By Davidson Iriekpen

 


A Federal High Court sitting in Abuja has voided two separate arbitration awards worth $5.25 billion, (about N840billion) against the Nigerian National Petroleum Corporation (NNPC) in favour of some oil exploration companies in the country.

Symbol-of-Justice

Symbol of justice

In the first case, the court voided the arbitration award of $3.45billion and $1.8billion award in the second suit.

Trial judge, Justice Adamu Bello, in the two judgments that lasted over three hours, held that the subject matter of the arbitration, the interpretation, application and administration of the Petroleum Profit Tax Act and the Deep Offshore Act, Education Tax Act and Company Income Tax Act were functions solely to be carried out by Federal Inland Revenue Service (FIRS) and not the oil companies as they had done and had wanted to continue doing.

FIRS, had filed the action to impeach the arbitral proceedings initiated against NNPC by oil majors in the country outside the country, on the grounds that the tax issues raised in the arbitration proceedings were not resolvable by arbitration.

Shell, Esso, Nigerian Agip, Total Exploration had, following a dispute over Production Sharing Contract entered into on April 19, 1993 over Oil Mining Lease, OML, 118 in Bonga oil field, dragged NNPC before an arbitration panel which sat in South Africa and another European country and awarded costs against Nigeria.

Even before the arbitration panels entered their judgments, FIRS was in court, contending that the issues raised by the oil companies in the arbitration panels concerned taxation, which reference had been made to the arbitration and was not one which was allowed by law to be settled by arbitration.

However, the award of $3.45 billion in the Shell led arbitration claim was on the verge of being made in South Africa before the judgment was delivered.

The award of $1.85billion against NNPC was hurriedly made in favor of the ESSO/ Mobil led arbitration claim during the pendency of the case but has been rendered illegal by the judgment. Again in the AGIP led arbitration claim, an award of $592million was also hurriedly made overseas on October 3, 2011, after parties had been served the court processes on September 29, 2011.

The Statoil and Chevron led arbitration claim is ongoing in London despite service of court processes and hearing of the FIRS case at the Federal High Court, Abuja.

All these arbitrations were taken overseas as venue contrary to express provisions that it will be anywhere in Nigeria. All the claimants asked for an injunction restraining NNPC from lifting oil from most of Nigeria’s prolific offshore oil fields until they (oil companies) have lifted such quantities as would satisfy their claims and thereafter to stop NNPC from lifting what in their opinion was in excess of their perceived allocation for tax oil.

Counsel to Shell was Chief Richard Akinjide, SAN; that for ESSO/Mobil, Mr Eyimofe Atake, SAN; Mr Etigwe Uwa, SAN, appeared for NNPC; Mr Fagbohunlu, SAN for Statoil and AGIP, while Mr J. Ugboduma also for NNPC and Mr Lucuis Nwosu, SAN for FIRS, the plaintiff in all the cases in court.

FIRS had in the suit asked the court to determine whether the arbitral tribunal before which the oil companies had dragged NPPC, had jurisdiction to enter a valid award on the issue of taxation of the oil companies, which will have a binding effect on the plaintiff in the interpretation, application and administration of the Petroleum Profit Tax Act and the Deep Offshore Act, Education Tax Act, Company Income Tax Act, and any other statute for the time being in force in Nigeria.

It also asked the court to determine whether the arbitral tribunal in the case of Shell Nigeria Exploration and Production Limited; Esso Exploration And Production (Deepwater) Limited; Nigerian Agip Exploration Limited; Total E&P Nigeria Limited; and NNPC had jurisdiction to determine the subject matter of the arbitration, which deals with taxation of the oil companies, which is solely the duty of FIRS and a matter, which jurisdiction is conferred on the Federal High Court by the 1999 constitution.

FIRS had also asked the court for an order revoking the arbitration clause in so far as it relates to taxation or in the alternative an order excluding taxation and matters related thereto from the ambit of the arbitration agreement between the defendants.

* An order restraining the defendants, by themselves, servants, agents or counsel from continuing with, or purporting to take any benefit from or abiding by any obligations or rights no matter howsoever described or arising from the arbitral proceedings or awards made pursuant thereto.

A declaration that the arbitration provisions in the Production Sharing Contract and the defendants submission to an arbitration on matters exclusively reserved for the Federal High Court is unconstitutional, null void and of no effect.

