The Nigerian National Petroleum Corporation (NNPC) wednesday rejected the findings of the audit report submitted recently to the National Assembly by the office of the Auditor General of the Federation, stating that the audit query it raised over the non-remittance of N3.235 trillion to the Federation Account was erroneous.
The corporation also said that the report with its "errors" had the capacity of undermining its current and future business operations, compelling it to set the records straight.
It made the clarification in a statement by its Group Executive Director and Chief Financial Officer, Mr. Isiaka Abdulrazaq, in
Abuja
.
It said that even though the claims by the auditor general's report were broadly within the 2014 financial year before the current management came on board, it still has a duty to safeguard the integrity of the corporation by correcting the office of the auditor general on its audit errors.
"The Auditor General of the Federation declared to the National Assembly on March 14, 2016 that NNPC failed to remit the sum of N3.235 trillion to the Federation Account for the period ended 31st December 2014.
"NNPC wishes to state in strong terms that the auditor general's declaration was erroneous. It should also be noted that although this period was before the new NNPC management was appointed in August 2015, the management still deems it fit and important to correct any misinformation about the activities of the corporation as this will adversely affect its current and future financial and operational plans if not corrected," said Abdulrazaq.
He further stated that since the new management was appointed, it has placed great emphasis on transparency, accountability and integrity, and has sought to refocus and reposition the NNPC as demonstrated in the "20 fixes" initiatives which it adopted.
Listing some of the 20 fixes, NNPC said they included the publication of its monthly financial and operations' reports; the focus on cost reduction across board and subsequent drop in monthly operational losses from N30 billion in August 2015 to N3 billion in January 2016; and the restructuring of NNPC to improve its performance and profitability.
Abdulrazaq said that the corporation's new management had made efforts to identify legacy claims and settle same.
He said NNPC, in this regard, had also undertaken a forensic audit of all the claims and a report is expected from its appointed forensic auditors soon.
According to him, "Upon the appointment of the new NNPC management, it identified all legacy claim issues between NNPC and the federation account and engaged with the Federal Ministry of Finance to resolve the issues by inviting the appointed forensic auditors to conclude the previous forensic audits on these claims and the final report on this is expected soon."
NNPC, Abdulrazaq noted, would have ignored the auditor general's report but for the level of publicity it had generated.
"It is not in NNPC's character to join issues or trade blame with other agencies of government, but considering the high level of publicity generated by the purported declaration by the auditor general to the National Assembly that NNPC has failed to remit the sum of N3.235 trillion and the erroneous impression it has created among Nigerians and the international financial community, it has become imperative to set the records straight.
"The declaration by the auditor general may have been borne out of a misunderstanding of how revenues from crude oil and gas sales are remitted into the Federation Account," he explained.
While providing insight into the country's crude oil revenue stream and NNPC's role in the process, Abdulrazaq said: "As part of its responsibilities, NNPC is allocated 445,000 barrels per day for processing into petroleum products for distribution to the nation.
"Any unprocessed crude is sold and the proceeds used to pay for importation of petroleum products. The proceeds from the sale of these products are remitted to the Federation Account after deducting the cost associated with the supply and distribution."
These costs, he said, include subsidy on petroleum products which he noted that the corporation was entitled to as a major supplier of petroleum products to the nation, and crude oil and petroleum product losses as a result of vandalism on its network of pipelines for the period covering January 2012 to December 2014 amounting to N202.68 billion.
Other costs incurred by the corporation include those for holding strategic petroleum product as well as repairs and maintenance costs for the period January 2012 to December 2014, all of which amounted to N358.88 billion.
"Consequently, the figure owed the Federation Account as at the January 2015 Federation Account Allocation Committee (FAAC) meeting report was N326,142,137,205.79 which is still being reconciled.
"All the stakeholders in the FAAC meeting are familiar with the N326.14 billion and has been in the public domain since then to date.
"As regard to the N1.374 trillion claims against the federation, this is currently being reviewed by FMF-appointed forensic auditors at the instance of the Honourable Minister of Finance," he added.
Abdulrazaq further said: "It is clear that the auditor general failed to reflect all the figures as they should be, not minding the fact that there is a clear process in conducting FAAC meetings where all federation revenues are presented, discussed and approved. There are series of meetings before and after FAAC meetings to reconcile and resolve any issue as the need may arise."
On the $235 million reportedly transferred to an undisclosed escrow account, he said: "With respect to the $235 million proceeds from the sale of natural gas allegedly transferred to some undisclosed escrow account, it should be noted that NNPC does not have any secret escrow accounts."
The fact, he explained, "Is that the alleged $235 million represents proceeds from the sale of gas feed stock to Nigerian Liquefied Natural Gas Limited (NLNG) that was used to repay part of the Modified Carry Agreement (MCA) loans, applicable royalty to Department of Petroleum Resources (DPR) and tax to Federal Inland Revenue Service (FIRS)."
"The MCA loan was contracted specifically to fund the development of upstream oil and gas projects whose transactions are regularly reported to FAAC as part of the reconciliation of the revenues to NNPC, FIRS and DPR.
"The MCA and all other alternative funding arrangements are annually appropriated by the National Assembly and are therefore fully disclosed to FAAC on a monthly basis," he stated.
Abdulrazaq said that best practice and established due process in accounting require that after any audit there should be an exit meeting between the auditor and the auditee where any outstanding issues are finally discussed and explained before the issuance of an audit report.
He noted that there was no such meeting and NNPC did not receive any draft report from the auditor general's office for comments before it was submitted to the National Assembly.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer
