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The damning KPMG report FG, NNPC, do not want Nigerians to see
Premium Times Fri Dec 9,2011
By Musikilu Mojeed
Exclusive copy of the KPMG Report -
Premium Times-pdf copy
The KPMG says the NNPC is a house of corruption
As far as the 41-page report is concerned, the NNPC is a
cesspool of monumental corruption and fraud
On Thursday December 1, the Minister of Finance,
Ngozi Okonjo-Iweala,
cringed when the
senate joint committee investigating the management of funds set
aside for petroleum subsidy handed her a seven-day
ultimatum to produce a secret forensic report on the
Nigerian National Petroleum Corporation in her
custody.
The audit, done for her ministry by renowned audit and advisory
consultancy,
KPMG, which exposed the
massive financial malfeasance and monumental corruption in the
NNPC, is one document the federal government, the petroleum
ministry and the NNPC have worked hard to conceal for a little
over a year now.
The report, which could trigger a fierce face-off between the
federal and state governments, is one of the most closely
guarded secrets in Nigeria today. It contains shocking details
of how the NNPC, and by implication, the federal government has
been swindling the states.
So when the committee requested Mrs. Okonjo-Iweala to produce
it, she became a bit uneasy, knowing that doing so might
embarrass the administration and sparked some troubles for the
NNPC, a source close to her told the Times. Initially the
minister didn’t make any commitment, but when pressed by
committee members, she reluctantly acceded to the request.
It is not known at press time whether she has sent the document
to the committee. Contacted yesterday, her spokesperson, Paul
Nwabuikwu, said he had no information on the matter. Calls to
the chairman of the senate joint committee,
Magnus Abe (PDP, Rivers),
were unanswered. But as at noon today, long after the ultimatum
given to Mrs. Okonjo-iweala expired, a source close to the
committee said the minister was yet to make the report
available. He said there was high-powered lobby by the NNPC not
to make the document public.
The damning report
But the Times has scooped the report for you in case the
minister fails to produce it or does so to the committee in
camera.
As far as the 41-page report is concerned, the NNPC is a
cesspool of monumental corruption and fraud. The report detailed
the corporation’s sharp business practices, violation of laid
down rules and regulations, illegal deductions of funds
belonging to the state, and failure to account for several
billions of naira that should go to the federation account.
The agency, the report says, has also severely defrauded our
country in subsidy claims. Auditors found that between 2007 and
2009 alone, the NNPC over-deducted funds in subsidy claims to
the tune of N28.5bn. It has not been able to account for the sum
ever since.
The over-deduction from its remittance to the federation account
for 2010 and 2011, believed to be in several billions of naira,
is not captured in the report.
The
Federal Government, through
the
Federal Ministry of Finance, hired KPMG and another
Nigerian auditing firm,
S.S. Afemikhe & Co., in
July 2010, to look into the books of the corporation following
allegations of “wrongful deductions at source by the NNPC to
fund its operations” by the
36 state governors.
There were also concerns at the time that “the procedures for
managing and reporting the country’s crude oil and gas revenues
are opaque and characterized by gaps, overlaps and
inconsistencies in the role of key parties responsible for the
assessment, collection and reporting on these revenue streams.”
Officials of the petroleum ministry and the NNPC, a source at
the finance ministry disclosed, developed cold feet after the
auditors were sent in, and indeed tried hard to frustrate the
representatives of the two audit firms by failing to supply
evaluation criteria for commercial bids submitted in respect of
petroleum products importation.
Believing that would turn the auditors away, our source further
explained, the corporation also failed to provide them with
other relevant documents such as the criteria for allocation of
products and product volumes to importers/suppliers and periodic
prequalification list of approved products importers/suppliers.
But in spite of the difficulty they faced, the auditors were
able to determine that the NNPC had been anything but
transparent in the management of our country’s oil resources.
