In the middle of a mass resistance that has virtually shut down Nigeria in response to the government’s abrupt January 1 withdrawal of a subsidy on oil, a previously-unreleased United States 2009 Wikileaks cable has emerged which indicates official manipulation that may have cost Nigeria billions of dollars.

According to the cable [C O N F I D E N T I A L SECTION 01 OF 02 LAGOS 000767 SIPDIS NOFORN E.O. 12958], the scandal concerns prices paid by the government for imported fuel, as international fuel traders, taking advantage of massive corruption loopholes in Nigeria, engaged in falsifying the dates of bills of lading to reflect particularly high market prices.  By so doing, they overcharged the Nigerian National Petroleum Corporation (NNPC) by over $300 million.

The Chairman and Managing Director of Shell Petroleum Development Corporation of Nigeria (SPDC), Mr. Chris Finlayson, told the United States (?) Consul General and the Economic Officer on April 2 that some marketers had been changing the dates when fuel shipments bound for Nigeria were loaded in order to take advantage of particularly high market prices.

Following that, on April 6, Femi Otedola, President and CEO of Zenon Petroleum and Gas, essentially corroborated Finlayson's report, saying over $300 million has been overpaid by NNPC for fuel imports, and that many leading international traders are involved in the manipulation of shipments that the NNPC curiously failed to notice.  “Discrepancies were found when comparing dates on the bills of lading with dates of landing in Lagos,” the document said.

According to the cable, “Pointing to examples, Otedola said that while a tanker loading fuel at a refinery in Bahrain usually takes four weeks to arrive in Lagos, comparisons between the bills of lading and dates of arrival of some shipments reflected only a four-day difference, and in other cases, if taken at face value, indicated the journey took nine months. Otedola said 73 shipments from refineries in the Persian Gulf, England, and Venezuela listed delivery times of only one day. NNPC is attempting to get compensation for the over-charge. Otedola went on that most of the fuel traders supplying Nigeria are implicated in over-charging NNPC, and showed a list of 17 companies that supplied fuel in the first quarter of 2004, several of which, he said, are significant players in international markets, such as Trafigura and Vitol. Otedola added that three companies clearly not involved in the scandal are British Petroleum, ChevronTexaco and Shell.”

The most stunning part of the cable is the reported recommendation of Otedola who felt that Nigeria would “save some four billion dollars a year in expenditures on imported fuel” if the NNPC simply stopped contracting with international fuel traders and, instead, negotiated purchases directly from refineries worldwide.

In parenthesis, as background to the position of Mr. Otedola, the document noted as follows: “Prior to deregulation in October 2003, NNPC, then the sole importer of fuel, lost two billion dollars per year because it sold stock to retailers below purchase price. After October 2003, NNPC initially stopped subsidizing fuel sales, letting marketers import fuel to be sold at market prices. However, sources agree that NNPC is back in the business of subsidizing gasoline sales while it maintains a facade of deregulation by encouraging private marketers to import fuel that NNPC purchases at market price. NNPC then sells the fuel to marketers and retailers at a reduced price to ensure that those companies maintain a profit margin while holding consumer prices to informal caps set by the Department of Petroleum Resources.”

The American officials then concluded that the allegation that international traders bilked NNPC of hundreds of millions of dollars is yet another example of the poor management of Nigeria's energy sector, and highlights the complex links between crude sales, fuel importation, refinery maintenance, and energy production in the country, and slyly observed that the way NNPC looked the other way while Nigeria was being fleeced was deliberate.  

“Otedola is probably right in suggesting that long-standing sweetheart deals between the NNPC and a variety of fuel traders [are] keeping the system inefficient. That may also explain why the [Government of Nigeria, GON] just can't seem to get its refineries running even after spending a billion dollars or more on maintenance contracts over the last four years. Otedola said he initially bid to purchase the Port Harcourt refinery offered for privatization, but he recently told President Obasanjo he will not invest in the refinery so long as NNPC purchases fuel from traders instead of negotiating directly with refineries in other countries and leasing ships itself to deliver fuel to Nigeria. It is not clear if Otedola's assumption that the international traders' stake in Nigeria's current fuel market is the main driver behind the country's refinery woes. But it is clear that the fundamentals of infrastructure security, interim supply stability, and transactional transparency must still be addressed if the GON is to be taken seriously about its efforts to deregulate and largely privatize Nigeria's downstream petroleum sector.”

This cable emerges to confirm the very argument of millions of Nigerians who have been trooping into the streets worldwide since last week in protest of the oil subsidy that the principal problem in the country is corruption and lack of transparency which will swallow whatever is saved from withdrawing the subsidy. 