Under the said allocation mechanism, portions of available crude oil sufficient to generate proceeds to cover payment of Petroleum Profits Tax or PPT (as defined by the Petroleum Profits Tax Act, PPTA; Education Tax, as defined by the Education Tax Act, and Royalty and Operating Costs (as defined by the PSC) were allocated for payment of the said obligations.

The oil companies, being aggrieved with the computation by NNPC of the PPT, Royalty and Investment Tax Credit (ITC) due pursuant to the PSC, the PPTA and Deep Offshore and Inland Basin Production Sharing Contracts Act, DOIBPSCA, commenced an arbitration contending that the PPT and Royalty as calculated by NNPC were inaccurate and that as contractor under the PSC, they had the exclusive right to compute PPT and make same returns which the NNPC was obliged to send to FIRS without any amendments.

They added that NNPC had been lifting oil in excess of the amount allocated to it by the oil companies for defraying Royalty and PPT.

The oil companies had urged the arbitration panel to resolve the issue as to whether the PPT calculations of NNPC was right and in accordance with the PPTA and to determine whether NNPC had been over lifting crude oil, a determination must first be made by the arbitration tribunal as to what the PPT obligations of the defendants were, what Investment Tax Credit was due and how it was to be calculated.

The oil companies had also asked the arbitration panel to determine the method by which cost of oil was to be computed; the method by which PPT was to be computed, the method by which the ITC was to be computed and whether certain costs, such as signature bonuses, loans interest and non-operator cost were deductible from otherwise subject to capital allowances for PPT purposes.

In the panels, the chairpersons/umpires were white, forcing on NNPC a situation where the oil companies nominated a white man as expected, with a white umpire and a Nigeria, which made the outcome of the arbitration predictable.

Meanwhile, FIRS has asked the court to refuse the application for stay of execution of the judgment by the oil companies, contending that it will be a great disservice to the country, if the NNPC was made to pay the awards, which it argued were illegal.

 



 


FOLLOWING the removal of subsidy on PMS on January 1, 2012 by the Federal Government of Nigeria and the attendant spontaneous social and political upheavals that greeted the policy, the House of Representatives in an emergency session on January 8, 2012 set up an Ad-hoc Committee to verify and determine the actual subsidy requirements and monitor the implementation of the subsidy regime in Nigeria.

subsidy-report

R-L: Chairman Ad-hoc committee investigating Subsidy Regime Hon. Farouk Lawal; Chairman, House Committee on Media and Publicity, Hon. Mohammed Zakari; and deputy Chairman of the Committee, Hon. Victor Ogene at the briefing on fuel asubsidy report. Photo:Gbemiga Olamikan.

The Federal Government had informed the nation of its inability to continue to pump endless amount of money into the seemingly bottomless pit that was referred to as petroleum products subsidy. It explained that the annual subsidy payment was huge, endless and unsustainable. Nigerians were led to believe that the colossal payments made were solely on PMS and HHK actually consumed by Nigerians. Government ascribed the quoted figures to upsurge in international crude price, high exchange rate, smuggling, increase in population and vehicles, etc.However, a large section of the population faulted the premise of the Government subsidy figures, maintaining that unbridled corruption and an inefficient and wasteful process accounted for a large part of the payments. To avert a clear and present danger of descent into lawlessness, the leadership of the House of Representatives took the bold and decisive action of convening the first ever Emergency Session on a Sunday (January 8, 2012), and set up the Ad-hoc Committee to verify the actual subsidy requirements of the country.

The Committee decided that the scope of this investigation should be for three years 2009 -2011 for the following reasons:

• The actual budget expendfture on subsidy for both PMS and HHK was tolerable, being N261.1 b in 2006, N278.8b in 2007 and N346.7b in 2008. 5 companies including NNPC were involved iQ 2006, 10 in 2007 and 19 in 2008 contrasted to 140 in 2011.

•Secondly, in line with accounting practice, the, Committee decided to investigate three years activities of the scheme.

•The Committee could have chosen to limit the investigation to 2011 alone given the scale of escalation of subsidy in that year alone but decided to take three years to establish a trend.

