Oil sector fraud; Many unanswered questions

The Senate Committee on Finance, probing the alleged mismanagement of oil proceeds, will reconvene on Thursday. Eric Ikhilae, in this report, observes that rather than help resolve knotty issues thrown up so far, the legal opinion given the committee by the Attorney General of the Federation (AGF), Mohammed Adoke (SAN), has raised more questions for which the senators now seek answers.

Sanusi Lamido, Central Bank Governor

Suspended Central Bank of Nigeria (CBN) Governor Lamido Sanusi jolted all when he alerted the nation to the practice by the Nigerian National Petroleum Corporation (NNPC) of withholding part of its earnings. He said the NNPC has failed to remit an estimated $20billion into the Federation Account.

The disclosure by Sanusi caused the Senate, through its Committee on Finance, headed by former Kaduna State Governor, Senator Ahmed Makarfi to open investigation into the management of the nation’s oil affairs.

Since it commenced sitting, the committee has taken submissions from key players in the nation’s oil, revenue management and legal sectors. The first set of invitees included the Coordinating Minister of the Economy and Finance Minister, Ngozi Okonjo-Iweala, Petroleum Minister, Mrs Diezani Alison-Madueke and the Group Managing Director of the NNPC, Andrew Yakubu.

Mrs Alison-Madueke and Yakubu, in the course of their presentations, raised some issues. Yakubu stated that part of the funds Sanusi accused NNPC of withholding had actually been expended on operational expenses, including the payment of some billions of US Dollars to some unnamed oil firms in kerosene subsidy claims.

He also claimed that NNPC paid $6billion to one of its subsidiaries – the Nigerian Petroleum Development Company (NPDC) – to defray its operational expenses.

Mrs Alison-Madueke, in attempting to rationalise her ministry’s position on the issue, justified the continued payment of subsidy on kerosene after a presidential directive in 2009 halting such payment.

She argued that an inter-ministerial committee elected to continue with the kerosene subsidy payment, even without the National Assembly’s approval, because the presidential directive was not gazetted.

Unsure of the position of the law in relation to issues raised by Alison-Madueke, Yakubu and others, the Makarfi committee sought the opinion of the Attorney General of the Federation (AGF), Mohammed Adoke (SAN).

During his appearance on February 20, Adoke read a prepared speech, in which he addressed only two out of the three issues he formulated. When Adoke exited the committee’s sitting venue, with a promise to return at a later date, everyone, including the committee’s members were not better educated. In fact, they became more curious.

This may have resulted from Adoke’s unsatisfactory resolution of the three issues he formulated and those for which the committee had sought his expert opinion, which the committee’s members described as key to their investigation.

The legitimacy of Adoke’s position, as queried by former Minister of Finance, Senator Nenadi Usman (a member of the committee) and the outright denial by NPDC’s Managing Director, Iyowuna Briggs that his company did not receive $6b from NNPC, contributed to people’s heightened hunger for explanations from those managing the nation’s oil affairs.

It was part of Adoke’s opinion that NNPC could legitimately transfer its participating interest in OMLs to its wholly owned subsidiary, and in this case, the NPDC.

He relied on the provisions of Paragraph 14 to 16 of the First Schedule to the Petroleum Act Cap P10 LFN 2004 (NNPC Act) and Regulation 4 of the Oil Drilling and Regulation 1969 (as amended), Section 6(1)(c)of the NNPC Act, Article 19(2) of a Joint Operating Agreement, otherwise known as Shell/NNPC JOA and Article 2 Para 6 (1) of the JOA to support his position.

The second issue was whether all revenue derived by NNPC from its upstream petroleum operations, including all those under which the OMLs in the Joint Ventures operated by its subsidiaries fall under, are payable to the Federation Account (FA) under Section 162 of the Constitution’.

Adoke’s view on the issue was that it was only the net revenue that should be paid into the FA. He said what NNPC is required to pay into the FA is the net revenue as opposed to the gross revenue.

In supporting his position, Adoke relied on the provision of Section 7(4) of the NNPC Act, which he said complements Section 162(10)(C) of the Constitution. He also cited the Supreme Court decision in the case of AG, Ogun State vs AGF 2002 18 NWLR part 798 page 232 at 284.

Section 162 (10) provides that:

“ For the purposes of subsection (1) of this section, “revenue” means any income or return accruing to or derived by the Government of the Federation from any source and includes- (a) any receipt, however described, arising from the operation of any law; (b) any return, however described, arising from or in respect of any property held by the Government of the Federation; (c) any return by way of interest on loans and dividends in respect of shares or interest held by the Government of the Federation in any company or statutory body”.

