first Tiger to fall to Mr. Wang’s campaign. When you consider that China is a police state, someone who was in charge of the entire internal security apparatus must be an extremely powerful person. He also previously headed the China National Petroleum Corporation, the world’s largest employer (currently 3.2m people).

Last week, Mr Zhou was sentenced to life in prison after having assets worth $14bn seized from him.

2. In September 2013, the much publicised trial of Bo Xilai came to an end and he was sentenced to life imprisonment. He had previously been a Minister and then Governor of one of China’s fastest growing provinces, Chonqing, and had ambitions to make it to the Politburo Standing Committee someday. He was charged with taking bribes of $3.5m and had all his assets seized (including a $7m villa in France) upon his conviction.

3. What about the flies? Boy oh boy…Mr Wang has gone after them relentlessly. Each year breaks the record of the previous one in terms of convictions and investigations. This is how he started his job in 2012

One story goes that at a meeting of the party’s Central Commission for Discipline Inspection (CCDI), convened after Mr Wang took charge of it in November 2012, senior members—themselves among the most feared officials in the party—were presented with dossiers of their own sins. Mr Wang’s aim, it appeared, was to terrorise the enforcers themselves. Failure to uncover high-level graft, he has warned them, would be “dereliction of duty”

In 2014, 200 of the CCDI’s own investigators were punished. In 2014, the CCDI had investigated and punished 232,000 civil servants at all levels – both federal and state. This was 30% more than the numbers punished in 2013. The campaign has been intensifying rather than waning as the chart below from the FT shows

df763a0c-1be4-11e4-9db1-00144feabdc0.img

4. An interesting effect of Mr Wang’s crackdown on the civil service is that it has reduced the desirability of those jobs:

For the most recent annual exam for the national civil service, held on November 30th, there were 1.4m applicants, 110,000 fewer than the previous year. Of those, more than one-third failed to show up. There were 40 test-takers for each available position, the lowest ratio in nine years. As recently as 2010 it stood at 59:1. Recent opinion polls have found respondents born in the 1990s to be much less keen on civil-service careers than their elders.

And this:

A Chinese job-search website, Zhaopin.com, reported that in the three weeks after the lunar new-year holiday in February more than 10,000 government workers quit their jobs to seek greener pastures, mainly in the finance, property and technology industries—an increase of nearly one-third over the same period in 2014. The company attributed this to a new emphasis on frugality in government work. Lavish meals are now banned (much to the chagrin of restaurants, which have suffered falls in profits). Governments are no longer allowed to build fancy offices for themselves. Stricter controls have been imposed on the size of ministers’ offices and temperature settings in government buildings. The receiving of gifts and donations of cash, once common features of bureaucratic life, has become far riskier

Future corruption is even being reduced as those who wanted to go into the civil service to steal money are now abandoning the idea.

Mr. Wang apparently organises ‘prison tours’ where he takes serving civil servants (along with their wives) to visit their former colleagues who have been convicted. The message is of course clear – e fit be you o.

Nearly 70 civil servants have committed suicide since the beginning of 2013, usually after they were placed under investigation. More than 60 people at Minister rank have also been convicted.

5. China’s ‘private sector’ is more or less an arm of government. As my previous post showed, Mr Wang’s CCDI went after Lunatic Liu at the Railways Ministry. He has also relentlessly gone after the Chinese version of the NNPC – the CNPC. In fact, the CCDI’s investigations have now been built into the operation of the CNPC:

At China National Petroleum Co, the state-owned parent of listed PetroChina, so many senior executives have been detained that the company has established a reporting system in which top officials check in with department heads daily, according to Chinese media reports.

If any of them drop out of contact they are assumed to have been detained by the CCDI and are replaced the following day by a preapproved successor.

This arrangement reflects the extraordinary power wielded by the CCDI, a highly secretive extralegal body that has no formal right to arrest or press charges but which can investigate and indefinitely detain any of China’s 87m Communist party members.

Once a CEO of a private company disappears, the shares of the company tank as people assume the CDDI has picked the person up. A funny example of this happened a couple of weeks ago to a company called Hanergy Thin Film Power had $18bn of its value wiped off the stock market in about 30 minutes when the Chinese billionaire owner of the firm, Li Hejun failed to turn up at its AGM. 

It turned out he had been merely engaged elsewhere but no one was waiting to find that out.

6. The giant Chinese pig industry has not been spared. One way corruption is carried out in China is by wining and dining government officials with very expensive meals which always contain pork. As Mr Wang and the CCDI have cracked down on corruption, these expensive meals have lost their appeal as the risk of being caught in a restaurant while stuffing your face has greatly increased.

In a recent newsletter, China’s leading pork industry analyst explained why hog prices are still depressed in that country after two years of shrinking animal inventories.

In his Soozhu.com newsletter, analyst Feng Yonghui observes that Chinese hog producers are confused as to why prices have not bounced back after two years of declining hog numbers. Feng describes the downsizing as a structural response to the anticorruption campaign and economic downturn that have roiled markets in China over the past two years.

Feng estimates that the anticorruption campaign (launched December 2012) popped a bubble equal to 10% of pork consumption. He estimates that before the anticorruption campaign, 7 out of 10 pigs were consumed on family dinner tables, and the other 3 pigs were supplied to restaurants and cafeterias. He estimates that the anticorruption campaign eliminated 1 of the latter 3 pigs. In other words, it popped a bubble equal to 10 percent of demand for pork.

While the bandits and economic parasites (who are ‘into oil and gas’) in Nigeria continue to buy private jets for themselves, their wives and their girlfriends, here’s what’s happening in China:

Yet a government crackdown on corruption and a creeping anti-luxury climate under Chinese President Xi Jinping may be changing that.

Underscoring the risk to suppliers, the Chongqing Youth Daily, citing unnamed industry sources, reported yesterday that 30% of outstanding orders for private jets have recently been canceled as part of a “chain reaction” tied to a government crackdown on corruption.

It’s not just second-thoughts among new buyers that may affect the market in 2015.  Existing owners of private jets are also less willing to hold pricey symbols of wealth at a time when government leaders are emphasizing frugality in everything from architecture to salaries at state-owned companies.   As a result, as much as 20% of China’s existing fleet of private jets — including corporate jets — could be for sale, one industry executive recently told Forbes.

Luxury goods too:

All of this news is likely worrisome to luxury companies, which have seen a significant slowdown since the start of the anti-graft campaign. Bain & Company reported a negative 1 percent growthrate for the China luxury market in 2014,  marking a third year of the industry’s slowdown after the market grew by 2.5 percent in 2013 and 7 percent in 2012 (a significant decline from 30 percent growth in 2011). 

The crackdown hasn’t affected all sectors equally, however—luxury items associated with graft such as high-end spirits and watches have fared the worst, while “affordable luxury” brands geared toward China’s middle class have still seen significant growth.

Since the crackdown doesn’t seem likely to end anytime soon, luxury companies are taking a variety of measures to cope. Some are taking a cue from the success of masstige labels such as Coach and Michael Kors by going more mid-range in order to tap into the growing spending power of China’s upper middle-class consumers. This is especially true for high-end hotels and restaurants hurting from a lack of fancy official banquets,  as well as brands producing luxury versions of the Chinese spirit baijiu as sellers slash bottle prices.

Gold:

Gold demand on the mainland shrank for a third quarter as slumping prices failed to boost the purchases of bars, coins and jewellery and officials pressed on with an anti-corruption campaign.

Buying dropped 37 per cent year on year in the third quarter to 182.7 tonnes as last year’s price-driven surge in demand was not repeated, the World Gold Council said in a report yesterday

Mink:

The price of mink has more than halved in the past year after retailers in China and other big fur markets were left with surplus stocks after the bursting of the Chinese fur bubble.

Prices at last month’s auction by Denmark’s Kopenhagen Fur, the world’s biggest fur auctioneer, fell 55% to 258 kroner (£27.19) from a year earlier when Chinese demand sent prices to a record. Saga Furs in Finland said prices at its auctions also halved for mink furs. More than 30 animals are required to make a mink coat.

Salla Tuomivaara, of the Finnish animal welfare group Animalia, said: “The reason for the price drop is most probably the anti-corruption campaign initiated by the Chinese government, which discourages public servants … to accept luxury gifts.”

You might wonder at the damage all this is doing to the economy. Well, President Xi has called it ‘The New Normal‘. Make of that what you will.

7. What about corruption in the Chinese military? Mr. Wang has gone there too. Before he fell, General Xu Caihon was the highest ranking officer in China’s armed forces.