The Ad-Hoc Committee held Public Hearings from January 16, 2012 to February 9, 2012, taking sworn testimonies from 130 witnesses, receiving information from several volunteers, and receiving in evidence over 3,000 volumes of documents. In the course of the investigations the Ad-Hoc Committee was able to establish the following:

1.Contrary to statutory requirements and other guidelines under the Petroleum Support Fund (PSF) Scheme mandating agencies in the industry to keep reliable information data base, there seemed to be a deliberate understanding among the agencies not to do so. This lack of record keeping contributed in no small measure to the decadence and rots the Committee found in the administration of the PSF. This is evident also in the budget preparatory process by MDAs where adequate data is not made available to the National Assembly. The Committee had to resort to forensic analysis and examination of varied and external sources (including the Lloyds List Intelligence) to verify simple transactions. In this regard, the PPPRA is strongly urged to publish henceforth, the PSF accounts on quarterly basis to ensure transparency and openness of the subsidy scheme.

2. We found out that the subsidy regime, as operated between the period under review (2009 and 2011), were fraught with endemic corruption and entrenched inefficiency. Much of the amount claimed to have been paid as subsidy was actually not for consumed PMS. Government officials made nonsense of the PSF Guidelines due mainly to sleaze and, in some other cases, incompetence. It is, therefore, apparent that the insistence by top government officials that the subsidy figures was for products consumed was a clear attempt to mislead the Nigerian people.

3. Thus, contrary to the earlier official figure of subsidy payment of N1.3 trillion, the Accountant-General of the Federation put forward a figure ofN1.6 trillion, the CBN N1.7 trillion, while the Committee established subsidy payment of N2,587.087 trillion as at December 31, 2011, amounting to more than 900 per cent over the appropriated sum of N245 billion. This figure of N2, 587.087 trillion is based on the CBN figure of N844.944 billion paid to NNPC, in addition to another figure of N847.942 billion reflected as withdrawals by NNPC from the excess crude naira account, as well as the sum of N894.201 billion paid as subsidy to the Marketers.

NNPC withdraws from two sources

The figure of N847.942 billion quoted above strongly suggests that NNPC might have been withdrawing from two sources especially when the double withdrawals were also reflected both in 2009 and in 2010.

However, it should be noted that as at the time the public hearing was concluded, there were outstanding claims by NNPC and the Marketers in excess of N270 billion as subsidy payments for 2011. Whereas the mandate of the Committee was necessitated by the removal of subsidy, the Committee found out that subsidy payment on kerosene formed an Integra part of the total sum.

4. On its part, NNPC was found not to be accountable to any body or authority. The Corporation, in 2011, processed payment of N310.4 billion as 2009 – 2011 arrears of subsidy on Kerosene, contrary to a Presidential Directive which removed subsidy on Kerosene in 2009. The Corporation also processed for itself, direct deduction of subsidy payment from amounts it received from other operations such as joint venture before paying the balance to the Federation Account, thereby depleting the shares of States and Local Governments from the distributable pool. Worse still, the direct deduction in 2011 alone, which amounted to N847.942 billion, was effected without any provision in the Appropriation Act.

5. While NNPC feasted on the Federation Account to bloat the subsidy payable, some of the marketers were involved in claiming subsidy on products not supplied. PPPRA laid this foundation by allocating volumes of products each quarter to the marketers which it knew were not in conformity with its own guidelines for participation.

6. Our investigation further revealed that certain marketers collected subsidy of over N230.184 billion on PMS volume of 3,262,960,225 litres that from the records made available to us were not supplied. Apart from proliferation and non-designation of bank accounts for subsidy payment, PPPRA and the OAGF were unable to manage in a transparent manner the two accounts they chose to disclose. There were indications that PPPRA paid N158 billion to itself in 2009 and N157 billion in 2010. When confronted, the OAGF was unable to submit details of the bulk payments arrogated to PPPRA and the account from which the bulk sums were disbursed to the supposed beneficiaries.

7.Curiously too, the particular Accountant-General that served during the period 2009 was found to have made payments of equal instalments of N999 million for a record 128 times within 24 hours on January 12 and 13, 2009, totalling N 127.872 billion. The confirmed payments from the CBN records were made to beneficiaries yet to be disclosed by the OAGF or identified by the Committee. We, however, discovered that only 36 marketers were participants under the PSF Scheme during this period. Even if there were 128 marketers, it was inconceivable that all would have imported the same quantity of products to warrant equal payments.

