RECOVERY OF STOLEN WEALTH: Revenue and the oil industry Background: Research and discussions show that there

are several ways through which public wealth is stolen in Nigeria. The Kuramo conference session on Recovery of Stolen Wealth has a focus on provoking discussions about the policy options and legislative tools available to prevent stealing of public wealth, especially as it relates to the oil and gas sector. This factsheet highlights the various activities in the oil and gas industry through which revenues are lost following the recently released Ribadu Report and also places key emphasis on strategic areas for consideration in policy discussions.
The Task Force was commissioned in February 2012 by the Minister of Petroleum Resources. The aim was to support the programme of the Federal Government in enhancing optimization, probity and accountability in the operations of the petroleum industry. The task force had the mandate to work across the entire Nigerian petroleum value chain and to confirm that the systems, laws, processes and functions in place provided reasonable assurance that the revenues in the petroleum industry were captured, recorded and properly accounted for.

The task force worked with consultants and experts and set out to achieve the following, according to the terms of reference: *Determine and verify revenues payable to the Federal Government. *Take all necessary steps to collect all debts due and owing to the federal government.

The Petroleum Revenue Special Task Force (PRSTF) Review of Activities in the Oil and Gas Industry
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RECOVERY OF STOLEN WEALTH: Revenue and the oil industry Methodology:

To carry out its functions, the task force did the following: *Obtained written and verbal presentations from the various stakeholder groups in the industry; *Visited and reviewed records of selected agencies and operators in the industry for the period between 1 January 2005 and 31 December 2011 (in line with the Statute of Limitations) *Constituted committees ad-hoc and subcommittees to conduct as review of NNPC and DPRs role in petroleum revenue management and also to conduct detailed assessments on specific areas.

Results:
The review done by the task force covered various oil and gas activities and the results of the review are represented in the table and graphic representation below:

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RECOVERY OF STOLEN WEALTH: Revenue and the oil industry

TABLE DETAILING DEBTS AND OTHER REVENUE LOSSES IDENTIFIED BY THE RIBADU TASK FORCE:1 Area of Loss Period of Time Estimated Amount Unpaid (Naira) 1 Trillion 989 Billion 178 Billion 4.55 Trillion Estimated Amount Unpaid (Dollars) 6.8 Billion 6.3 Billion 1.1 Billion 29 Billion

Fuel Subsidy Crude Oil Theft Theft of Refined Products Deficit Value for Feed-Stock Gas Price Fixing Variation Exchange Rate Variation for Crude Oil Proceeds from the Sale of Petroleum Products (Owed by marketers of petroleum products to NNPC) Domestic Crude Allocation Debts Proceeds of Gas Sales from the Bonga Field (Owed by SNEPCO to the Federation) Deficit on states sale of crude oil (i.e. State Oil Firm sale of Crude Oil to
1

Over the Last Two Years Every Year 2001-2010 Over a Ten Year Period

Over a Period of Ten Years

86.6 Billion 27 Billion

0.18 Billion 171Million

SeptemberDecember 2011

843 Million2 137.572 Billion

53 Million 946.878 Million

2002-2011

785 Billion

State has short paid estimated sum of 5 Billion

As shown in the PRSTF Final Report (2012)

This figure was first uncovered by the Nigeria Extractive Industries Transparency Initiative (NEITI) in its report as standing at N842.7 Million. See report through link: http://www.neiti.org.ng/sites/default/files/publications/uploads/ten-years-neitireports.pdf

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RECOVERY OF STOLEN WEALTH: Revenue and the oil industry

Itself) Gas Flaring Penalties Signature Bonuses (67 Licences Awarded, 7 Discretionary Allocations) Concession Rentals (Owed to DPR) Royalties (Crude Oil)

