Nigerian National Petroleum Corporation NNPC had between 2007 and 2009 shortchanged the federal government by underpaying the federation account in the sum of N86.2 billion. when it adopted an arbitrary exchange rate to convert crude sales in dollars to naira. This revelation was contained in the forensic audit report by KPMG and SS Afemikhe and co. The forensic report which has been submitted to the Federal Ministry of Finance said that Aexchange rate variances for 2007, 2008 and 2009 were estimated at N25.7 billion, N33.8 billion and N26.7 billion respectively when the actual CBN rates for the months of transaction are used@.
The forensic report, a copy of which Vanguard sighted said ANNPC is invoiced in $ for domestic crude allocation but is expected to remit the equivalent naira value to the federation account. However we observed that the exchange rates used by NNPC were lower than the average exchange rates published by the CBN during the review period.@
This, the auditors said, resulted in the Asignificant underpayment of domestic crude cost to the federation account@.
According to the auditors when NNPC management was queried on the use of lower exchange rate than the average published by the CBN it Aclaimed they obtained the exchange rates from the CBN via phone but there was no document to substantiate the claim. The auditors in the report advised the federal government to enforce the exchange rate policy to ensure that NNPC=s exchange rates are consistent with the CBN published rates. It went further to say that supporting document regarding applicable exchange rates should be obtained by NNPC from the CBN and filed appropriately for record purposes.
The audit report further indicted the NNPC saying that it willfully Apracticed annual renewal of crude sale contracts@ which the report said was not Ain line with leading practices@ in oil exporting countries. The report said that Aevaluation criteria for renewal of contracts were not clearly stated in the contract document stating that renewal of contracts by NNPC was said to be Abased on performance of off takers. However, the basis and process for determining performance is not clearly defined@. It said that in A2009, when there was a need to reduce the number of off takers from 28 to 21 due to supply constraints, the basis for short listing the off takers appears to be based on discretion as we were not provided with any documentation to support the selection process@.
The auditors said that Athis practice could result in discretionary renewal of contracts@. They said that Athe selection of off takers might not be transparent and objective@.
The audit report recommended to government to cause NNPC to extend the contract duration and implement process of evaluation supplier=s performance basis. It said that Aevaluation criteria and key performance measures should be clearly defined and documented in crude sales contract@. It further said that Astandard forms should be used for evaluation of off takers performance with inputs from all relevant parties that is finance, operations and NNPC=s Crude Oil Marketing Department, COMD@.
The forensic report further said AWe observed some instances where crude oil was allocated to off takers who were not on the approved list. Giving instances it said AOvlas Trading was allocated 2,852,316 barrels in 2007, 906,269 barrels in 2008 without being on the approved list. Also favoured by NNPC without being on the approved list are Petrojam with 2, 818,914 barrels in 2007, Oil Fields 950,166 barrels in 2007 and Zenon 906, 000 barrels in 2008. The auditors in their comment said that by this practice, crude might be sold to non credible off taker without relevant guarantees such as letters of credit@.
They recommended that government should Aimplement additional controls to ensure adherence to policy by ensuring that the list of approved off takers are reviewed before the execution of crude oil sales agreement or contract by relevant officers in NNPC. They also recommended that off takers should be certified to be on the approved list before loading clearance is processed and approved for off takers vessels@.