Nigeria: Some Perspectives on the Alleged Unremitted $10.8 billion Oil Revenue
Dr. Emmanuel Ojameruaye
In announcing the suspension of Mallam Sanusi Lamido Sanusi (SLS) as the Governor of the Central Bank of Nigeria on 18 February 2014, the Presidency relied on the report of the Financial Reporting Council of Nigeria (FRCN) which, according to the Presidency, “indicate clearly that Mallam Sanusi Lamido Sanusi’s tenure has been characterized by various acts of
financial recklessness and misconduct which are inconsistent with the administration’s vision of a Central Bank propelled by the core values of focused economic management, prudence, transparency and financial discipline”. However, many observers believe that immediate reason for the suspension of SLS is his open and unrelenting claim that the Nigerian National Petroleum Corporation (NNPC) failed to remit between $10.8 billion and $20 billion to the Federation Account as required by the Nigerian Constitution. The Presidency saw the accusation as politically motivated and as an indictment of the Federal Government by the leader of one of its agencies. Consequently, the Presidency decided to “deal” with SLS, albeit in a controversial manner.
There are at least two important lessons political appointees like the Governor of Central Bank, Ministers and Heads of Federal and States Agencies in Nigeria must take away from the suspension of SLS. The first lesson derives from the proverbs which state that “those who live in glass houses should not throw stones” and “When you point one finger, there are three fingers pointing back to you”. These proverbs also derive from the advice Jesus Christ gave over two thousand years ago when he said: “For in the way you judge, you will be judged; and by your standard of measure, it will be measured to you. Why do you look at the speck that is in your brother’s eye, but do not notice the log that is in your own eye? Or how can you say to your brother, ‘Let me take the speck out of your eye,’ and behold, the log is in your own eye? “You hypocrite, first take the log out of your own eye, and then you will see clearly to take the speck out of your brother’s eye”( Matthew 7:2-5). In other words, if you are going to say that what someone else is doing is wrong you must be prepared to be judged by the same standard. If you don’t want your record to be scrutinized, then don’t accuse others. You can however accuse others if you have no “skeleton” in your cupboard. You must examine your record before you accuse others, otherwise your accusation may boomerang against you.
Unfortunately, SLS was not given an opportunity to defend himself and the CBN against the allegations in the report of the FRCN, so we cannot say for sure if all the allegations in the FRCN report are true. However, we have no reason to doubt or challenge that report at this time, unless it can be proven that the report was tailored to destroy the reputation SLS. Furthermore, having not read the full report, one cannot say for sure if the alleged “acts of financial recklessness and misconduct” rise to the level of grand corruption or are comparable the allegation of the “unremitted funds” and other established cases of corrupt practices against other government agencies and officials. It is also not clear what role SLS played in the “acts” and what role the Board of the CBN and other officials played, but as the Governor the buck stopped with SLS.
One thing that is clear from some of the details of the FRCN report that has been leaked to the media is that some of the “acts” are indeed egregious and amount to non-compliance with the Public Procurement Act and abuse of the purpose and process of corporate social responsibility (CSR) spending. For instance, the report revealed that the CBN under SLS spent N1.251 billion on “private guards and lunch for policemen” in 2012, N3.086 billion on promotional activities in 2012, N20.2 billion on legal and professional fees, and N163 billion on 63 so-called “intervention projects” under its CSR policy.
It is an open secret that many private and public organizations use CSR spending as a cover for corrupt practice, disbursement of patronage and peddling of political influence. This is why organizations in some countries are required to publish their CSR policy and guidelines as well as their annual CSR reports to ensure greater accountability and transparency.
To be sure, the CBN is not the only organization that may be guilty of abuse of CSR spending but for a government-owned organization that does not require a social license to operate (SLTO) or that is not in competition with other organizations, there is no rationale for huge CSR spending, more so as such spending reduces the amount that the CBN can remit to the Federation Account for sharing among the three tiers of government. The same can be said of the NNPC and other public corporations as well as some joint ventures and private companies because CRS spending is always added to their cost of doing business rather than a surcharge on their after-tax profits.