January 2005December 2011 2005-2011

18 Billion unreconciled and 9 Billion unpaid 117.6 Billion

137 Million unreconciled and 58 Million unpaid. 749 Million (321 Million being legally disputed)

2005-2011 As at December 2011

455 Million 475.2 Billion

2.9 Million 3.027 Billion (Addax Petroleum Liable to Pay 1.5 Billion of this)

The Ribadu task force also found that prior administrations in some instances compelled NNPC to pay third-party debts on Governments behalf without proper compensation. Such outlays included: Purchase of a Presidential chopperN2.23 Billion; Finance of the Presidential Implementation Committee on Maritime Security and Safety project (PICOMSS)- N19.87 Billion; Finance of projects for the Ministry of

Science and TechnologyN15.57 Billion; Sponsorship of the World Cup- N866.2 Million; Finance of the Royal Swaziland Sugar CompanyN2.42 Billion; Loan to the Bureau of Public Enterprises (BPE)N798.6 Million; Loan for Sao Tome and PrincipeN700Million; Loan to start-up operations of the Nigerian Content Development

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RECOVERY OF STOLEN WEALTH: Revenue and the oil industry

Monitoring BoardN673 Million; Storage cost on illegal bunkeringN563 Million; Expenses incurred by the Ministry of Petroleum Resources-N521 Million. onshore through siphoning of crude or condensates into motorboats or fishing vessels. Small scale pilfering by locals involving perforation of pipelines or other onshore infrastructure.

Crude Oil Theft

As shown in the table above, Crude oil theft is a major avenue for revenue loss in the industry. Some reports suggest that over 180,000 barrels of oil is stolen per day in Nigeria which amounts to over $7 Billion annually at current oil prices3. Crude thefts in Nigeria occur in three major ways: Over lifting at export terminals which involve loading excess oil onto waiting crude carriers and siphoning crude from tank farms. Large scale illegal bunkering

Problems: Crude lost to bunkering cannot be accounted for and as such figures published regarding total crude volumes are unreliable. Oil bunkering also results in oil spills in the area. There are speculations about the contribution of oil bunkering to instability in the Niger Delta region and also a resultant increase in risk and operational costs of investments in that region. Maritime piracy off the coast of Nigeria is becoming complex and is

See http://stopthetheftng.com/sit uation-room/economic/

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RECOVERY OF STOLEN WEALTH: Revenue and the oil industry

facilitated by crude oil theft, especially as it has been reported that hijackings occur with intelligence, expertise and manpower from one or more Niger Delta illegal bunkering networks. A reputation for violent sea piracy may deter new offshore oil and gas investments. The rise in sabotage, oil theft and illegal refining contributes substantially to deferred production levels of crude oil.

What is in place to prevent theft?

As noted above, reports show that substantial amounts of crude oil is stolen or lost with resultant revenues unaccounted for at the export terminals. Already in place to circumvent this issue is the Nigerian Export Supervision Scheme (NESS) which was established by the Pre-Shipment Inspection of Exports Act, No. 10, 1996, with responsibilities extended in 2008 to include crude oil pre-shipment inspection and this is managed by the Ministry of Finance (MoF) and Central Bank of Nigeria (CBN).

Issues: Weak law enforcement measures, including absence of high level prosecutions. Possible collusion of key members of the security servicesarmy, navy, coast guard, police- in oil theft. Many of the systems, processes, laws, institutions and policies needed to curb this issue are already in place but are not functional.

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RECOVERY OF STOLEN WEALTH: Revenue and the oil industry

Core inspection of oil exports takes place at the terminals and involves different levels of checks involving various agencies which include the Nigerian Customs Service, DPR, NESS etc. patrolling where there appears to be significant vessel traffic to serve as a deterrent to potential attacks. Improved coordination among relevant agencies to enable information sharing and avoid duplication of efforts/overlapping mandates. Introduction of a standard information gathering template to be used by inspection agents and reports gotten to be made publicly accessible.

Policy options address issues:

to

The following recommendations are offered as options:

Improved enforcement of the existing guidelines of the NESS scheme. Introduction of a dedicated law enforcement unit in the Navy to effectively investigate incidents of organised piracy. Improving incident reporting by logging incidents in a centralised, accessible database. Increase capabilities naval and

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