When investigators raided his house, they needed 12 lorries to carry away all the cash and precious stones he had stashed away (one problem in China is that the highest currency denomination is RMB100 so lots of cash is needed to hide loot). He had so much cash that it was reported that he gave so much to his maid and driver who in turn built houses while working for him. When the maid’s house was searched, stacks of cash were found there too.

General Xu was in charge of promotions in the armed forces so it’s not hard to see how he would have made a fortune from bribes with 2.3 million members in the forces. His trial for corruption was going on when he died of bladder cancer in March this year.

In January of this year, the People’s Liberation Army (PLA) revealed that 15 senior Generals were under investigation for corruption:

On January 15, Chinese officials announced on China Military Online the names of 16 senior military officers of the People’s Liberation Army (PLA) who were under investigation for “seriously violating party discipline,” a euphemism for accusations of graft. The Global Timesnotes that the officers under investigation are at the corps level and above and include one general, four lieutenant generals, nine major generals, and one senior colonel.

 ***

You can find plenty more on the Tigers and Flies campaign all over the internet. This blog post can’t do justice to it at all. If Mr. Wang was in Nigeria, then our people would say ‘Mr Wang is working, CCDI is working’. The campaign has been vicious and it has been relentless.

And yet this is a country that has lifted 600 million out of poverty in 30 years and where development and progress is visible to the naked eye (Please go through the photos in this article Here. Ignore the Russian text). Corruption has not held back development per se.

Observe, as a random example, the ongoing corruption scandal at the Bureau for Public Enterprises (BPE):

Investigations by TheCable have uncovered retrospective payments of insurance premiums totalling N27 billion for “cover” not provided to the defunct Power Holding Company of Nigeria (PHCN). In insurance parlance of “no premium, no cover”, there can be no insurance cover if premium is not paid ab initio, but the BPE and the ministry of power may have succeeded in developing a new practice in which premium is paid years after cover is provided.

A director at the ministry said: “Cover starts the day premium is made. How can you make payment for cover that was not provided? How can you ask for premiums to be paid when PHCN has already been liquidated? The conspirators engineered memos to their principals which were quickly approved and monies disbursed.

What is this shit? A country that cannot engineer bridges or roads is now ‘engineering memos’ to facilitate the transportation of public funds into private pockets. When you have this kind of theft going on, it is clear that people are not even thinking again.

President Buhari has a very big decision to make. As much as he needs competent hands to push his policies, he also needs a Mr. Wang to drive a serious anti-corruption campaign. Nigeria is of course a democracy so things possible in China will not be possible there. But this should by no means diminish the scale of the ambition required for the fight.

Corruption is absolutely killing Nigeria. Nothing serious can get done as things are. No matter how good a policy is, it will be suffocated if thrown into this system. And we have to be honest with ourselves that we have become a people who desperately need to change our ways, to put it mildly.

I have heard the name of one ‘mad man’ as a possible head of EFCC. A guy apparently so crazy he still drives a Peugeot 504 in 2015. Maybe he can be our Mr. Wang. That said, it is interesting to note that nothing in Wang Qishan’s history made him out to be an anti-corruption crusader – his private sector career was in banking.

But ultimately, the job belongs to Nigerians. A crackdown on corruption when Nigerians themselves remain comfortable with the culprits is unlikely to last long. These people live among us – they are people’s Daddies and Mummies.

Professor Deirdre McCloskey said it better than I ever can:

Indignation on the ground, if pervasive, stops corruption

The first step is to stop celebrating corruption, even if the person is your Daddy.

FF

Guest Post: Agenda For The Next Petroleum Minister

The Nigerian petroleum industry has suffered equally from what was left undone – PIB, Gas reforms, regulatory effectiveness, as much as what was done – scandals. It is therefore important that the Minister appreciate what really matters – the core industry challenges, opportunities and options. We would like to help.

Increased Revenue Generation

Dwindling Nigerian Crude Oil Sales: Stop the beauty pageant – Nigerian crude oil is faced with a ‘double whammy’. Prices are generally low but structural changes in refining hubs and a glut of light sweet crude oil is eroding quickly the historical advantages Nigerian crude enjoys. Nigerian crude used to be in high demand but these days, much of it now linger on the market pushing price differentials down by over 60% in over two years. Current June market data estimate that about 80 Million barrels of Nigerian crude are stranded and looking for buyers. Reforming the archaic, opaque and detrimental crude oil sales mechanism adopted over the years is overdue.

The Bern Declaration report on the trading of crude oil in Nigeria (See here) described the current process as a ‘beauty pageant’, riddled with ‘monumental corruption and intense uncertainty’. In the current arrangement, NNPC does not sell most of the Nation’s crude oil entitlements directly to customers as many countries do but through middlemen (largely traders and briefcase companies) who naturally make a margin and are motivated to corrupt the system. In a buyer’s market, this is a deeply flawed strategy.

The new Minister must urgently establish measures to ensure that Nigeria sells most of its crude oil directly to customers – refineries, traders, National Oil Companies in our major markets. There is no alternative. Furthermore, a robust crude oil marketing strategy that confers advantage to Nigerian blends over rival light sweet crude oil even in a buyer’s market is a necessity. Angola’s ingenuity in marketing its crude oil sales is a good example. The country has established bilateral agreements with some of its major markets effectively eliminating rival crude in some instances. The Angola – Chilean crude oil bilateral agreement secured Angola a lion share of the medium sour demand knocking off Ekofisk and other crude that competed for the Chilean market. Nigeria’s major targets for bilateral crude sales agreement should include India, Brazil, South Africa, Indonesia etc. It might be prudent to ascertain what the impact of the EU – ECOWAS Free trade deal (EPA) might have on our crude oil sales to the European Union in analyzing the nation’s strategy.

Pioneer Status: Cronyism or an essential incentive? – Utilising a provision in the Industrial Development (Tax Relief) Act, many indigenous oil and gas companies in Nigeria have been granted zero tax, ‘pioneer  status’ by the Nigerian Investment Promotion Commission, a non oil industry actor, resulting in enormous revenue losses for the Federal, States and Local Governments. This piece (See Here) provides granular insight into the dynamics and impact of the awarded pioneer taxes on Nigeria’s revenue. Different estimates of lost revenue to Pioneer Status have ranged from about $1Billion – 5Billion over the last 10 years.

The new minister must intervene. First, the provision in the IDA that confers pioneer status on companies in the petroleum industry must be eliminated and all pending applications rejected. There are incentives already enshrined in the Petroleum Profit Taxation Act and available for indigenous/new companies. Furthermore, the illegal approval of a straightforward 5 years zero tax in flagrant contravention of the extant law should be reversed. The IDA provides only for an initial 3 years zero tax status plus a possibility of renewal for another two years. We suggest that existing approvals should not be totally reversed but a limit of 3 years as provided by the law be adhered to.

OML Relinquishment/Retention Fees: The devil is in the details  – Schedule 1, Section 12 of the Petroleum Act states that

Ten years after the grant of an oil mining lease, one half of the area of the lease shall be relinquished

This provision of the law was aimed at dissuading companies from hoarding undeveloped assets in their portfolio and ensuring rapid development of reserves. Companies that have been granted mining leases (OMLs) are expected to relinquish 50% of their acreage. The relinquished acreage are then expected to be resold to interested parties even though there is a case for the relinquishing parties to have Right of first refusals on the relinquished areas.

As at today, this provision is rarely implemented but that needs to change. The Minister must aggressively pursue the implementation of the legal provision by ensuring that all qualifying companies relinquish or take up their ROFR option on the acreage. Though the potential revenue from implementing this provision may be constrained by the participation of NNPC in the Joint ventures but the anticipated revenue from qualifying assets are still substantial.

Bid Rounds: The lost decade?  – The last oil licensing bid round in Nigeria was conducted in 2007. We consider this a ‘lost decade’ of opportunities, revenue and capacity for a resource rich country.  We suggest that the new minister conduct a transparent bid round for the marginal fields and oil prospecting licenses in the nearest future – within a year.

The 2002/2003 bid rounds have been adjudged the most transparent and rewarding in Nigeria’s oil history. The Minister might want to borrow some ideas from stakeholders who participated.

Pipeline Vandalism: Sai Baba and the oil thieves  – Nigeria loses and defers about 400,000 barrels per day to pipeline vandalism and crude theft leaving the refineries idle, revenue depleted and armed gangs enriched. It’s noteworthy that these losses/deferments are more than the total daily production of the middle east quartet – Brunei, Yemen, Uzbekistan and Bahrain. Recent governments adopted light-touch, incentive only strategies hence the proliferation of crude theft and in some instances sabotage by locals seeking for collateral damages. But with the impact of pipeline losses/deferments on revenues and the fiscal crisis in all the tiers of government, addressing these illicit activities have become critical.