While Section 7(4)(b) of the NNPC) Act provides that “such monies as may be received by the Corporation in the course of its operations or in relation to the exercise by the Corporation of any of its functions under this Act, and from such fund there shall be defrayed all expenses incurred by the Corporation”.

Adoke said he could not immediately provide response to the third issue about whether due process was followed by the NPDC in engaging strategic partners for the funding and operations of the oil blocks assigned to it by the NNPC.

The AGF, who promised to return back to address the issue, explained the relevant agencies delayed in providing him with necessary documents to enable him address the issue.

When asked by former Special Assistant to the President, Senator Andy Ubah whether Section 7(4) of the Act did not conflict with Section 162 (10)( C ) of the Constitution, the AGF said “it does not conflict with the constitutional provision. In fact, it complements it.”

Another member, Senator Isah Galaudu (Kebbi) observed that the AGF did not address the issues on which the committee sought his opinion, but rather, raised three issues on his own, from among which he answered two.

He said the AGF addressed the second issue, relating to what the NNPC is required to pay into the FA, without any foundation. This, Galaudu said, was because the resolution of issue two is dependent on the proper resolution of issue three, which the AGF sought time to address.

Galaudu said “if we do not resolve the issue of due process in the engagement of strategic partners, the issue of distributing revenue does not arise. I think we need to answer question three before you can know the answer to question two.”

He said the most important legal opinion the committee needs from the AGF is in respect of an issue raised in page 14 of the committee’s letter to the AGF, where it was indicated that about $7b worth of crude was shipped by NPDC.

Another member, Ayo Akinyelure (Ondo) sought to know from the AGF, the definition of net revenue. He asked if there was any clear definition of allowable expenses deductible from the gross revenue specified in the NNPC Act.

He said the definition should be in figures so that the component of the net revenue due to be remitted into the FA out of the N6b is spelt out. He said the committee is only concerned about the true position of things.

Reacting, the AGF said the issues raised by Galaudu were not contained in the letter sent to him by the committee. Adoke said he distilled the issues he addressed from the information contained in the letter he received.

Makarfi, who immediately directed that the missing part of the letter be given to him, said the committee was actually interested in hearing from the AGF, what portion of the money NNPC claimed to have paid to NPDC ought to be remitted into the FA.

He said although issues two and three were related, they are distinct. “One is that, if you have a property worth 1billion, if you sell it for 100m, you cannot begin to talk of how much you lost because you sold it at 100m. You can talk of, maybe how stupid you were, because you were the one that sold it for 100m.

“But where public property is concerned, the issue of whether due diligence was exercised in assigning or transferring the public property in such a way and manner that the revenue that should accrue to government was just and fair revenue should be ascertained.

“The summary, the Attorney General, is that the pages we have quoted will be given to you once again. You will combine those pages we have quoted with the outstanding issue, which is central; because the issue of due process is central to this issue. That is where, possible loss of revenue can be established. “ Makarfi said.

The NPDC MD also provided a puzzling dimension to the investigation, when during his appearance on February 20 he denied receiving $6b from NNPC, but that his company only received money from the NNPC to fund its budget.

“Giving its funding relationship with its parent company, the NNPC, NPDC will like to confirm that it received funds from NNPC to cover its capital and operating expenditure, as approved by NNPC for the NNPC funded assets during the period under review ( that is, Jan 2012 to July 2013),” Briggs said.

When asked by Makarfi, how much NPDC received out of the $6b, which NNPC claimed to have paid to it, Briggs said “we did not, in NPDC account, receive $6b. Like I stated in the letter, from the account managed by NNPC, royalty and taxes are paid. We receive funds that are required to fund the budget. A specific amount of that I can provide.” He promised to provide that at a later date.

At that point, Mrs Usman drew members’ attention to page six of the AGF’s presentation and observed that by the AGF’s opinion, NPDC is required to pay only the net profit, which is the dividend, to the NNPC for onward remittance to the FA. She noted that this opinion by the AGF is at variance with the position of the NPDC boss.

She observed that the NPDC boss, in his presentation, said his company is not expected to pay anything to the NNPC, and that all the funds given to the NPDC, was to fund its budget, an observation Briggs confirmed, represented his position.

Mrs Usman then concluded that “it means even this legal opinion (by the AGF) is wrong then.”

Bothered by Briggs’ denial, another member, Adamu Gomba (Bauchi) asked the NNPC boss – Yakubu, whether he was comfortable that the NPDC MD denied receiving any $6b from NNPC, a query Yakubu promised to address later.