If the allegations in the FRCN report are true, and if SLS was aware of the contents of the report, then he should have been more diplomatic or discreet in making his allegations against the NNPC, no matter how patriotic his intentions were. He should have done so discretely with the Presidency, Minister of Finance, leaders of the National Assembly and members of the Federation Account Allocation Committee (FAAC). As Pat Utomi has remarked “CBN governors all over the World are men of great discretion in actions, pronouncements and deeds.” Rather, he adopted an “attack” posture similar to that of the opposition and he relished the media limelight in the process while forgetting that the CBN has its own “skeletons” in its cupboards in the form of the report of the FRCN. Not surprisingly, the Presidency had to stop him before he causes more damage by suspending him on the basis of the “skeletons”.
The second lesson for political appointees in Nigeria is that they cannot fight the government. A political appointee that seeks to fight or criticize the government must first resign his or her appointment and fight as an outsider or contest an election and fight as an elected official. A political appointee can only bring about change by making suggestions in a discrete manner to his or her boss who is not obliged to accept them. If the boss refuses to act or accept the suggestions, he or she should resign. Obviously, SLS underestimated this truism or overrated his influence or popularity or the “autonomy” of the CBN. He thought he could fight the government from within the government and still keep his job. In fact, at the recent Standard Bank’s West Africa Investors Conference, SLS said:
“A lot of the noise that is happening in the country today around me and the oil sector is good for the country because at the end of the day, if it leads to improved governance of oil revenue; if it leads to increased transparency or people having to be called to explain what they have done with the money- that is good for the system. People must not see controversy and noise as necessarily bad. I love controversy. If you think there has to be change and if you think a system needs to be improved; and if you get too comfortable in a system, you should ask yourself what has happened to you. You need to step on a few toes, annoy a few people, have your own toes stepped on. You will be annoyed once in a while; of course they will slap you once in a while.” However, the trajectory of the brouhaha between SLS and the NNPC over the unremitted funds shows that he was not a good team player within the government, and may have had some ulterior motive.
The controversy started when – apparently without consulting with the NNPC or the Minister of Finance or raising the issue at the Federation Account Allocation Committee (FAAC) to check his facts – SLS wrote a letter dated September 25, 2013 to the President alleging that NNPC had failed to repatriate $49.8 billion representing 76% of the value of its crude oil exports from January 2012 to July 2013 to the Federation Account, and advised the President to:
“a) Require NNPC to provide evidence for disposal of all proceeds of crude sales diverted from the CBN and the Federation Account; b) Investigate crude oil lifting and swap contracts, as well as the financial transactions of counter-parties for equity, fairness and transparency; and c) Authorise prosecution of suspects in money-laundering transactions, including but not limited to BDCs who are unable to account for hundreds of millions of dollars”. It is not clear what was the initial reaction or response of the President to the letter, and the follow-up actions by SLS to ensure that President acted upon the letter. However, after more than two months, around 10 December 2013, the letter was leaked by “unknown persons” to the press, and was posted at www.Saharareporters.com.
On December 13, 2013, reacting to the letter, the Group Managing Director of NNPC stated that SLS was “playing politics with is allegations”. Subsequently, an “Oil Revenue Reconciliation Meeting” was held by the Minister of Finance and Coordinator of the Economy, the Minister of Petroleum Resources, the GMD of NNPC, the Director-General of the Budget Office and the Accountant General of the Federation on December 18, after which a Joint Press Statement was issued stating that of the alleged unremitted (or missing) $49.8 billion oil revenue, $39 billion had been reconciled leaving a shortfall of $10.8 billion which was “being addressed and all parties are working hard to resolve the issue”.
According to the Joint Statement, “the Federation Account indicates that over the period January 2012 to July 2013, a shortfall of N1.716 trillion (i.e. $10.8 billion) was recorded from the domestic crude oil receipts.
This shortfall was acknowledged by NNPC, and explained to be the result of subsidy claims, unrecovered crude/product losses, and cost of strategic petroleum storage (which is currently not captured in the PPPRA template for refunds). This figure is also well-known to all stakeholders at the Federation Account Allocation Committee (FAAC), and is reported and updated on a monthly basis.” Curiously, at the Press Conference, SLS stated that the unremitted fund is $12 billion as against $10.8 billion agreed.