It would be recalled that in KPMG’s “Interim Report on the Process and Forensic Review of NNPC” [The KPMG Report] dated 22 November 2010, which was published by SaharaReporters on December 9, 2011, the Auditor said it had found that NNPC’s subsidy claims and PPPRA’s verification were based on volume of petroleum products available for sale (volume of products imported and actual production from the refineries) as against duly verified volume of products lifted out of the depots (volume of petroleum products sold) as stipulated in the subsidy guidelines.

KPMG also observed that while subsidy claims should be remitted to NNPC from PSF by the Federal Ministry of Finance (FMF) based on claims approved by PPPRA, NNPC’s convoluted and questionable practice was to remit to the Federation Account, amount payable for domestic crude less subsidy claims. It would then request the FMF to pay the subsidy amount due to it (from PSF) into the Federation Account being the balance of the cost of domestic crude.

“There are instances of delays in receipt of subsidy advice from PPPRA resulting in the estimation of subsidy claims by NNPC which results in over/ under-deduction from proceeds of domestic crude sales,” the report said.  For example, it said, N25bn was deducted as subsidy estimate for September 2009 from domestic crude sales proceeds while PPPRA approved a subsidy of N23.8bn. N35bn was also deducted as subsidy estimate for November 2009 but PPPRA approved a subsidy of N21.3bn. 

“Over-deduction for these two months amounted to N14.9bn but only N4.2bn was swept into the Federation Account by NNPC as adjustment for subsidy claimable in the two months,” KPMG reported.

Among other issues flagged by the report was NNPC’s non-compliance with approved policies/ procedures.

“We observed that contracts for the importation of petroleum products were awarded to companies/ suppliers not listed in the approved prequalification list used for the fourth quarter 2008 importation tender,” it said.  Companies fingered in this respect included Astana Oil Corporation Limited, Natural Energy, and Oando.

Similarly, the auditor reported instances where crude oil was allocated to off-takers who were not even on the approved list.  Such cases included:
•    Ovlas Trading (2,852,316 barrels and 906,269 barrels in 2007 and 2008 respectively);
•    Petrojam (2,818,914 barrels in 2007);
•    Oil Fields (950,166 barrels in 2007); and
•    Zenon (906,000 barrels in 2008)

KPMG also found that the process of selecting Suppliers for importation of products was documented but that those procedures were not adhered to. The Evaluation Committee only recommended prices for the importation of petroleum products, it said, while actual allocation of importation contracts (especially volumes) appeared to be at Management’s discretion, it noted.

“We observed that crude oil sales and collections are not promptly captured on the accounting system. Typically, these transactions are captured in the accounting system after the transaction have been approved at FAAC meeting which is typically two (2) months in arrears,” the report said. 

And on remittance of funds in to the Federation Account, KPMG concluded as follows: “From our review of the cycle time for the remittance of domestic crude cost into the Federation Account, sweeping of funds took an average of 110 – 120 days as against the 90 day credit line offered to NNPC.”
The KPMG Report

[Full text of the Wikileaks Cable]:
C O N F I D E N T I A L SECTION 01 OF 02 LAGOS 000767 SIPDIS NOFORN E.O. 12958: DECL: 04/07/2014 TAGS: EPET [Petroleum and Natural Gas], EINV [Foreign Investments], EFIN [Financial and Monetary Affairs], PGOV [Internal Governmental Affairs], NI [Nigeria] SUBJECT: SCANDAL BREWING OVER NIGERIAN FUEL IMPORTS Classified By: J. GREGOIRE FOR REASONS 1.5 (B), (D), AND (E).
¶1. (C) SUMMARY. A scandal is brewing in Nigeria over prices paid by the government for imported fuel. International fuel traders have been falsifying the dates of bills of lading to reflect particularly high market prices, overcharging the Nigerian National Petroleum Corporation (NNPC) by $300 million or more. END SUMMARY.

 ¶2. (C N/F) On April 2, Chris Finlayson, Chairman and Managing Director of Shell Petroleum Development Corporation of Nigeria (SPDC), told Consul General and Econoff that a scandal is brewing within the NNPC over payments made to international fuel marketers. Finlayson said some marketers have been changing the dates when fuel shipments bound for Nigeria were loaded in order to take advantage of particularly high market prices. He said the total overpayment by NNPC may be as high as $330 million. Finlayson noted that Shell is not one of the marketers in question, but is becoming a leading fuel supplier for NNPC.