Over-invoiced volume

8. In order to arrive at a probable figure of dailyconsumption of PMS, the Committee took the entire volume of 14,787,152,340 litres imported by marketers and NNPC in 2011 as recorded by PPPRA and then deducted what we suspected as over-invoiced volume of 3,276,949,993. Thus, the actual volume imported for year 2011 was 11,510,202,347. This manifested into an average daily PMS consumption of 31.5 million litres.

9. However, in 2012 marginal increment of 1.5 million litres a day is recommended in order to take care of unforeseen circumstances, bringing it to 33 million litres per day. And to maintain a strategic reserve, an additional average of seven million litres per day (or 630 million litres per quarter) for the first quarter of 2012 only is recommended. Thus, PPPRA is to use 40 million litres of PMS in the first quarter as its maximum ordering quantity per day. In subsequent quarters PMS daily ordering quantity should be 33 million litres per day. For Kerosene, the Committee recommends a daily ordering quantity of nine million litres.

10. On the issue of kerosene subsidy, the Committee strongly advocated for a Government policy to immediately recommence subsidy payment on the product by urging withdrawal of the 2009 Presidential Directive.

11. We also proposed a budget amount of N806.766billion for the 2012 fiscal year for payment of subsidy on PMS and Kerosene.

12. For the 2012 Appropriation Act, the Committee’s recommendation is based on the following: PMS: 33,000,000 Litres x N44 (subsidy) x 365 days = N529,980,000.00 Provision for strategic reserve for 1st Quarter of 2012: 7,000,000 x N44 (subsidy) x 90 days N27,720,000.00 HHK 9,000,000 litres x N101 (subsidy) x 274 days = N249,006,000.00 Total N806,766,000,000.00

Note: Commencement of kerosene subsidy is as from the second quarter of 2012, since the Committee is of the opinion that the product is still not under the subsidy regime.  Therefore, the Committee recommends the sum of N806.766billion as subsidy for year 2012.

13. With regards to the 445,000 bpd allocation to NNPC, the Committee believes that with the current refining capacity of 53 per cent and the SWAP/Offshore processing arrangement of the balance of 47 per cent, it is sufficient to provide the nation with the following products:

a. 40 Million Litres Per Day (MLPD) of PMS, b.10 MLPD of Kerosene (HHK) c. 8.97 MLPD of Diesel (AGO) d. 0.62 MLPD of LPG and e. 2.31 MLPD of FO

It is only AGO whose average daily consumption of 12 million Litres per day will not be achieved in full. Since AGO has been deregulated, other marketers can make up for the 3.03 MLPD AGO shortfalls. The implication of this finding is that if NNPC properly manages the allocation of 445 bpd efficiently, the availability of the products can be achieved by the NNPC alone. This contrasts the situation where in 2009-2011 NNPC got the daily allocation of 445,000bpd and the nation still had to import through Marketers.

Curiously, although NNPC confirmed that it makes some savings of about N11.00 per litre refining locally than import, it could not be established that the Corporation reflects this cost differential in its claims to subsidy.

The Committee recommends that NNPC be unbundled to make its operations more efficient and transparent and this we believe can be achieved through the passage of a well drafted and comprehensive PIB Bill. All those in the Management and Board of the NNPC directly involved in the infractions identified for the years 2009-2011 should be investigated and prosecuted for abuse of office by the relevant anti­corru ption agencies.

14. Part of the funding sources of the PSF Account is over-recovery from marketers. This accrues when product landing cost is·lower than the Ex-Depot price. The Committee observed that:

i. In 2009, there was an over-recovery of N2.766 Billion. This was expected to have been credited to the PSF Account but was not traceable to the official PSF Account disclosed.

ii. Furthermore, in the presentation made by Akintola Williams Deloitte it was claimed that the sum of NGNS.27Biliion was established as over­recovery in 2099, however, there was no evidence that this money was credited to the PSF Account.

