As disclosed on Sunday 6th September 2015 from a statement by the Senior Special Assistant to President Buhari on Media and Publicity, Mallam Garba Shehu, the Nigerian National Petroleum Cooperation has commenced the process of recovering over $7 billion in over-deducted tax benefits from joint venture partners on major capital projects.
One glaring feature stands out in President Mohammadu Buhari’s 100 days in office and that is in the Nigerian public perception that ‘it is no longer business as usual.’
The corporation as disclosed also, had engaged an international accounting firm to ascertain the exact amount due to government on the Strategic Alliance Contracts entered by Nigerian Petroleum Development Company, where up to $2.46bn (N484.6bn) of government money is expected to be recovered. The firm had commenced its performance measurement and benchmarking and what it described as value for money review of the NNPC and the Joint Venture companies covering the period of 2008 to 2013.
As with many other developing countries, the multinationals in Nigeria have been operating under what is called a concession system, with the NNPC being the concessionaire, while the companies are the operators. The federal government had Memoranda of Understanding with major oil and gas producing companies in Nigeria including Shell Petroleum Development Company of Nigeria (SPDC), Exxon/Mobil Producing Nigeria Unlimited, ChevronTexaco Nigeria Limited, Nigerian Agip Oil Company (NAOC), TotalFinaElf, Panocean; ConocoPhilips amongst others. These arrangements come in various forms including Joint Operating Agreement (JOA), Production Sharing Contract (PSC) and Service Contract (SC).
Apart from guaranteed minimum profit after tax and royalty on their equity crude, the MoUs also allowed for reserve addition bonus, in any year that any of the company’s addition to oil and condensate ultimate recovery exceeds production target for the period. This was originally geared to encouraged the foreign multinational operators to embark on aggressive exploration, to enabled Nigeria’s proven and producible crude oil reserve to move up to the targeted 40 billion barrels with a defined time frame. The document contained procedures for reviewing such agreements in such a way that both parties (the NNPC and the joint venture partners) benefit from the dynamics of the economy, such as inflation, exchange rates fluctuations and dictates of the gyrating world oil market.
However, like all good concepts in Nigeria, the implementation of the MoUs was heavily infected by the virus of fraud and corrupt manipulations of loopholes in the agreement by the foreign operators in collaboration with their Nigerian collaborators.
The annoying aspect of this relationship is that these companies would turn around to blackmail the NNPC/Government over cash call defaults or stubbornness in funding exploration and production activities when in actual sense they fraudulently incur all kinds of expenses that cannot be explained in real terms.
Contrary to the foreign operators’ propaganda that the government’s funding of the joint venture was “significantly short of existing requirements,” disputes surrounding cash calls in the past arose on the few occasions where NNPC officials insisted on rejecting the foreign operators’ explanations for bloated, unbudgeted and most times blurred expenditures on projects.
For instance, it was a common practice for oil companies to claim to spend over 900 million naira building a unit bloc of six classrooms in host communities in the Niger Delta. The NNPC in turn will offset the bigger part of such claims in their cash call reconciliation without asking questions. Water borehole projects in the Niger Delta where the water table is very shallow were commonly pegged at over one billion naira per unit and the Nigerian government was forced by blackmail to accept the bill partly because of the soiled hands of the government and NNPC officials.
The $9.6 billion peg the NNPC wants to recover is just a tip of the iceberg in the magnitude of fraud perpetrated by the foreign oil companies against the NNPC (Nigeria) through the Production Sharing joint venture understandings. These companies knew very well that top officials of the NNPC (old) and the Department of Petroleum Resources (DPR) lacked the will-power to be honest and monitor the activities of the operators in the production sharing relationships. So the foreign operators conducted their businesses as if they were in a mafia relationship with the NNPC/Nigerian government.
Imagine a whopping $7 billion in dodged taxes and royalties and another $2.6 billion in one single blurred transaction! Where else can this happen if not only in my Nigeria! The Nigerian Liquefied Natural Gas company is another conscription that has grossly short-changed the nation in terms of financial benefits accruable to our investment in the project. Those government officials that midwived the conception and birth of the project either ignorantly or in outright naivety, gave away to the foreign joint venture partners almost all the financial benefits this nation was supposed to reap from the LNG Project. All kinds of waivers, concessions, and even forgiveness were granted the NLNG as a company even though most of those ‘encouragements’ were very unnecessary and outrightly foolish.
Serious industry watchers know that the circumstances that led to the introduction of the first set of MoUs have changed drastically for a very long time now. So the continued granting of incentives to the foreign operators only amounts to a waste of highly critical resources by the federal government. Now with the oil price hovering around $49 and $60 per barrel, and the obvious disinterest of foreign multinationals to invest in the nations upstream sector especially exploration and production to shore up proven and producible oil and gas reserve base, the entire essence for incentives has been rendered very useless or rather foolish on the part of the Federal Government as the operators are simply ripping-off Nigeria.
It is a well-known fact that the huge monetary incentives which the foreign operators have been enjoying were diverted to investments outside the country in areas that have nothing to do with the enhancement of the fortunes of neither the Nigerian oil industry nor her economy. Rather than being invested in the capital -intensive exploration and production activities in the nation’s new frontiers particularly the deep offshore and inland basins, benefits gotten from the incentives were taken to new frontiers including new arenas in the Gulf of Guinea particularly Angola and Mozambique.
Though for sure, the foreign operators would fight back to rubbish this effort, the new NNPC boss, Dr Ibe Kachikwu should not be deterred but ride on the strong political will and right attitude of President Buhari to right the wrongs of yester-years in all existing joint venture relationships. The issue of taxes and royalties are not even where the bigger problem lies. He should look at what the foreign operators had been throwing at the NNPC as cash call obligations in upstream activities that could best be described as vague and at worst opaque. Even in the national embarrassment called “crude oil theft,” some of the foreign operators have their hands well in it. We will discuss this at a future time! God bless my Nigeria!
(ifeanyi izeze lives in Abuja and can be reached on: firstname.lastname@example.org; 234-8033043009)