On January 10, 2014 the NNPC’s group executive director of finance and accounts provided some details – albeit insufficient and controversial – on how NNPC spent the unremitted funds, stating that “the $10.8b reflected expenditures incurred by the corporation during the period under review and are really made up of the following: subsidy claims, $8.49b, pipeline management and repair costs, $1.22b, products/crude oil losses $0.72b, and cost of holding the strategic reserve, $0.37b.”.One would have expected SLS to stay out of the media limelight and allow the FAAC to handle the matter from that point. But he did not. On January 18, 2014, in an interview with Bloomberg News, he stated that NNPC had no right to withhold the $10.8 billion and that by so doing NNPC was increasing the susceptibility of the country to shocks in the event of a decline in oil prices.
Still on the offensive, during his appearance before Senate Finance Committee on February 5, 2014, SLS alleged that the unremitted fund is actually $20 billion as against the $10.8 billion established during the joint verification process. Among other things he stated that
“I am, therefore, compelled to present to this committee detailed evidence that NNPC has in violation of the law and constitution been diverting money from the Federation Account, and involving itself in activities that warrant full investigation for more serious violations of the law. I have established, in my presentation, 1). That NNPC, in paying what it calls kerosene subsidy, is confessing to a number of serious infractions… 2) that claims by NNPC of spending the money on PMS subsidy are not credible. I am convinced that a major source of revenue leakage from the system is NNPC’s unverified claims for subsidy and unilateral deduction from the Federation Account. It is established that of the $67 billion crude shipped by NNPC between January 2012 and July 2013, $47 billion was remitted to the Federation Account. It is now up to NNPC, given all the issues raised, to produce the proof that the $20billion unremitted either did not belong to the Federation or was legally and constitutionally spent. There is no dispute that $20 billion out of $67 billion has not been paid into any account with the CBN. Our recommendation remains that this matter requires thorough independent investigation, as simple explanation will not suffice.”
It was clear that SLS was prepared to continue the fight. He was buoyed by support from the opposition and a large section of the media and civil society who see the fight as an effort tame the monster of grand corruption in the country and are suspicious of the President’s desire to combat corruption. On its part, the Presidency was becoming more irritated and suspicious of SLS’s goal. Thus, taking advantage of a lacuna in CBN Act, the President decided to suspend SLS indefinitely, rather than going the unpredictable and time-consuming route of sending a removal recommendation to the Senate which would require approval by 75% of the members.
The President has stated that he only suspended SLS and that he has not removed him because he can return to his job at any time after he is cleared by the ongoing investigation of the CBN. But we all know that the investigation will not be concluded before the end of SLS official tenure in June 2014 – only about three months from now. Moreover, the President has already nominated a successor to SLS and forwarded the name to the Senate for approval. Even if SLS goes to the court to nullify his suspension as he has indicated, the legal battle will not be concluded before June 2014, and there is no guarantee that SLS will win the case because the Presidency will argue that “suspension” is not “removal” as envisaged in the CBN Act. SLS’s case has also been dented by the inconsistency in his data and his apparent poor understanding of oil revenue accounting in Nigeria. He began by stating that the unremitted fund was $49.8 billion, and then three months later he agreed to $12 billion (or $10.8 billion) and increased the amount the amount to $20 billion. Not surprisingly, the GMD of NNPC described SLS allegations as “unsubstantiated claims” which showed “little understanding of the technicalities of the oil industry”. Furthermore, in his testimony at the Senate Finance Committee on February 20, 2014, Attorney General of the Federation and Minister of Justice confirmed that under the existing laws, NNPC can withhold some revenue from its oil liftings to cover part of its operational costs.
Thus, in the battle of wits, the Presidency seems to have prevailed, at least for now. But this does not mean that SLS’s allegations must be dismissed in its entirety or swept under the carpet. There is clearly a strong case to streamline oil revenue accounting in Nigeria to ensure greater accountability and transparency, optimize oil revenue payments into the Federation Account and minimize leakages and corruption. This will be the subject of my next paper on this issue.
Dr. Emmanuel Ojameruaye
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