15. It is our view that the Guidelines of the PSF Scheme, even as watered down by the Board in 2009, could have salvaged the Scheme if they were observed and enforced. Had the staff of various agencies and government officials not compromised and colluded with certain marketers, the level of corruption would have been minimal. The Committee viewed this fact with serious concern and has suggested measures to ensure that impunity is no longer condoned. Therefore, marketers that had short-changed Nigerians were identified and recommended to make refunds within a time-frame of three months; civil servants were to be sanctioned in accordance with the Civil Service Rules as well as under extant Laws; management staff and top government officials were, based on the gravity of their offences, to be reprimanded, re-deployed, dismissed and, In specific cases, prosecuted for abuse of office and fraudulent practices.

16. The Committee recommended the refund to the treasury the sum of N1, 067,040,456,171.31 trillion from the under listed for various violations.

i.)    NNPC (Kerosene Subsidy)’                                N310,414,963,613.00

ii.)   NNPC (Above PPRA recommendation)    –         N285,098,000,000.00

iii.)  NNPC (Self discount)                                    –    N108,648,000,000.00

iv.) Marketers (Total violations, of PSF)                     N8,664,352,554.00

v.) Companies that refused to appear                           N41,936,140,005.31

vi.) PPPRA excess paymenLto self                            N312,279,000,000.00

TOTAL                                                                                                                                 N1,067,040,456,171.31

The Committee believes that if the PSF scheme was properly managed, this sum of N1.070 trillion would have been available to the three tiers of Government for budget enhancement.

17. The Committee recommends that the following transactions be further investigated by the relevant anti-corruption agencies and determine their level of culpability with a view to making further recoveries;

i.  Payment of N999m to unnamed entities 128 times to the tune of N127.872 billion

ii. Companies who collected Forex to the tune of $402.610 billion whose utilization is questionable to the Committee.

iii. The 72 Companies listed under the.financial forensics are hereby recommended for further investigation by the relevant anti­-corruption agencies with a view to establishing their culpability and recovering the sums indicated against their names totalling N230, 184,605,691.00.

iv.  The Over recoveries of N2.766 billion and N5.27 billion which were not accounted for by the office of the Accountant General of the Federation.

v.  The cases of double deductions by the NNPC for sUbsidy payments in 2009,2010 and 2011 mentioned in this Report.

 



By Yusuf Alli, Abuja

 


Stakeholders seek probe from 1999

The House of Representatives Ad hoc Committee on Fuel Subsidy has asked 69 oil marketers to refund N241.247billion.
Besides the illegal cash they got last year, 46 companies did not pay taxes, according to the Federal Inland Revenue Service.

Hon Lawan

Hon Lawan

The committee established that N1.692trillion was paid as subsidy last year.
But stakeholders in the industry, including some oil majors, are insisting that the probe ought to be from 1999 to date.
Besides, the presentation of the report today by the committee has assumed ethnic dimension with a group, the South-South Youth Caucus, accusing the North of plotting to undermine President Goodluck Jonathan’s administration.

The Farouk Lawan-led committee discovered that disqualified subsidy claims by 69 companies amounted to N241.247 billion.

Some of the companies are: Acorn Plc, Alminnur Resources Ltd, AMG Petro-Energy Ltd, Anosyke Group of companies Ltd, Ascon Oil & Gas Company, Avant Garde Energy, A-Z Petroleum, CAH Resources Association Ltd, Conoil Plc, Crust Energy Ltd, Downstream Energy Source Ltd, Dozzy Oil and Gas Ltd, Duport Marine Ltd, Eco-Regen Ltd, Eurafic Oil and Coastal Services Ltd, and First Deep water Discovery Ltd.

Others are: Frado International Ltd, Fresh Synergy Ltd, Heyden Petroleum, Ibafon Oil Ltd, Imad Oil & Gas Ltd, Integrated Resources Ltd, Ipman Investment Ltd, Knightsbridge, Linetrale Oil supply and Trading Company, Lingo Oil & Gas Company Ltd, Lloyds Energy Ltd, Lottoj Oil & Gas Ltd, Maizube Petroleum Ltd, Matrix Energy Oil & Gas Ltd, Menol Oil & Gas Ltd.

The report of the committee reads in part: “Discharges that suffered one or more of the above infractions were adjudged not sustainable and, therefore, not good enough to attract any subsidy. The disqualified claims to subsidy amount to N241.247billion.

“The associated PMS volumes of 3,453,690,070 litres are, therefore, deductible from the annual mass volume, with a view to determining the appropriate volume of consumption.