Yakubu said he will address the issue along with other questions regarding how the NNPC relates with its subsidiaries and manage their funds when next he appears before the committee.

While everyone expects more revelations as the committee reconvenes on March 6, The Nation sought the views of some lawyers on the legitimacy of the positions of the AGF and the Minister of Petroleum.

Dr. Abubakar Uthman and Adetokunbo Mumuni faulted the position of the AGF that NNPC was only required to pay into the FA, its net revenue. Also, Johnson Daramola and Anthony Nwanchukwu faulted Alison-Madueke’s position that it was right for her ministry to have overridden the presidential directive on kerosene subsidy.

Uthman argued that there is nothing in Section 7 (4) of the NNPC Act that confers the power on the NNPC to refuse to pay into the FA, monies realised from the sale of crude, on the excuse that it must first, defray expenses it incurred in the course of running of its affairs.

He further argued that Section 7 (4) of the NNPC Act cannot override Section 162 (1) of the Constitution, which is the basic law of the country. Uthman argued that by virtue of it being the grundnorm, the Constitution is the highest statute in the hierarchy of legislations in the country, which could give validity and efficacy to the NNPC Act.

“In other words the NNPC Act is an inferior legislation to the Constitution because it derives its validity from the Constitution. It goes without saying that where the provisions of an inferior legislation, such as the NNPC Act, conflicts with the Constitution, it (the inferior legislation) must yield ground for the superiority of the Constitution.

“I am, therefore, surprised that the learned AGF would take umbrage under the provisions of Section 7 (4) of the NNPC Act to justify the failure of the NNPC to account for an humongous sum of $ 20 billion.

“It follows that revenue derives by the NNPC from the sales of crude oil amounts to any income or return accruing to or derived by the Government of the Federation from any source as contemplated by Section 162 (10) (a) (b) & (c) of the Constitution.

“Where the words used in a statute are clear and unambiguous, they must be given their ordinary and natural meaning otherwise it will lead to absurdity.

From the provision of the Constitution, revenue from the sale of crude does not fall within the exception provided by Section 162 (1) of the Constitution and so, the NNPC is obligated to remit revenue realised from the sale of crude into the FA,” he said.

Uthman also faulted Adoke’s reliance on the case of the AG Ogun vs AGF (2002) 18 N. W.L. R (Part 798) 232 @ 284 on the ground that the facts of that case and the case under review are not the same.

He said in the AG, Ogun case, the plaintiff had sought the payment of proceeds of privatization of public enterprises, capital gains tax and stamp duties into the FA, and an order that the payment of Local Government Allocation directly to the Local Government and charge of Federal Government debt to the FA is unconstitutional.

The lawyer noted that in the case, the issue is whether the NNPC was right to have refused to remit the $20 billion realised as revenue from the sale of crude oil into the FA. “Thus the case of the AG, Ogun vs AGF cannot be the authority for the failure of the NNPC to remit revenue collected by it from the sale of crude oil as canvassed by the AGF.

Mumuni argued that the advice by the AGF “is patently inconsistent with the letter and spirit of Section 162 of the Constitution, which is to establish a dedicated account into which all public revenue by the Federal Government shall be paid, as well as to remove any arbitrary and non-transparent and non-accountable spending of public revenue.

“Assuming, for the sake of argument, that the NNPC is required to pay into the FA only the ‘net revenue’ and not the ‘gross revenue’ as Mr. Adoke has argued, this will still not remove the fact that the NNPC is a trustee of the public revenue collected.

Therefore, as a trustee, the NNPC has a legal duty to render account to the beneficiaries (Nigerians) of the trust, if and when called upon to do so. We believe that the NNPC has woefully failed to discharge this sacred responsibility.

“Unfortunately, the impression created by the legal advice by the AGF is that the NNPC is not obligated to render account. This is clearly inconsistent with the attitude of a government that has repeatedly expressed commitment to fight corruption, and in fact signed the Freedom of Information (FoI) Act,” Mumuni said.

On the whether the Petroleum Minister was right to have ignored a subsisting presidential directive, Daramola argued that it was unlawful for a minister to override presidential directive just because it was not gazetted.

“A presidential directive remains a directive whether gazetted or not. I think those, who advise these government officials always end up misdirecting them,” Daramola said.

In similar vein, Nwachukwu faulted the Petroleum Minister’s position and argued that it was wrong under the law, for her to claim that she was a party to the disobedience of a presidential directive on the ground that it was not gazetted. (0)

Oil sector fraud; Many unanswered questions