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Cablegate: Nigeria: House Speaker Accuses State Oil Company Of

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UNCLAS SECTION 01 OF 02 ABUJA 001792

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E.O. 12958: N/A
TAGS: EPET EFIN ECON ENRG PGOV NI
SUBJECT: NIGERIA: HOUSE SPEAKER ACCUSES STATE OIL COMPANY OF
WITHHOLDING REVENUES

SENSITIVE BUT UNCLASSIFIED - PLEASE HANDLE ACCORDINGLY.

1. (SBU) Summary. The Nigerian Speaker of the House accused the
Nigerian National Petroleum Corporation (NPPC) of systematically
underpaying what it owes the Government of Nigeria for the sale of
crude oil. NNPC sells the government's crude oil on the
international markets, but in theory NNPC doesn't handle the
payments received from international buyers. Unless legislators
supply specific credible evidence of wrongdoing, NNPC's Byzantine
accounting will make it hard to prove, or disprove, the allegations.
End Summary.

Speaker Claims NNPC Withholds Money from GON
--------------------------------------------

2. (U) On August 25, the Speaker of the House, Demiji Bankole,
accused various government agencies of systematically withholding
revenues from Nigeria's Federation Account. (Note: The Federation
Account is the GON's general purpose account from which it pays its
budget and disperses funds to state and local governments. End
Note.) Bankole claims that over a ten year period, agencies
withheld N1.5 trillion ($12.8 billion) in collected revenues from
the GON. Since NNPC is Nigeria's principle revenue generating
agency, his accusations focused on the state oil company and its
sale of crude oil on behalf of the GON. In a speech to the Nigerian
Bar Association, he assured listeners that a National Assembly
committee was looking into the matter.

NNPC: Oil Company or Government Agency?
---------------------------------------

3. (SBU) The NNPC is Nigeria's national oil company that represents
the GON's interests in the oil and gas industry. It operates Joint
Ventures (JV) with six oil companies: ExxonMobil, Chevron, Shell,
Agip, Total, and Pan Ocean Oil. It holds an average of 60 percent
equity in the JVs. NNPC acts both as an oil company and a
quasi-governmental agency, disbursing GON funds to operate the joint
ventures, receiving an equity share of the profits from the JVs, and
managing both its own and the GON's share of the oil produced.
Where the GON ends and NNPC starts is not always clear. (Note: It's
this opaque and cumbersome arrangement that oil sector reform
legislation, recently introduced in the legislature, attempts to
correct. End Note.)

The Complexities of Nigerian Oil Sales
-------------------------------------

4. (U) The GON receives oil from the JV as royalty payments, oil
which is sold domestically and internationally. Domestic oil is
sold to NNPC to be used for local refining. Proceeds from this
domestic sale of oil to NNPC are credited to the Central Bank of
Nigeria. About 445,000 barrels of crude oil is allocated daily to
the NNPC for domestic refining with NNPC paying the GON the
international price for the oil. (Note: NNPC actually sells some of
that allocated crude oil in the international market because
Nigeria's existing refineries operate far below installed capacity.
NNPC uses proceeds from these sales to import refined products. End
Note.)

5. (SBU) In separate discussions with EconSpec, Austen Oniwon, Group
General Manager and Head of NNPC's Research Division, and Bright
Okogu, Director General of the Budget Office of the Federation,
stated that the GON's crude oil is sold in the international market
on the GON's behalf by NNPC's crude oil marketing department. The
buyers pay for the crude oil by transferring funds directly into GON
accounts in either Geneva or New York, accounts operated by the CBN.
NNPC cannot withdraw or withhold funds from these accounts. (Note:
Bright Okogu was Executive Secretary of the Nigerian Extractive
Industries Transparency Initiative (NEITI) during the administration
of former President Obasanjo. NEITI does not have the legal
mandate, or willpower, to review what happens to oil revenues after
they hit the CBN's accounts. NEITI's last audit of the industry did
not uncover any serious discrepancies in the sale of crude oil by
international oil companies. End Note).

Late Payments or Just a "Grace Period"
--------------------------------------


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6. (SBU) When NNPC buys oil from the GON, it has a 90-day grace
period in which to pay, while other buyers have a only 30 or 60-day
grace period. Oniwon and Okogu contended that allegations that NNPC
is withholding money from the GON most likely stem from a
misinterpretation of this 90-day grace period. They both claimed
that while it is possible that transfer of funds from NNPC to CBN
could be delayed, NNPC does pay all it owes the government.

7. (SBU) Comment: We will not know the real answer anytime soon.
Nigerian legislators are known for making unsubstantiated
accusations; National Assembly committees rarely get to the bottom
of anything; NNPC's accounts are notoriously opaque; Nigerian
journalists do not have the investigative capacity to track this
story down. However, it would not strain credibility to think
long-time NNPC insiders have figured out a way to keep a little of
the GON's proceeds for NNPC or themselves. End Comment.

PIASCIK

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