“These defective transactions should be further investigated by the EFCC to ensure that all those who collected unmerited subsidy are made to refund the amounts collected.”

The committee asked the Office of the Accountant-General of the Federation to account for over N213.678billion being excess subsidy payments in 2009 and 2010.

The report added: “The Office of the Accountant-General of the Federation (OAGF) should account for N213.678billion being total of excess payments made by it over and above what the PPPRA identified as paid in 2009 and 2010. The OAGF is not only responsible for the accounts of the Federation, including the Petroleum Subsidy Funds (PSF) and Domestic Crude Account, but refused to provide further details on the account when requested to do so during the public hearing.

“EFCC and ICPC should ensure that the OAGF accounts for the over-recovery figures of NGN 2.766billion and NGN5.27billion.”

The panel faulted alleged conflicting figures from the Nigeria National Petroleum Corporation (NNPC).

It said: “NNPC had two sources of recovery of its subsidy viz: (i) Direct deductions from Domestic Crude receipts accruable to the Federation. (ii) Payment by CBN through deduction from distributable revenues as per the Federation Account Component casino Statement.
“NNPC, in its submission, claimed to have earned N586 billion as subsidy from the supply of 7,576,726, 157 litres of PMS in 2011.

“However by PPPRA’s presentation, NNPC was paid a subsidy of N667.533billion for supplying 5,470,007,111 litres of PMS.
“By CBN’s presentation, NNPC was paid N844.944billion as subsidy in 2011. In addition to CBN’s payment of N844.944billion as represented on the Federation Account Component Statement, NNPC made a direct deduction of N847.942billion as subsidy in 2011, bringing all claims to N1.692 trillion.”

On the jump in subsidy to N1.6trillion in 2011, the Lawan committee said the PPPRA’s argument that it was due to computed arrears was untenable and illegal.

It said: “PPPRA, in its presentation to the House of Representatives, had hinted that the noticeable upsurge in subsidy payment in 2011 was due not only to increase in subsidy per litre but also due
to the computed arrears due NNPC for HHK discharges. This was established from NNPC’s submission to be N284.580billion.

“This payment of subsidy arrears on HHK was an illegality, having been proscribed by a presidential directive in 2009. NNPC was stopped from further collecting subsidy on HHK. The corporation abided by the presidential directive but unilaterally reversed the situation without any counter directive or order from the President.”

Following the leakage of the report, some stakeholders in the oil industry met last night in Abuja ahead of its presentation today.
After the session in a posh hotel, one of the stakeholders, who spoke in confidence, said: “For Nigerians to know the truth about fuel subsidy, we are demanding that the House should extend the probe to subsidy payment since 1999 or pre-1999 era.
“That is the only condition the report can be acceptable or credible. They cannot make those who imported fuel from 2009 to 2011 scapegoats. We want fairness for all.
“Nigeria can only clean its oil industry, if there is a comprehensive inquiry into the subsidy management since 1999 or before 1999.”

The Coordinator of the Southsouth Youth Caucus, David Osaro, in a statement last night, said: “The North wants to use the House of Representatives probe to bring down Jonathan’s government.

“It has become very clear that the current House of Representatives probe of the petroleum industry and the deregulation of the downstream sector is nothing but a subtle plot by the North to discredit and ultimately bring down the Jonathan administration.

“It is very evident that in order to achieve their aim, the North quickly cashed in on the fuel subsidy removal issue, and due to its sensitivity, everything was put in place to actualise their plans of truncating this administration. Otherwise, how else do you explain the fact that a probe into the activities of the oil industry should have predated the current administration of Dr. Goodluck Jonathan?

“Even more curious is the fact that similar probes in the past have not yielded anything that the ordinary Nigerian can be proud of, both in terms of findings and implementation of probe reports. Ordinarily, it would have been taken for  granted that the House of Representatives panel may find nothing actually incriminating against the current government of Mr. President but the manner in which the House is going about it truly leaves much to be desired, in terms of its sincerity.

“If tradition is also anything to go by, it may be pertinent to state that the North is trying to use the House of Representatives to achieve its plan of shifting the power equation back to the North. If this were not the case, how then do you rationalise the failure of the House to actually extend the probe to also include the oil industry from 2009 till date?”