Economy Foreign News

New revenue template exposes alleged NNPC’s lax probity

Written by Maritime First

…As US emerges UK’s biggest oil supplier, overtakes Nigeria, others***

The new revenue template for revenue-generating agencies of government that came into existence last November may have exposed the alleged tardiness in accountability at the Nigerian National Petroleum Corporation (NNPC).

The Federation Accounts Allocation Committee (FAAC) document revealed that the development was largely responsible for the past squabbles between the agency and the states, who had always accused it of under-remitting to the Federation Account for onward distribution to the threes tiers of government.

An NNPC report for December 2018 that formed the basis of the January 2019 FAAC meeting indicated that the national oil agency generated N281.745 billion from crude oil sale during the period, yet remitted a paltry N42.839 billion to the Federation Account while the balance was explained away for one payment or the other, including expenditure on government’s priority projects.

The FAAC, comprising representatives of the federal and state governments had over the years accused NNPC of lacking transparency in its revenue presentations, necessitating the new mechanism.

A breakdown reveals that oil and gas export fetched N105.779 billion while N175.966 billion was gotten from sales of domestic oil and gas.

According to the document, the corporation paid N110.087 billion to its joint venture (JV) partners as recovery cost another N50.831 billion as subsidy.

The NNPC also reported that it withheld N2.462 billion as strategic holding cost and held back N1.724 billion for same purpose the preceding month when its income was 22.5 per cent higher.

Other deductions included pipeline management cost (N3.666 billion) and pipeline operations repair and maintenance (N8.044 billion), amounting to N13.874 billion.

It equally held back N5.067 billion to “augment crude oil and product losses”, bringing the total to N174.793 billion.

In the report, the corporation also spent N16.844 billion on “government priority projects”, paid N20.678 million to the Department of Petroleum Resources (DPR) as royalty and N26.599 million to the Federal Inland Revenue Service (FIRS) as taxes.

In March 2018, the NNPC Group Managing Director, Dr. Maikanti Baru, disclosed that the corporation had pruned the cost of producing a barrel of crude oil to $20 and was working on further reducing it to $15 per barrel.

Globally, the cost of producing an additional barrel of oil is lowest in Saudi Arabia at $8.98 per barrel with the highest is United Kingdom at $44.33. In Canada, it is $26.24.

The cost is also low in Iran and Iraq ($10), but higher than $19 in Russia and $23.33 in the U.S.

There is not one generally acceptable estimate of these costs. More recent estimates put the bill at exceeding $60 in the world’s biggest economy.

In the meantime, crude oil exports from the United States to the United Kingdom overtook supplies from other countries including Nigeria for the first time since such shipments began in 2015.

In January, the US supplied the equivalent of almost one in every four barrels of crude processed by UK oil refineries, or 264,000 barrels per day, illustrating the outsized role American oil now has in Britain’s energy mix, The Financial Times reported on Wednesday.

That level was more than Norway, Russia, Nigeria or Algeria, according to data from the cargo-tracking company Kpler, which have all been major suppliers to the UK in recent years. Meanwhile, operators in the UK portion of the North Sea have battled to stem production declines.

While monthly export volumes can be volatile, the rising volume of US crude heading to the UK is part of a trend since Washington lifted widespread restrictions on exports in 2015.

In 2018, the average volume of US crude exported to the UK doubled to 160,000 bpd, second only to Norway over the course of the year and up from less than 20,000 bpd in 2016.

“We’re likely to see more US exports to the UK,” said Prof. Paul Stevens, an energy expert and fellow at Chatham House.

“It’s geography — why sail further than you need to when the UK is the first big market the US can reach?” he added.

The surge in US crude supplies comes as the country’s production has risen close to 12 million bpd, up from just five million bpd a decade ago, thanks largely to oil supplies from shale formations that have been exploited through advances in horizontal drilling and hydraulic fracturing.

That has allowed Washington to pursue a policy that the Trump administration has dubbed “American energy dominance”, with the country overtaking Russia and Saudi Arabia as the world’s largest oil producer, as well as becoming a major gas supplier.

Shipments overseas have leapt since the US lifted restrictions on exports that had been in place since the Arab oil embargoes of the 1970s, with Washington keen to reap the economic benefits and wield its energy clout as a tool of foreign policy.

The country’s oil exports averaged 1.9 million bpd in 2018, about twice the amount that was exported in 2017, according to the Energy Information Administration.

While oil analysts say the jump in exports to Britain has primarily been driven by economics, the country’s growing reliance on one supplier may still raise questions at a time when UK trade policy is already in flux due to Brexit.

US exports to the UK peaked in 1957 after President Dwight Eisenhower authorised 300,000 bpd of shipments to relieve shortages caused by the shutdown of the Suez Canal, partly in return for the UK and France agreeing to withdraw troops, according to the book Risk-Taking in International Politics by Rose McDermott.

The UK has a diverse range of oil suppliers, with more than 50 countries having exported crude to the country in the past three years, but others closer to home such as Norway may feel they are losing out. Norway’s crude exports to the UK, which alongside domestic production have made up the bulk of the feedstock for the country’s 1.1m bpd of daily refining activity, fell by 13 per cent last year.

Guardian NG with additional report from Punch

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Maritime First