There is no silver bullet for pipeline vandalism and sabotage but solutions would always involve a delicate balance of consistent force, incentives, education and surveillance. One of our recommended solutions would be the establishment and fortification of permanent multi-functional team focused on tackling economic sabotage around the country. This team could mirror the likes of UK Centre for the Protection of National Infrastructure or its American counterpart, the Federal Protective Service. The Minister could also influence the listing of major arterial pipelines such as Trans Niger Pipeline, Trans Forcados Pipeline as ‘National Strategic Infrastructure’ whom by their significance are expected to enjoy enhanced protective resources.

Drones anybody?

Industry Regulation and Fiscal Efficiency

Ministerial Consents: When dealers apply to you, consent thou quickly  – The wave of divestment and mergers/acquisitions in the last half a decade are characteristic of mature basins where old and new players in the industry recalibrate their portfolio. The usual trend of smaller players snapping up IOC divestment has redefined the Nigerian landscape, promoting industry efficiency and capacity.

However, the discretionary interventions by government in the recent M & A deals in the industry have become a principal risk and encumbrance.

The administration of the ministerial consents to M & A and divestment deals should be reformed.  Certainly, government must have the opportunity to intervene in the industry for strategic reasons but such interventions must consider the efficiency and growth of the industry. We recommend that new minister publish regulations and guidance on the process for receiving ministerial consents in M & A deals amongst others. The guidance must provide timelines and reconsideration/appeal options that extend beyond the sole discretion of the Minister.

Certainty and transparency is key for industry growth and efficiency.

JV Funding & Fiscal Uncertainties: Good soups cost money – Finding an enduring solution to the Joint venture funding deficits is germane to Nigeria’s oil and gas aspirations as the lack of funding for the government’s equity over the years has severely constrained production and stunted the growth of the industry. About $5 Billion is reportedly been owed to the JV partners. Rig count in the country has dropped by about 50% in the last five years. Production has never returned to the pre 2006 peak. This is clearly unsustainable.

Various options have been advised in the past with the most radical been the total sale of government equity in the JV assets. We consider that an extreme and ill-thought option. Government’s equity in assets especially in developing countries are essential for strategic reasons.  What happened to the Incorporated Joint Venture model being used by the NLNG? Would the Modified Carry Arrangements be a better long-term option? Ring-fence assets and raise bonds?

Many options for the new minister to consider but only one result is essential – perennial funding deficits must be addressed.

Subsidies: No longer at ease – Fuel subsidies have become an albatross on Nigeria’s petroleum downstream sector. It has discouraged  necessary investments and incentivized retail corruption in the downstream sector. The resources needed to address the corruption in the determination and applications of subsidies are too prohibitive. A reset is the only alternative. Thankfully, the debate around the issue is inadvertently reducing the possibility of a strong reaction if the new government implements it.

As a first step, the minister must gazette the removal of the subsidy on kerosene as anticipated by earlier governments.  To limit the impact on the Nigerians, the kerosene conversion programme (see LPG) must be aggressively implemented. For petrol, the debate is centered mostly on the most appropriate timing for the removal of subsidies. Would a shock therapy suffice? Maybe the option of allowing a gradual revival of internal capacity before removal?

 

Gas Reforms

Gas Pricing: Follow the Money – Nigeria produces over 6bscf/day but only a fraction gets supplied to the domestic market. About 40% is exported through LNG, 35% reinjected, with about 12-15% been sold in the country. Sobering facts but it’s an indication that gas production in Nigeria over the years have simply ‘followed the money”.

As at 2011, domestic gas prices was pegged by government at a measly $0.40 mscf/d while LNG inlet gas prices hovered above $2.00/mscf/d -a 500% premium. Investments by the IOCs/NNPC naturally were biased towards the export projects – NLNG, WAGP, GTL etc.

Low gas prices and a fragile gas commercial framework have seriously stymied the development of the domestic gas market. That is changing though. The recent administration has correctly identified this challenge, allowing an upward rise in gas prices and providing policy support to strengthen the commercial domestic gas value chain. What the new minister would be expected to do is ensure proper, official communication of these gas prices as there are still some confusion in the value chain about the effectiveness of the new prices and also resist attempts by non-oil and gas agencies to takeover the regulation of gas prices.

Removing commercial uncertainties in the gas sector would be a big fillip for the industry’s growth.

Gas Infrastructure: He who lays the pipe dictates the tune – Nigeria has a gas infrastructure problem, not a gas supply one. Poor and shortsighted policies have constrained investments in domestic gas infrastructure leaving available gas resources that would have been used in-country stranded. Typically, gas infrastructure attracts gas supplies beyond the ‘anchor’ projects as the Escravos Lagos Pipeline System has proven.

What Nigeria needs now are policies and measures that can accelerate gas infrastructure projects in the major demand hubs. Critical pipeline projects like the Oben – Obiafru/Obrikom  (OB3) pipeline project, Northern Option Pipeline (NOPL), Trans-Nigeria pipeline project must be actively pursued and monitored by the Minister.

Without these gas infrastructure projects, the countries domestic gas consumption ambitions might remain a pipe dream.

LPG Consumption in Nigeria: Cooking with strange fire – Biggest gas reserves in Africa but our usage of LPG (cooking gas) can only be compared to that of conflict-ridden countries. On per capita consumption basis, Senegal, Ghana, Benin Republic, Libya utilise more LPG than Nigeria. How we have failed to reinforce the utilisation of an available, cleaner and cheaper (on energy basis) cooking fuel remains a mystery.

 

LPG Per Capita

But it was never like this. LPG usage as cooking fuel is underpinned by constant supply and affordability and until the early 1990’s supply was constant as the sole sources then, the refineries were in good shape. The degradation of the refineries later on meant that supply disappeared and most of the other sources were designed for export.

The country now has a good opportunity to restore LPG usage as the preferred cooking fuel of choice. A LPG revolution must be a priority for the minister as it is beneficial to the economy and also politically rewarding. The key issues to address are supply certainty and safety regulations. It would be in order for government to impose ‘domestic supply obligations’ on Mobil (Oso), Chevron (Escravos) and encourage the likes of NLNG who have been supplying in recent years. The various LPG projects been delayed around the country also needs to be keenly monitored and pursued.

The hugely successful kerosene conversion programmes in peer countries like Indonesia and Brazil also offer a template for Nigeria. In Indonesia, the government’s programme, decreased kerosene use from 9.89million litres to 1.72mill Litres in 5years, saved about $6.9billion on subsidy, LPG storage expanded from 136,000MT to 349,000MT, 54 million households benefited and converted to LPG, about 60 million cylinders in 54 million homes ( 95% kero conversion achieved) and 38,000 new jobs were created through the kero to LPG conversion programme. For a government who have proclaimed its centre-left credentials , we consider a robust LPG programme as a win-win.

Will we see ‘Buhari cooking gas’ anywhere soon?

Institutional Reforms

NNPC Reforms: Reforming the unreformable – NNPC needs a reset and for us this means:

  • Determining the true financial state of the corporation. Considering the depth and breadth of the corporation, it may take eon and lots of resources. Quick option is to focus on priority subsidiaries – PPMC, NAPIMS, NPDC and COMD.
  • Stripping and transferring its numerous regulatory/representative functions to the Ministry and Inspectorates.
  • Fully commercializing and partly privatizing its subsidiaries – refineries, NPDC, NGC.

The Petroleum Industry BIll addresses many of the reforms anticipated for NNPC to perform efficiently and serve the nation hence the new administration must doggedly pursue the passage of the bill. If the political dimension of the bill continues to constrain its passage, it might be necessary to split the bill as been proposed by many stakeholders. The level of success recorded with reforming NNPC would largely determine the legacies of the new Minister.

DPR: The reluctant regulator – NNPC has acquired much power and influence in the oil industry largely because the regulator, DPR has been less than stellar in performing its duties. The regulator’s perennial reluctance to take the lead meant past governments relied on NNPC even for matters that should naturally be under the purview of DPR. We have now built a all-powerful, labyrinth monster that needs to be tamed.

The petroleum industry can no longer afford a lackluster and incapable DPR hence the need for reforms especially in capacity building, revenue collection, price monitoring, local content, petroleum information and data, frontier exploration, acreage management etc.