The report that emerged from the audit was just too damning that
the leadership of the petroleum ministry, the NNPC and some few
other elements in the Federal Government have worked hard to
keep it away from the 36 state governors and federal lawmakers
in particular and Nigerians in general.
Stealing the states blind
In what is likely to anger state governors, the audit
established that the corporation was in the habit of arbitrarily
estimating subsidy claims and then over-deducting funds from
proceeds of domestic crude sales.
“For example,” the report said, N25bn was deducted as subsidy
estimate for September 2009 from domestic crude sales proceeds
while PPPRA approved a subsidy of N23.8bn. N35bn was also
deducted as subsidy estimate fro November 2009 but PPPRA
approved of N21.3bn.”
The auditors’ analysis indicates “over-deduction for these two
months amounted to N14.9bn. However, only N4.2.bn was swept into
the Federation Account by the NNPC as adjustment for subsidy
claimable in the two months.” That is beside the N11.8bn subsidy
claim the NNPC claimed it paid for imported products that didn’t
reach consumers.
State governors have always complained that the NNPC was
shortchanging them through illegal deductions from revenues
payable to the federation account.
Fraudulent underhand tactics
Over-deduction is however not the only way the corporation is
defrauding the federal and state governments. According to laid
down regulations, the NNPC is invoiced in dollars for domestic
crude allocations but is expected to remit the equivalent naira
value to the Federation Account. But auditors found to their
chagrin that in doing that, the corporation used exchange rates
far lower than those published by the
Central Bank of Nigeria.
Using this “fraudulent underhand tactics”, the NNPC succeeded in
cheating the three levels of government of a whooping N85.2bn in
three years – N25.7bn in 2007, N33.8bn in 2008 and N26.7bn in
2009.
When the auditors requested explanations for these exchange rate
disparities, the NNPC claimed it obtained the exchange rates it
used from the CBN via telephone.
The report also severely indicted the NNPC over the shoddy and
non-transparent manner it renews crude sale contracts every
year. The auditors noted that “evaluation criteria for renewal
of contracts are not clearly stated in the contract document”,
and that the selection exercises were based on individual
discretion and wrong assumptions and criteria.”
The NNPC claims that renewal of contract was based on
performance of off-takers (buyers). But the auditors observed
that the basis and process for determining performance were not
clearly defined.
The auditors wondered why in 2007 and 2008, some companies not
on the approved list of buyers for that year were allocated
crude, a practice the examiners believe had led to crude being
sold to non-credible buyers, even with relevant guarantees and
safeguards not implemented.
Specifically the auditors queried the allocation of crude to
Ovlas Trading (2, 852,316 barrels in 2007 and 906, 269 barrels
in 2008) Petrojam (2,818,914 in 2007), Oil Fields (950,166
barrels in 2007) and Zenon (906,000 barrels in 2008) even when
they were not on the list of authorized buyers for that year.
Contracts for the importation of products, the auditors wrote,
were also routinely awarded without regard for approved
guidelines and procedures. “We observed that contracts for the
importation of petroleum products were awarded to companies and
suppliers not listed in the approved prequalification list used
for the fourth quarter 2008 importation,” the report noted.
The auditors specifically queried the award of contracts in that
manner to Astana Oil Corporation Limited, Natural Energy and
Oando, when they were not prequalified for patronage that year.
Among other forms of misdemeanour, ranging from poor accounting
to shoddy record keeping, the auditors also indicted the
corporation for leaving its own storage facilities, unused, and
then proceeding to incur additional cost from leasing of third
party storage facilities.
The auditors reported that DPK tanks (with storage capacity of
18,000 cubic metres) at the PPMC depots within the Mosimi Area
had not been used for three years even though there were in good
condition. Yet the corporation, the examiners added, had been
leasing storage facilities from third parties.
The spokesperson of the NNPC, Levi Ajuonuma, declined to comment
on the report, saying he had nothing to say until the government
releases it officially.
This is the document referred to in the Witness
Statement on Oath of Clifford O. Kokogho
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