 ¶3. (C N/F) On April 6, Femi Otedola, President and CEO of Zenon Petroleum and Gas, the largest supplier of diesel fuel in Nigeria, essentially corroborated Finlayson's report. Otedola said over $300 million has been overpaid by NNPC for fuel imports, and that many leading international traders are involved. According to Otedola, NNPC contracts to pay its suppliers the market price on the day a ship is loaded with fuel. He said NNPC recently discovered, however, that bills of lading were altered to reflect loading on days of high market prices. Discrepancies were found when comparing dates on the bills of lading with dates of landing in Lagos.

 ¶4. (C N/F) Pointing to examples, Otedola said that while a tanker loading fuel at a refinery in Bahrain usually takes four weeks to arrive in Lagos, comparisons between the bills of lading and dates of arrival of some shipments reflected only a four-day difference, and in other cases, if taken at face value, indicated the journey took nine months. Otedola said 73 shipments from refineries in the Persian Gulf, England, and Venezuela listed delivery times of only one day. NNPC is attempting to get compensation for the over-charge. Otedola went on that most of the fuel traders supplying Nigeria are implicated in over-charging NNPC, and showed a list of 17 companies that supplied fuel in the first quarter of 2004, several of which, he said, are significant players in international markets, such as Trafigura and Vitol. Otedola added that three companies clearly not involved in the scandal are British Petroleum, ChevronTexaco and Shell.

 ¶5. (C N/F) Otedola recommended that NNPC stop contracting with international fuel traders and negotiate purchases directly from refineries worldwide. According to him, such a move would have two positive effects. Otedola calculates that NNPC would save some four billion dollars a year in expenditures on imported fuel. (Note: Prior to deregulation in October 2003, NNPC, then the sole importer of fuel, lost two billion dollars per year because it sold stock to retailers below purchase price. After October 2003, NNPC initially stopped subsidizing fuel sales, letting marketers import fuel to be sold at market prices. However, sources agree that NNPC is back in the business of subsidizing gasoline sales while it maintains a facade of deregulation by encouraging private marketers to import fuel that NNPC purchases at market price. NNPC then sells the fuel to marketers and retailers at a reduced price to ensure that those companies maintain a profit margin while holding consumer prices to informal caps set by the Department of Petroleum Resources. End Note.)

 ¶6. (C N/F) Otedola added that by cutting out the international traders, NNPC would also enhance the environment in which Nigeria's refineries could be restored and operated. Otedola said he believes international fuel trade "mafias" are behind the failure to bring Nigeria's refineries back on-line and to capacity. Otedola is convinced these traders arrange for the vandalization of crude oil feeder pipelines, which keep the refineries at Port Harcourt, Warri and Kaduna closed or under-capacity. He said the international traders generally receive at least one million dollars per shipload of fuel to Nigeria and have grown accustomed to the easy money Nigeria offers as long its refineries remain down.

 ¶7. (C N/F) As an example, Otedola described an arrangement the National Electric Power Authority (NEPA) had with Sahara Energy for the provision of diesel to an emergency power generation plant in Abuja. He said that while a pipeline was under construction to deliver fuel to the main power plant, NEPA paid some five billion dollars to Sahara over four years for diesel to the back-up plant. It was later discovered that NEPA had received only about one billion dollars worth of fuel, according to Otedola. Otedola said that he, too, was contracted to deliver diesel fuel to the plant on occasion; however, he petitioned the president to investigate the matter after becoming suspicious of NEPA's ongoing contract with Sahara and the fact that the pipeline for the power plant was never finished. He said his intervention led to an investigation that ultimately resulted in the cancellation of NEPA's contract with Sahara.

¶8. (C N/F) COMMENT: The allegation that international traders bilked NNPC of hundreds of millions of dollars is yet another example of the poor management of Nigeria's energy sector, and highlights the complex links between crude sales, fuel importation, refinery maintenance, and energy production here. Otedola is probably right in suggesting that long-standing sweetheart deals between the NNPC and a variety of fuel traders is keeping the system inefficient. That may also explain why the GON just can't seem to get its refineries running even after spending a billion dollars or more on maintenance contracts over the last four years. Otedola said he initially bid to purchase the Port Harcourt refinery offered for privatization, but he recently told President Obasanjo he will not invest in the refinery so long as NNPC purchases fuel from traders instead of negotiating directly with refineries in other countries and leasing ships itself to deliver fuel to Nigeria. It is not clear if Otedola's assumption that the international traders' stake in Nigeria's current fuel market is the main driver behind the country's refinery woes. But it is clear that the fundamentals of infrastructure security, interim supply stability, and transactional transparency must still be addressed if the GON is to be taken seriously about its efforts to deregulate and largely privatize Nigeria's downstream petroleum sector.

END COMMENT. HINSON-JONES
 

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