Sequitur

The array of issues highlighted above underscores the breadth of work awaiting the Minister. We posit that the country may not be able to afford the idea for the President to handle the petroleum industry as handling the oil industry demands more than integrity. There still exist within the industry those with right balance of integrity, capability and audaciousness. It is the President’s job to find them.

We wish him best of luck.

Oloibiri Advisory. Oloibiri.advisory@consultant.com

***

The author prefers to remain anonymous. I’m the first to admit that I don’t know too much about this industry but one can see further and better by standing on tall people’s shoulders.

I thank the author and you should too

FF

Guest Post: International Arbitration and Economic Growth in Nigeria

Introduction

The thesis of the article is that arbitration has become the preferred mechanism for resolving both commercial and investment disputes and an important area, to which Nigeria must turn in its effort to attract foreign investments and stimulate economic expansion.

The World Bank Ease of Doing Business Report provides quantitative indicators on business regulations and the protection of property rights across multiple jurisdictions. The Report measures regulations affecting 11 areas of the life of a business such as starting a business, dealing with construction permits, getting electricity, registering property, getting credit, and enforcing contracts among others. Of the 189 countries surveyed in the in its 2015, Nigeria is listed in 170th position just ahead of Zimbabwe, Bangladesh and Liberia in 171st, 173rd and 174th respectively.

Poor contract enforcement mechanism, which includes dispute resolution is one of the reason why Nigeria is not one of the easiest countries to carry on business. Court congestion leading to trial delays, inefficiency of the judicial system, corruption, and lack of expertise to deal with disputes arising from complex and transnational business transactions are some of the reasons responsible for making contract enforcement difficult in Nigeria. In order to substantially increase the inflow of investments and stimulate rapid economic development, the country must create an efficient, flexible and neutral mechanism enforcing contracts and resolving disputes. It is in this sense that international arbitration becomes an inevitable and preferred option.

What Is Arbitration?

Arbitration is process whereby parties consensually submit a dispute to a non-governmental decision-maker, selected by or for the parties, to render a binding decision resolving a dispute in accordance with neutral, adjudicatory procedure allowing each party an opportunity to present its case.

The decision of the arbitrator or tribunal as the case may be is known as an award. Typically, because voluntary compliance is rare, the award is taken to court and enforced as the judgment of the court. Thus, an award, which is rendered by a non-governmental decision-maker, invokes the coercive power of the state once it is enforced as the judgment of the court and opens the judgment debtor to various liabilities including attachment of property and contempt.

Why Does International Arbitration Matter?

There are number of reasons why international arbitration has become an efficient and the preferred method for resolving international disputes whether commercial or investment.

First, it provides parties with a neutral forum that is detached from the parties and their respective home-state governments. Quite often, as Gary Born noted, parties begin to negotiate dispute resolution mechanisms with the objective of ensuring that disputes are resolved in the forum they perceive to be the most favorable to them – often the local courts in that party’s principal place of business.

These courts will be convenient and familiar to the home-town party. However, the characteristics that make one party’s local courts attractive to it will often make them unacceptable to counter-parties. As a consequence, outside of lending and similar transactions, it is often impossible for either party to obtain agreement to dispute resolution in its local courts. Thus by agreeing to resolve their disputes through arbitration, parties remove the so-called “home-boy” advantage. This feature is particularly important in the case of Nigeria because of the high incidence of corruption and the perception that judicial corruption is pervasive in Nigeria.

Second, arbitration agreements and awards are enforceable. One of the objectives of contemporary legal regimes for international arbitration is facilitating the enforcement of arbitration agreements and awards. In particular, both international arbitration conventions (particularly New York Convention) and arbitration legislation (particularly, the UNCITRAL – United Nations Commission on International Trade Law – Model Law) ensure that international arbitration agreements are more readily, expeditiously enforced and more broadly interpreted than forum selection clauses. This is consistently cited as a key benefit of international arbitration.

A Simple Working Illustration

Consider this simplistic hypothetical – party A, an Indian company entered into a joint venture with parties B and C, a Delaware and Nigerian Companies respectively for the construction of hydro-electric power station in Lagos Nigeria. The project is financed by a syndicated loan arranged by JP Morgan Chase (a London-based investment bank) and First Bank PLC (a Nigerian bank).

A dispute arose regarding the obligations of the parties under the joint venture – the Nigerian company alleges that both the Indian and Delaware companies have defaulted in their obligations under the joint venture. Let’s assume that the JV has no dispute clause. The Nigerian company institutes an action before the Lagos High Court. If both the Indian and Delaware companies, does not challenge the jurisdiction of the Court (as rarely is the case) and judgment is given in favor of the Nigerian party and against the two foreign parties, how will the Nigerian party enforce its judgment against the assets of the parties?

Remember, these parties and their assets are in their respective home countries. Unless Nigeria has entered into foreign judgments (reciprocal enforcement) treaties with both India and United States, the Nigerian company must institute court action against the parties in their respective countries – this is not an easy proposition as it sounds considering that there are jurisdictional hurdles that it must satisfy with the attendant huge cost of litigating in multiple jurisdictions over the same subject matter. In any case, nothing stops the foreign parties, upon hearing of the judgment of the Nigerian Court, from dissipating, transferring or disposing their assets in order to ensure that they are not available to satisfy the judgment of the Court.

Contrast this with a situation where there is a dispute clause in the JV stating that parties agree to submit any dispute arising from or relating to the JV to arbitration seated in Lagos. The New York Convention, with 150 contracting states including Nigeria guarantees the enforceability of both the arbitration clause in the JV and the award that may result from the arbitration.

Simplistically, the New York Convention allows the Nigerian company to take the arbitral award to both India and United States and be enforced as judgments of the courts of both countries with only minimal scrutiny to ensure there are no due process violations and for public policy, thus saving parties the huge cost arising from multiple litigations.

That is the magic of international arbitration!

Bringing It Home

International arbitration is finally gaining traction in Nigeria as more and more judges are coming to terms with the fact that private dispute resolution mechanisms are not impermissible intrusion into the sphere of exclusive jurisdictional competence of national courts but a means of facilitating trade and investments and even advancing national policy.

As a result of federalism, the Federal Arbitration and Conciliation Act, which is based on the 1985 UNCITRAL Model Law applies throughout the federation. The Act domesticated Nigeria’s treaty obligations arising under the New York Convention on the Recognition and Enforcement of Foreign Arbitral awards 1958. However, because arbitration is not listed under both the exclusive and legislative lists of the 1999 Constitution (as amended) – thus bringing it within the legislative competence of states, Lagos State has taken the lead by passing its own arbitration law which came into force on May 18, 2009.

The Lagos Arbitration Law is by far superior to the Federal Arbitration Act in content as it incorporates modern trends in the practice of international arbitration. The Law also sets up the Lagos Court of Arbitration, as an independent, not-for-profit entity comparable to the London Court of International Arbitration, for the purpose of delivering world-class arbitration and ADR services in Lagos. To signify its strategic intent, the Lagos State Government under Babatunde Fashola SAN donated a purpose-built International Arbitration Center at Remi Olowude Street, in Lekki Phase 1 to the LCA to aid its operations. The steps taken by Lagos State Government, which unfortunately did not make the headlines, yet are important to making Lagos and indeed Nigeria the investment destination and dispute resolution hub of Africa.

Conclusion And Recommendation

International arbitration can no longer be ignored by any economy that is interested in attracting foreign investments and stimulating economic expansion. Outside traditional jurisdictions like France, England and United States, in recent years, other jurisdictions such as Singapore and Hong Kong have embarked on extensive reform aimed at making the practice of international arbitration in their respective countries more efficient in order to attract foreign investments. It is therefore not surprising that Paris, London, New York and Singapore generate substantial revenue from international arbitration.

Because of its unique location and the size of its economy, Lagos can become the hub for dispute resolution in Africa with the right reforms. Mauritius is already positioning itself to becoming the dispute resolution hub of Africa by embarking on a comprehensive reform and have partnered with the London Court of International Arbitration to form the Mauritius International Arbitration Center known as the LCIA-MIAC. Lagos and indeed Nigeria cannot afford to take the back seat in this regard.

The Nigerian National Assembly must amend the outdated Federal Arbitration Act to bring “in sync” with modern practice. It must also amend the 1999 Constitution in order to list arbitration as an item on the concurrent list. The Federal and State governments must embark on comprehensive judicial reform in order to effectively support the arbitral process and enforce its outcome. Finally, judicial officers must be trained on the importance of international arbitration and the need to limit their review of arbitral awards to fundamental due process violations and public policy.

