A report on the payment of royalties by operators in the oil and gas industry submitted by the Nigerian Upstream Petroleum Regulatory Commission shows that the Nigerian National Petroleum Company Ltd. has settled $1,653,352,228.14 royalties including all outstanding royalties due to the federal government as of 2021.
The payments were related to outstanding royalties of $29.6m as contained in the Auditor General’s report for 2021.
The payment was disclosed on Monday during the hearing of the query of the Auditor General’s report ending 2021, which is relating to alleged outstanding royalties from operators due to the federation account.
The hearing was before the House of Representatives Public Accounts Committee (PAC).
The meeting was presided over by the Chairman who is the House of Representative Member representing Ede North, Ede South, Egbedore, and Ejigbo Federal Constituency of Osun State, Hon. Salam Bamidele.
Presenting its case on Monday, the Accountant General’s Office said, “The first issue is outstanding royalties due from NNPC-COMF MCA/PSC $253,952,693.27m. Description of findings, Paragraph 227 (1) of the Financial Regulation says accounting officers who are responsible for the collection of revenue will furnish annually, a return of arrears of revenue as of 31st December in each year which remains uncollected by the following 31st March.
“The return which will be submitted by the 31st of May shall be prepared in three places. One copy was sent to the Accountant General and the Auditor General while the third was retained for record purposes. In cases where there is no outstanding revenue, a nill return should be rendered. The Accountant General will list in his annual report what is the summary of the query.
“One, it was observed that $1,653,352,228.14 was the outstanding royalty payable to the Nigeria National Petroleum Company to the Department of Petroleum Resources’ (Now NUPRC) CBN account with respect to the production sharing contract, and repayment agreement as of 31st December 2021.”
The office of the Accountant General recommended that the NUPRC should justify the outstanding $29,648,970.36 was not collected as of when due adding they should forward evidence of remittance to the House of Reps Public Accounts Committee.
Responding to the matter at the PAC, the NUPRC said that the outstanding balance of $29.6m has been fully settled by the NNPC.
Speaking on the issue, the Executive Commissioner, Economic Regulation and Strategic Planning, Babajide Fasina, explained that the $29.6m outstanding payment was not due.
Fasina explained, “I have to say the steps towards revenue payment and collection. The law allows licensees and lessees directly to the Federation Account. This is done with the NUPRC. We don’t operate the Federation Account; it is the Federation Account but we have a line of track so that we can reconcile. Also, the law allows the licensees and lessees to make the payment one month at the end of the quarter. It implies that after production, you give them four months to make the payment.
“Also, when we look at the payment, we now reconcile with the companies. But where there is a shortfall in reconciliation, we take steps to recover the amount. The commission under our leadership has initiated steps in order to recover the amount.”
Fasina explained that the outstanding revenue due from the NNPC has been settled, adding that it has submitted evidence to the PAC.
“On this particular issue, as of the time of reconciliation, the payments were not due and we made efforts. Part of the efforts in Appendix I were letters written to the NNPC. The first one was in February 2022 and in July. We did follow up and I want to confirm that the money ($29.6m) has been paid and we have evidence attached to the document,” he said.
Explaining further on the issue relating to the collection of royalties from operators, the Commission Chief Executive, Engr. Gbenga Komolafe told PAC that Nigeria’s oil and gas sector is guided by the PIA, adding that the NUPRC has implemented all the relevant sections of the PIA in the collection of fees due to the federal government.
Komolafe said, “The most we can do is to apply maximum penalty which is the withdrawal of license, and if we do that, we will scare investors. We are in a situation whereby we are looking for investors in a challenging energy transition regime.
“We can regulate appropriately, moderately, or tightly which is over-regulation. If a regulator regulates tightly, it might kill the system. The capital expenditure of our nation has gone down and we are struggling as a regulator to revive that.”
Komolafe further explained that the energy transition is gaining momentum with an investment in renewables that has outstripped fossil fuel.
“We have employed measures like engagement. We write reminder letters and if it becomes hard, then we do load and anchor. With load and anchor, they are forced to pay. Produce and load but we won’t allow you to go until you pay or we allow you to do a payment plan,” Komolafe said on measures employed to ensure revenues are remitted as of when due.
The chairman of PAC, Salami, admitted that there are limitations to using punitive measures like withdrawal of licences, “Knowing fully well that it will disturb the whole economy.”
Salami said “I think what we will do is have the technical committees to engage with your (NUPRC) technical team. What we want to ascertain are two. One is the state of indebtedness of players in the oil and gas sector and measures taken to ensure the monies are recovered. We don’t need to limit it to 2021, we want it to be as of date.”