By Pete Guest | –
Nigeria’s state oil company is riven with financial irregularities and governance failings, according to an investigation by the Natural Resources Governance Initiative.
The Nigerian National Petroleum Corporation absorbs about half of the country’s total production of 2 million barrels per day, but billions of dollars go missing within the NNPC’s opaque inner workings, the NGRI says.
Crude oil sales account for around 70 percent of Nigeria’s government revenue, and the country faces a difficult adjustment to the new low price environment. The price of the benchmark Brent Crude has halved since last summer, leaving export-dependent Nigeria with a major budget hole to fill.
The NNPC has long been a source of controversy in Nigeria. In 2014, the then-Governor of the Central Bank of Nigeria, Lamido Sanusi, claimed that $20 billion in revenues from NNPC was unaccounted for. He was suspended for the remainder of his term—effectively fired. The NGRI investigation seems, to some extent at least, to vindicate him.
The government allocates 445,000 barrels of oil per day to the NNPC through the domestic crude allocation, or DCA, which is then sold onto a subsidiary, the Pipelines and Product Marketing Company, PPMC. This is supposed to then be sent onto the country’s state-owned refineries, which would then sell the refined products and repay NNPC for the crude.
Instead, NGRI says, the refineries only take in around 100,000 barrels per day; the rest of the crude is exported or swapped for other products. The money enters NNPC accounts and is used for off-book spending. Between 2010 and 2013, that spending averaged $6 billion per year, according to NGRI.
How that money is spent is opaque and lacking in oversight. Billions have been spent on transit and security arrangements, several of which appear to have been agreed at very inflated prices. A report for the last government, prepared by the accountants PwC and released in April, said that the state oil company has “a blank check to spend money without limit or control”.
This opacity extends into oil sales—which are conducted through a web of state-owned companies, joint ventures with global companies, including Vitol and Trafigura, and independent middlemen. NNPC does not disclose the amount it makes through commissions, but in 2012, according to NRGI, the oil company routed 144,010 barrels per day through two offshore subsidiaries: Duke Oil Services, which is incorporated in the UK and Panama; and Calson Ltd, a Bermuda-registered joint venture with Vitol.
Confusion over the role of multiple middlemen and traders in the Nigerian oil market muddies the water, as does the profusion of oil swap deals, which NNPC uses to bring in a wide range of products. Around 210,000 barrels per day — nearly 10 percent of the country’s total production — are routed through these swaps.
The new president of Nigeria, Muhammadu Buhari, has pledged to reform the country’s oil sector and tackle corruption. A month after taking office in May, Buhari—himself a former petroleum minister—fired the NNPC’s board. He is yet to appoint a new minister to oversee the institution, and speculation in the Nigerian press has been that he will retain the portfolio himself.