Tolu Obamuroh is a lawyer who has worked in Nigeria, the UK and the United States. He is currently in the middle of a PhD on International Arbitration. Follow him on twitter – @toluwabisi

***

This is an edited version of the piece sent to me by Tolu. We caught up a couple of weeks ago – safe to say I’ve never met anyone so passionate about arbitration (and the law in general) and knowledgeable as well. Anyway, my ears perked up when he went into the economic benefits of arbitration including boosting the hotel and tourism industry. 

So I asked him to write a primer and he obliged. 

You must join me in thanking him.

FF

The Word On The Streets XIII: The Buhari Is Coming Edition

Your correspondent managed to be in 3 cities in about a week. Wherever there are Nigerians, there will be stories to tell. (Previous editions of TWOTS can be found here).

Overheard in Houston

1. “The Nigerian people paid like $4,000 for VIP tickets when they came for OTC. And then after a couple of hours, the organisers opened the whole thing so people who paid VIP and ordinary tickets were mixed together“.

Everyone I spoke to in Houston complained about how badly behaved the Nigerian delegation to OTC (Offshore Technology Conference) is every year. Spending money lavishly and learning a sum total of nothing.

But given how a fool and his money are soon separated, hearing this particular anecdote warmed my heart immensely. It would have been rude for the Americans not to oblige those who were desperate to be rid of their money.

2. “They say he owns half of the parking lots in Downtown Houston

This was me having a conversation with a friend about Hakeem Olajuwon. I have to say that I have never felt prouder as a Nigerian than when I was standing by the plaque to honour him outside the Toyota Centre and read the citation below.

IMG_6604

I hadn’t realised the guy was still such an icon in the town. Here’s how someone else described it to me

He is part responsible for the explosion of Naijas in Houston. A lot of Naijas moved to H-Town from other parts as Hakeem ran riot in those years. The guy as far as Yankee braggadocio was concerned, was considered completely boring and personality-less (as per ansarudeen bobo) so he did not really get the kind of endorsements and commercial fame he should have but they gave him Uncle Bens rice! And had to bring in (Charles) Barklay and others to jazz him up to do post game interviews and hype. But on court he was something to behold and Yankees respected him because he went from fighting on court when he first got to Yankee to super mellow guy with hardcore self developed skills

You can watch a 40 min YouTube documentary about him here. Houston made me realise we don’t celebrate this guy enough.

3. “The beautiful thing about Houston is that you can choose the level of Naija of you want. If you want full Naija, there are places you can live and hangout where you will be interacting strictly with Nigeria. Or if you want to mix it up like the professionals, that one too is there. The weather is just like Naija too. That’s why most Nigerians who come to Texas first hardly move to other states

Nigerians in Houston all seem pretty happy.

24 hours in Abuja

4. It was interesting to watch the current dynamics at Transcorp Hilton. The politicians don’t yet know where they stand with the incoming president so they are all currently on their best behaviour. The policy guys are currently the big boys. Indeed a funny story involved someone who is looking to be a minister in the incoming government. Someone saw him at Transcorp and came to lobby him for an appointment in his future ministry. He played along. As soon as the person left, he pulled aside someone and said something along the lines of

This one is telling me to take his name and help him lobby for appointment for him. When me I am still looking for where to put my name too

Buhari knows his own mind and no one really knows what’s going on in there. Here’s how a Governor put it:

All the people coming to visit Buhari are leaving so disappointed because once he says ‘How are you? How is the family?’ that’s it. They will talk and talk and talk and he will just nod and not say anything in return

Underestimate him at your own risk though.

5. Hung out with a few friends on the Transition Committee. Food was provided and I was happy to be acquainted with pounded yam again. As we sat eating, the APC Chairman, Chief John Oyegun walked in and helped himself to some food. Rest In Peace to the amala that had the misfortune of colliding with him. He devoured it with his bare hands.

As we were eating, an old man walked in and took his seat at one corner of the table and started eating. It wasnt until my friend returned and said ‘that’s Tam David-West na‘ that it clicked. To put it mildly, the pictures of him regularly used by the Nigerian press seriously need to be updated.

As a random aside – it was Ahmed Joda who hired John Oyegun into the Nigerian civil service in the ’70s or something. Between the two of them, there is a very good understanding of the business of processes and it shows in the work of the Transition Committee.

I am hopeful.

6. So many things are not working in Nigeria. The e-passport readers at Abuja Airport are not working. Went to about 3 clubs and restaurants and used the bathroom in 2 of them. The hand dryers were all not working. The doors at the airport with sensors to open when someone approaches are all not working. Much of the air-conditioning at the airport are not working. At the toll gate leading up to the airport, the cameras that are supposed to read number plates are not working either.

It’s worth noting that these things were all deliberately installed. Do we have a problem with technology? Or do we not know how to buy technology that we need? Something makes me think it’s the latter.

I stayed in a nice and small hotel in Abuja. I got into the shower to have a bath and was dazzled by how over-elaborate the whole thing was. The shower cubicle had a touchscreen with about a dozen controls for lights, temperature and even a TV. It was so confusing that when the water started coming out, it was so blazing hot that if I had made the mistake of stepping under it, I would  have exited the bathroom looking like Kollington Ayinla. And I couldn’t figure out how to lower the temperature of the water after battling with the controls for about 5 minutes. I gave up and rang the reception who then sent someone to my room to sort it out.

Now, I’ve stayed in some pretty decent hotels and I have never encountered a shower like that before. Perhaps I need to travel a bit more. But what are the chances that if I go back to the same hotel in 1 year’s time, the shower won’t have stopped working and I will be forced to fetch water in a bucket to have my bath?

Lagos #Petrocalypse

7. You are sitting in London and hearing there is fuel scarcity in Lagos. Kini big deal? Fuel scarcities are not new and there are ways of dealing with it. But this was different…oh it was different. This was the worst fuel scarcity I have ever encountered in my life as a Nigerian. It was surreal to witness.

I watched Nigerians, who are nothing if not resilient, wave the white flag of defeat to this one. Where does one start? At the magnificent looking Intercontinental Hotel in Victoria Island, I hung out with a few friends for a party at Soul Lounge. They did not put on the air-conditioning. We were sweating. At Terra Kulture, around 8pm, they came to tell us:

Oga, we are closing down in 30 minutes so we can turn off the gen

Schools were telling parents to come and carry their children for mid-term one day early so they could conserve power. People were throwing away food they bought with money because there was no light to refrigerate it. Banks were emailing customers that they were going to shut at 1pm to save on diesel. I spent a fortune on taxis to get around and they refused to put on the air-conditioning. Take it or leave it. A business owner said to me:

We want to tell our staff not to come to the office from tomorrow but they won’t like that. They will rather spend what it takes to get to the office because at least there will be some light in the office rather than sit at home with no electricity or petrol to power their generators

A friend got into Lagos on Saturday from Houston and proceeded to his hotel in Victoria Island. The generator was turned off at 1am so he spent the night in darkness. I was due to meet another person in (or is it on?) Victoria Island and he said we should meet at Neo Cafe as power was being rationed in his building. In the 2 hours or so we spent there, about 4 customers came in. Each one spent maybe N2,000 and then brought out their laptops to plug and charge inside the air-conditioning – a loss making operation for the cafe.

Why is anyone an entrepreneur in Nigeria? Because they are mad. Shout-out to all the mad people in Nigeria…they shall inherit the earth.

That a bunch of thugs that can do this much economic terrorism to the country is unconscionable. But Nigeria put itself in this position. God only knows how many people died as a result of this complete madness.

The only positive to all this was that I did not encounter even 5 minutes of traffic anywhere in 3 days in Lagos. Perhaps this makes the case for a congestion tax in Lagos…

8. Overheard:

You know Diezani’s SAs or whatever were selling appointments to see her for $25k. But it’s not your normal appointment o. You pay the money and they will tell you where she is on the particular day and then you go and look for her by yourself to discuss what you want. The best one used to be when she’s travelling because she’s trapped inside the plane so you can catch her attention. They charged more for that one. You book a first class ticket on the day and airline they tell you she’s travelling and then go and talk to her during the flight. But she spoilt that business for them when she started travelling by private jet

Funny how she then used this same ‘model’ for the President-elect last week Friday. Tables turn too quickly these days

9. Dinner with a doctor friend:

That new Gbagada Cardiac and Renal centre built by Lagos State is amazing. It even looks better in real life than in the photos. But they have no staff. They probably have like 5 times the number of medical staff working as cleaners and admin staff there. They spend like a fortune powering their generators to keep all that equipment going and maybe this is why they can’t afford to hire medical staff

I am paraphrasing but you get the gist. This is the clash between ambition and practicality I was talking about in #5 above. When we were at Intercontinental Hotel, I noticed a friend (who knows a few things about construction) and her husband were pointing at something on the wall and discussing. I went to sit with them and they mentioned that they were trying to figure out what the thing was and what point it added to the design of the building. I volunteered that perhaps the architect put it there to extract a few more millions from them.

The next day, while discussing the sauna like conditions inside the hotel with someone else, he said:

I am not surprised they turned off the AC. Their electricity costs in that building are completely ridiculous on a normal day because of the way the place was built. The seals are so bad everywhere so they lose a lot of cold air that should be trapped inside the building which increases the cost of keeping the place cool

If your village people are chasing you on 3rd Mainland Bridge and you jump inside the lagoon to get away from them, that is understandable. But when no one is chasing you and you go ahead and jump in the lagoon anyway…perplexing.

Some of these self-inflicted wounds can be seen approaching from a mile away. But we walk right into them anyway.

10. Maybe because I left on a very late flight but MMIA looked rather quiet and organised. The roof was only leaking in one small spot and aside the fact that we were boiling in the heat (air-conditioning not working), everything seemed ok. But as I’ve said before, the airport is really hopeless and it’s time for a new one.

Lagos state needs to step up to the plate and get going with the Lekki Airport. And I can think of one way to make it happen quicker than currently.

Cochin International Airport is in the Indian state of Kerala. It was the first airport to be built under a public private partnership (PPP) in India. But what’s really interesting about it is below:

The airport is owned by Cochin International Airport Limited, a public limited company in which the Kerala government has the single largest stake. CIAL is managed by a board of directors comprising political leaders, industrialists, NRIs and representatives of financial institutions. Besides the Kerala government, CIAL’s shareholders include the Federal Bank, State Bank of Travancore, Bharat Petroleum, Air-India, Housing and Urban Development Corporation and nearly 10,000 Non Resident Indians from 30 countries

10,000 Indians in the diaspora funded 38% of the project – more than the state government’s 33%. It was opened in 1999 and remains one of the most profitable airports in India today. It makes intuitive sense for someone in the diaspora to invest in an airport given they are likely to have more experience of using it.

Governor Ambode, sell us a bond and remove this shame of MMIA from Lagos.

11.  “Look at those houses. Fashola is building 7 floors and is not putting lifts in them. But the guy is very smart because even if he keeps some for himself and his people, he always makes sure the bulk of it is distributed by ballot. So almost everyone is guaranteed to know someone who won a house under HOMS and that way the gist spreads

That was my friend pointing to the Ilubirn Foreshore Housing Estate as we drove past it. We can agree that housing was not one of Governor Fashola’s greatest achievements. Nevertheless, HOMS is real so do ‘try your luck’ by entering the monthly draws

***

I left Nigeria eleven years ago and I have visited almost every year since then. Most years I visit twice. This was undoubtedly my worst trip back home. The sheer mindless suffering and pain that people were going through just to get by on account of the fuel scarcity was painful to watch. This is no way to live. Life ought not to be a pressure cooker where everyone is slowly boiling and waiting to explode.

I hope that the Presidency of Muhammadu Buhari brings some real change and succour to Nigerians.

FF

This Yam, This Goat, This Country: Pwc On NNPC – Part 2

No one has the right to retain money that should come to the federation account. Constitutionally, it should come and then , if expenses are legitimate, they should be presented transparently and properly approved. To even admit that you have withheld $10bn or $12bn and then say this is what I did with it is, frankly speaking, not even the beginning of an argument” – Sanusi Lamido Sanusi, speaking to Gavin Serkin, author of ‘Frontier

Part 1 is here if you missed it.

We now know the measurement of the yam ($69bn) that was left in the care of the NNPC goat. And we also know how much the goat handed back to the Nigerian treasury ($50bn). The debate now is what right the NNPC had to eat so much ($20bn) of the yam belonging to the Nigerian people, if it had the right to eat any at all.

A lot of the corruption and mismanagement and outright theft going on in NNPC is sickening and frankly, depressing. And it leaves Nigerians and especially the incoming government, who campaigned from Potiskum to Port Harcourt with the message of ‘Change’, with a question to ponder – What do we do with NNPC? Can NNPC change? Can it be reformed? How do we change it? If you prevent the theft or mismanagement of even $1bn, that is potentially 1,000MW of electricity you can add to the grid. The sums in question are not small.

I Have Good News

In 2010, Transparency International and Revenue Watch carried out assessments of 44 oil companies (private and state-owned) around the world, including NNPC. On the question of Organisational Disclosure, here’s how NNPC scored in their ranking:

Screen Shot 2015-04-29 at 20.57.15

Yep, our own dear NNPC came last (or first from behind). TI and RW went on to describe NNPC as the world’s most secretive oil company. Nobody knew the size of the yam to begin with except the goat itself and it was never going to publish it in the newspapers. Any attempt at openness was always resisted.

Sanusi Lamido Sanusi, as CBN Governor, said he became ‘obsessed‘ with understanding how the oil industry worked and where the leakages were happening. People who are obsessed about something can be very useful indeed.

It is important to understand this point – SLS had no direct access to NNPC’s books. From his letter to President Jonathan dated September 2013, it is clear that he got no cooperation from NNPC. All the numbers he used were investigated and determined by his office.

And yet, he came very close. He calculated NNPC’s revenues in the period to be $65bn while PwC calculated it to be $69bn – he missed the target by 6%. Here we have the ‘world’s most secretive oil company’ but someone looking from the outside was able to, with a bit of hard work and ‘obsession’, come close to figuring out the numbers. (PwC had access to NNPC’s numbers and documented all the revenues with over 30 pages of calculations in their report).

This is the good news I have to share – It is now possible to know almost the exact size of the yam even if NNPC don’t want us to know. They can lie all they want, obfuscate all they want, pretend all they want – that will not stop a serious and determined person from knowing. The game where the goat repeatedly under reports the size of the yam or even tell us there was never any yam to begin with, is over.

How Much Yam Did The Goat Eat?

Now that we are able to determine the original measurement of the yam, independent of NNPC, the next step is to figure out how much of it has been eaten.

The even better news is that this one is easier to determine. If NNPC pays money into the federation account, many people will know about it. The account is at the CBN. The only other place NNPC can send money to is FIRS, the taxman. This was the cause of the initial discrepancy where SLS said the amount outstanding was $49bn – some of the money had apparently been sent to FIRS instead of CBN. No problem.

The important point here is that CBN and FIRS are outside of NNPC. If NNPC don’t cooperate, other people can.

This is the second leg of the equation – we can determine the amount of yam sent to the Nigerian treasury. This greatly reduces the challenge of dealing with an opaque organisation that refuses to cooperate.

And it means we can reduce the issue to a simple question that puts NNPC on the defensive – the original yam was $69bn, you have given us $50bn. Where is the rest of it and what did you do with it? Simple.

Before PwC There Was KPMG

In 2010, KPMG was hired by the Federal Government to investigate the usual NNPC shenanigans. It submitted its report in November 2010. Find it here.

Here’s what they were asked to investigate as part of their ‘Forensic Review of NNPC’ (that forensic word again eh?):

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It is not much different from what PwC were asked to do last year – determine the size of the yam and compare with what had been declared.

As usual, KPMG found NNPC up to their usual goat tricks and games. The one below was my favourite:

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They did not even bother to tell a plausible lie. This is the confidence of an armed robber in action. Of all the places to obtain an exchange rate for something so serious as remitting money to the federation accounts, these goats claimed they got it over the phone despite the fact that the CBN published the exchange rates on its website.

So many issues were identified with the way NNPC ran its operations. Subsidy issues featured prominently as you’d expect. Here’s another sample:

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The same goat games yet again. Every single failing identified came with a recommendation on how to fix it by KPMG. And what happened? It went in NNPC’s left ear and came out of the right ear immediately. In 2009, NNPC reported that it lost N8bn due to pipeline vandalism. KPMG recommended increased monitoring of pipelines and use of technology. Ok. By the time of the PwC report, they were spending $48m on ‘pipeline surveillance systems’. Alas, the amount reported as losses from pipeline vandalism has now transformed to $760m. Sebi you people said they should deploy technology? Ehen na.

In 2010, KPMG observed that they were using Sun Accounting Systems and noticed that the system was not robust enough for its needs given that the system was not fully integrated and excel was being used quite prominently. It recommended that SAP, a more robust system, be implemented as quickly as possible. No problem. By the time PwC did their work, they confirmed that NNPC was indeed using SAP. Yet, all that has happened is that a bigger piece of yam has disappeared.

See what KPMG said on their data management in 2010:

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Now compare with what PwC found last year:

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Dem no dey hear word. Goats.

Are We Here For Tea Party? 

Do we really have time for this merry-go-rounding where we will be carrying out a forensic exercise on NNPC every 4 years like it’s the olympics? And then the document is filed away and they pretend like nothing happened. I am not convinced that NNPC will suddenly come to a kind of enlightenment where they are able to look at the yam and leave it untouched.

In the meantime, there is a country in need of so much fixing that the problems are almost overwhelming. Every kobo counts and we can’t really afford a situation where people are making addition ‘mistakes’ costing $40m. We are not here for tea party as the intellectual Nigerian Minister, Musiliu Obanikoro, famously put it not too long ago.

There is something devious about NNPC and the way it seduces any government in power. Everybody ‘probes’ it but no one ever really reforms it. Obasanjo ‘temporarily’ made himself Petroleum Minister in 1999. He ended up doing the job for 8 years. NNPC enters the government like a virus and typically, when politicians are broke and looking for money, NNPC can produce the cash. This is how the corruption starts and typically, it can never be reversed.

A fundamental question must now be asked – is it really worth anyone’s time to embark on ‘reforms’ of NNPC? Are the chances of success for such reforms up to 10%, if not dead on arrival?

With Love From Mexico

In August 2014, Mexican President, Enrique Pena Nieto, signed a landmark energy reform bill into law. After 76 years, the law effectively turned Petroleos Mexicanos (PEMEX) into a private company. It will now need to be audited regularly and publish reports like any other private company.

Part of the problem with NNPC is that it gets too much time alone with the yam before anyone checks what is going on. So we are reduced to the roundabout games of ‘forensic audits’ every 4 years for something that should be done regularly. 4 years is a long time – long enough for a multitude of yams to disappear without trace. Certainly, if NNPC was forced to publish reports quarterly and being audited yearly (with a regular half-year audit), there will be less room for the kind of long standing problems we are seeing.

I don’t think privatising PEMEX was an easier job than for NNPC, and yet a President who was determined to do it before he ran out of steam, managed to get it done. What’s Nigeria’s excuse?

With Love From China

Western countries have typically privatised their national oil companies e.g BP in Britain. This has not stopped oil from flowing out of the North Sea. The government simply focuses on collecting the taxes. True, the Norwegians still have Statoil (67% owned by the government) but we can all agree that the Norwegians are outliers – they don’t even spend their oil money hence their mammoth sovereign wealth fund. Also worth noting that Statoil is not fundamentally different in structure from Petrobras in Brazil. Yet, they couldn’t be more different judging by the ongoing scandal in Brazil that has hobbled the President, Dilma Rousseff.

The Chinese take a different approach – instead of having just one national oil company, they have three – PetroChina, Sinopec and CNOOC – mighty ones which compete against each other in some ways and also go out into the world to gain business and expertise. Further, you can find the accounts for CNOOC, PetroChina and Sinopec on their websites. Go to NNPC’s website. If you can find any accounts there, I owe you goat meat pepper-soup.

This options means we break NNPC into say, 3 new companies that compete directly with each other. Some might say when you have a problem like NNPC, why do you want to multiply it into 3? Good question.

The point here is that there are several ways to achieve the same thing. There is absolutely nothing that says we should have this NNPC model and keep ‘reforming’ or threatening to ‘reform’ it every few years. Or we can vote for change just like we just did in the national elections.

Scatter The Place

There is however another option. The first thing to understand is that it is not by force to have a national oil company. The decision that gave birth to NNPC in the 1970s – a creation of Obasanjo – cannot be said to have been the correct one. Indeed, at the time Nigeria was going about nationalising things, the West and China were moving towards market economies. Since 1977 when it was established, the company has been a constant source of pain for the country. Much of what we are seeing today is not new.

My preference is for NNPC to be completely dismantled and the government moves to a tax based system. For it to cease to exist. For it to be completely neutered. We have had enough of this monster that no one is able to control anymore and which answers to its own rules. And now is the best time to deal it a decisive blow from which it will never recover. It has been exposed and is no longer able to be the secretive organisation it once was. If it lies, with a bit of investigation, we can find the truth. Nobody trusts a word it says anymore and the old trick of telling the public that we do not ‘understand how it works’ has now expired. We really do not even need to know. Once we know the original size of the yam and the amount it tendered, it will need to come up with an explanation for any differences.

What is needed now is political will to bring this goat to heel. It is all well and good making the right noise as President Buhari surely will. But the follow through is the koko. So many names are already being bandied about as possible petroleum ministers (mostly cowboys and charlatans so far). We are going to need someone who is determined and can zero in on a cause to smash this goat that corrupts a nation and its government to pieces. The person will need to have integrity in bundles. Ability to pray will be a bonus for we know there are demons in there.

Margaret Thatcher famously said that if you want something done, you should ask a woman. I know a woman who fits the bill for this job.

Her name is Obiageli Katryn Ezekwesili.

FF  

P.S I think it’s fairly obvious that people need to be severely punished for what has gone on in NNPC. But in case it’s not obvious that this is my position, I’m restating it. NNPC only gets away with what it is allowed to get away with. This must stop.

As someone said to me recently “I did not queue for hours on March 28th to vote for people to get soft landing”. President Buhari, be guided – People Must Go To Prison. No Ifs, no Buts. 

This Yam, This Goat, This Country: PwC on NNPC – Part 1

Friends and countrymen; I beseech you by the mercies of God that ye do whatsoever it is within thine powers to prevent a frolic between the yam and the goat. For, as surely as the rising and setting of the sun, such an enterprise yieldeth only corruption, nay a sad ending for the yam” – Goodluck The Jonathan, First of His Name

Finally, we get a chance to see what PwC, the auditors, saw when they looked into the black hole that is NNPC. The full report is here (200 pages). It is not pretty.

I am not an oil and gas expert and much of the industry and how it works confuses me. But the PwC report is written in English so let’s try to parse it.

Remember The King?

A quick recap of what started all of this – King Mohammed Sanusi II, in his former life as SLS, the Central Bank Governor, told the nation that, based on what he had calculated, NNPC sold $67bn worth of crude in the period from January 2012 to July 2013. He then said that as custodian of the nation’s purse, he had only received $47bn of this amount. In other words, up to $20bn of the money was not accounted for.

Contrary to popular perception, SLS never did say the money had been stolen and he certainly didn’t name any names in his 300 page report submitted to the National Assembly. His main issue at the time was that, as CBN Governor, his job was to manage the exchange rate and the nation’s reserves. If there was $20bn out there in the wild, then his job was being made a lot harder than it needed to be.

He identified 3 ways in which the country was losing money as follows

1. Strategic Partnership Agreements – In 2011, as part of the efforts to promote local content, Shell sold its shares in 5 oil fields where NNPC was the majority shareholder. Shell had been the operator of these oil wells but NNPC awarded the operator rights to its subsidiary NPDC i.e. it allowed Shell to sell its shares but not the rights to operate them as it previously did.

NPDC then signed an ‘agreement’ worth almost $7bn with Seven Energy (3 fields) and Atlantic  Energy (2 fields) for them to operate the fields. These companies of course had no clue how to operate the oil fields – Atlantic was registered as a company the day before it signed the agreement – so they sub-contracted the work to other companies. Seven Energy’s contract entitled it to 10% of the profits from the 3 fields while Atlantic was entitled to 30% of profits in its 2 fields.

SLS complaint was that these 2 companies were pointless and were just collecting money – that should have accrued to Nigeria – for doing nothing. Why didn’t NPDC just sub-contract the work by itself? The 2 companies also did not pay any taxes or royalties whatsoever to Nigeria.

2. Kerosene Subsidies – This one is fairly straightforward to understand. SLS did an analysis of kerosene prices in all 36 states of the federation in his report and found that prices ranged from N170 to N270 per litre.

Importers bring in kerosene and sell it to government at N140/litre. The government then sells it to local retailers at N40/litre with the understanding that they sell it to the ‘common man’ at N50/litre i.e government subsidises it by N100/litre. The retailers take the kerosene and sell it for what they like as stated above.

There is no sweeter corruption than this one. According to SLS, Nigeria was spending $100m per month on this pointless exercise. Not a single Nigerian anywhere bought kerosene for the ‘official’ N50/litre.

3. Swaps – Even with all the money going into NNPC, like a true apa, it is always broke. Due to the semi-dead refineries we have, NNPC of course has to import refined products (petrol and kerosene) but it often doesn’t have the money to pay importers in cash. So what it does it tell importers to import the refined products, then calculates the value of that product in crude oil and pays the importers with crude oil. This is how human beings traded before money was invented – by barter.

The problem here is that SLS said he had no idea how the amount of crude to be swapped for refined products was calculated. All he was able to find was that at one point, NNPC was ‘swapping’ 200,000 barrels of crude per day. That is a lot of crude. Did Nigeria get that much value in refined products? Who knows?

Enter PwC

The first thing to note is that PwC was asked to investigate all money due to the federation from crude sales to see what had been remitted and what, if any, was outstanding. It did NOT investigate the swaps or the Strategic Partnership Agreements as those were not part of its remit.

So what did it find? That the total revenues for the period in question were $69bn and not $67bn as stated by SLS. It had also remitted $50.8bn and not $47bn as initially thought. So, there was still a gap of roughly $20bn to be explained as before.

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Somehow NNPC managed to overpay $740m to the federation account if we accept its own numbers. As we shall see; NNPC cannot count, it cannot buy, it cannot sell.

Based on this, we can conclude that ‘no money is missing’ and close the case. Afterall, the numbers have been made to add up one way or the other – the $20bn that we thought was missing has been accounted for wan kain, as the outgoing President is wont to say.

But who or what gives NNPC the right to withhold nearly 30% of the money it receives on behalf of Nigeria and then spend it as it wishes? Here we have a goat locked in a room alone with a yam and no one to supervise what’s going on.

PwC’s opinion is that this practice of withholding money and then spending as it sees fit is highly dubious and that the NNPC act needs a legal opinion to determine whether it has the right to do this. What stops NNPC (the goat) from withholding 50% of revenues (the yam) and then telling us later that it spent it on one thing or the other? Based on this, nothing.

Kerosene Subsidy

From the chart above, we can see that the biggest expense in the accounting of the ‘missing’ $20bn is the petrol and kerosene subsidy at $8.7bn. Of this amount, NNPC claimed to have spent $3.38bn on kerosene subsidy. Yet, whether or not subsidy should have been paid was doubtful in the first place. Here’s the gist of what happened

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In other words – anyhowness. Between President Yar’Adua who cancelled the subsidy but did not gazette it (perhaps because he was trying to avoid a public outcry) and President Jonathan who ‘unlooked’ Yar’Adua’s cancellation, NNPC stuck its fingers in its ears and continued paying the subsidy. A lot of magic happened as a result.

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First, PwC found $40m of kerosene subsidy payments were duplicated (see above). That is, subsidy was paid to the same marketer twice or more for the exact same kerosene. This was apparently a ‘mistake’. But even if we accept this, there’s more.

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The table above shows how NNPC is supposed to calculate subsidy on kerosene. That N34.51 is what it costs to get it to Nigeria. In other words, NNPC is supposed to sell it to marketers at that price (N34.51) and the marketers then sell to consumers at N50 – the difference of N15.49 being used to cover all their costs and a profit margin.

Instead, NNPC sells the kerosene to marketers at N40.90 i.e. taking some of the profit margin for itself. Why it does this, is a mystery. Nevertheless, when NNPC was calculating subsidy to be deducted (remember the yam and the goat are together), it used the figure of N34.51 even though it sold it to marketers at N40.90. In other words, NNPC charged marketers for a cost and also charged Nigeria for the same cost. This overcharging of subsidy on kerosene came to a cool $204m in total.

Nobody Is Above Mistake

It’s not easy for NNPC. When you are counting so much money, you are bound to make one or two mistakes here and there. It is these ‘mistakes’ that yielded the $1.48bn PwC asked NNPC to pay back to the federation. Some of these errors are as simple as wrongly adding a column in excel. These addition errors came to $40m.

There was also the overclaim of subsidies on petrol and kerosene (as described above). As well as other monies that should have been paid to the federation and were not paid. The table below shows the breakdown of the $1.48bn.

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One must ask – if PwC hadn’t gone in to audit the place, would NNPC have just let a $40m addition error go on like its nothing? The mind boggles.

Money Wey No Get Receipt

As part of the accounting for the difference of $20bn between what was received and what was paid to the federation, NNPC submitted some other costs it claimed it had incurred as part of its operations. In total, these costs came to just $2.8bn as shown below

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As an auditor, when someone tells you they have spent this amount of money, what do you do? You guessed right, you ask for receipts.

A big chunk of the costs were for pipeline maintenance contracts. Anyway, NNPC could not provide any evidence for $305m of the money it claimed to have spent as the breakdown below shows

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Perhaps it thought PwC won’t ask for evidence. Some of it is quite hilarious (one must laugh when one cannot cry). In January and March 2012, it claimed to have paid salaries totalling $14m. No evidence to back it up. In November 2012, it claimed to have paid another $6m in salaries. Again, no evidence to back it up. Who was it paid to? Mr Who.

Almost $60m went on ‘charter hire’. To charter what? When you find out, tell me (Actually I know what this ‘charter’ is – it is the payment for the Petroleum Minister’s jet i.e. NNPC was paying for the cost of purchasing the jet on her behalf. But please don’t quote me). For January 2013, it entered a cost of $31m. But PwC found that this was the same cost it had claimed in 2012. When asked for the evidence for the January 2013 payment, it presented the same evidence as the one for January 2012. It claims to have spent $2.6m on buying cars. No evidence. $48m ‘right of way’ costs. No evidence. And so on and so forth.

Also, as you can see from above, in return for all the selfless and glorious work NNPC is doing for the country, it paid itself a total of $1.5bn in salaries for the 18 months in question that PwC looked into.

NPDC – Awon Bad Guys

When some people commit murder in broad daylight. They don’t run away. They light a cigar and sit down beside the dead body waiting for police to arrive. When the police arrive and ask who killed the person, they confidently say it was them. People like these are known as bad guys and NPDC is one of such people.

NPDC refused to cooperate with PwC for the audit. It did not submit any information or provide any help.

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PwC then had to obtain information from a variety of sources (including NPDC’s website) to try to ascertain how much exactly it should have paid to the federation.

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NPDC was summoned to the Senate sometime last year and they gave a presentation of their operations. The $6.815bn figure above in the NPDC column is what they claimed as the amount of oil they lifted. PwC also tried to verify this with the Department of Petroleum Resources (DPR) who gave them the $6.886bn figure. Finally, PwC tried to calculate the figures themselves and ended up with the $5.6bn figure.

Because they are bad guys, NPDC calculated their own tax and decided that the amount they owed to FIRS in taxes was $1.14bn. Out of this amount, they claimed they had graciously paid $863m to FIRS but do not yet feel like paying the rest. However, it was discovered that the actual amount  paid was $838m – the $26m difference being due to a ‘mistake’ in counting the same payment twice. Please don’t shout at them so they don’t get angry and refuse to pay the rest of the money.

All told, NPDC is holding on to $5.11bn that it has not remitted to NNPC (NNPC is the owner of NPDC so it should collect the money from NPDC and send to the federation account). This is PwC’s conservative estimate of what NPDC has withheld from Nigeria. Perhaps when the time comes for them to pay the money, in keeping with the goat and yam principle, they might tell us that they spent half of it on ‘costs’ and can only remit $2bn or something. We await that day.

Sorry For Your Loss

Other monies are missing. But what can we do? This is the tragedy of the goat and the yam. NNPC claims that crude oil theft and pipeline vandalism cost it $760m in the period in question. It is unfortunate. Sorry.

NNPC also holds strategic reserves of petroleum products for the country. It is not free to hold these things and so the holding costs amounted to $460m in the period in question. These costs are made up of demurrage costs ($207m) and charges by Nigerian Ports Authority ($252m). Of the demurrage costs, $64m could not be verified while the entire $252m claimed to have been paid to NPA could not be supported by a single document as backing evidence.

 #Forwards

The rest of the points raised are not things I understand very well so I have skipped them. But I think the above captures the gist of what has gone on.

So what can we do about this goat of a corporation? The rot in the place must be from ceiling to floor and you really cannot jail everybody there. A lot of the missing money will also never be recovered. So as much as people must be decisively punished for what has happened, how do we move ‘forwards’ and ensure this doesn’t happen again?

2,300 words is enough for one blog post so watch out for Part 2.

FF