After months of speculation and mounting pressure, it’s finally here: the government of Nigeria has released the long-awaited PricewaterhouseCoopers (PwC) forensic audit of the Nigerian National Petroleum Corporation (NNPC), the country’s national oil company. It’s not often that the release of a highly technical accounting report makes the headlines—much less grabs the attention of millions—but this isn’t just any audit, either. The allegations that the report examines cost the central bank governor of Nigeria his job, and may even have played a role in unseating President Goodluck Jonathan this past March.
A little background is in order. In late 2013, then-Central Bank Governor Lamido Sanusi accused NNPC of failing to remit tens of billions in oil revenue to the Nigerian treasury—revenue sorely needed for the country’s macroeconomic stability. President Jonathan brushed off the claims and rapidly sacked Sanusi. This move was widely condemned, especially given Sanusi’s track record on combating corruption and in steering the country through its 2009 banking crisis. To quell growing public outcry, the government commissioned PwC in June 2014 to carry out a forensic audit of the state oil company. PwC submitted its final report in February 2015, but the Jonathan administration had until now chosen not to make it public, releasing only a one-page summary. The government fended off calls to release the full audit report, with Petroleum Minister Diezani Allison-Maduekwe claiming the report would not be released so as not to politicize the elections. Regardless, Major General Muhammadu Buhari handily defeated the incumbent president in late March, capitalizing on the electorate’s frustration with the Boko Haram insurgency and the perceived rampant corruption plaguing Nigeria—and still, the report was not released. Finally, after President-Elect Buhari stated last week that his administration would make the report public when he took power, President Jonathan relented and released the full audit on April 27.
The now-public report provides a bleak depiction of NNPC’s operations, and even then does not reveal the full picture. PwC was blocked from accessing the data and people it needed to conduct a full audit, and so, in an unusual move, the accounting firm warned that it could not vouch for the reliability of its report, which was not conducted in line with generally accepted auditing standards and is not to be relied upon. Overall, however, PwC’s main conclusions are in line with Sanusi’s allegations of at least serious mismanagement. (The audit does not mention the role of corruption in getting the NNPC to these dire straits, but many Nigerians believe corruption is an endemic problem in the institution.) The audit found that NNPC owed at least $1.48 billion to the treasury as a result of accounting and computation errors. The report also cautions in uncharacteristically strong language that NNPC had been given a “blank cheque to spend money without limit or control,” warning that its operations are unsustainable and need to be urgently remedied. Over the January 2012 to July 2013 period covered by the audit, nearly half of the oil proceeds went to covering NNPC’s operational costs and on kerosene and oil subsidies; these latter subsidies, while nominally pro-poor, have long been seen as a wealth transfer to kerosene retailers instead. With oil prices tumbling dramatically over the last year, PwC warns that if the state oil company continues on the same spending trajectory, it would be unable to cover its own costs, much less remit anything to government coffers.
While PwC’s report is proving to be political poison for President Jonathan’s administration—most recently with the Minister of Finance distancing herself from the audit—it further strengthens President-Elect Buhari’s mandate to reform the oil sector. The Major General has indicated his priorities upon taking office on May 29 would be to end fuel subsidies, crack down on corruption, and reform the NNPC, while tax reform for the oil sector would take a back seat. The incoming Buhari administration may also provide the necessary momentum to get the long-pending and controversial Petroleum Industry Bill passed, which would establish a fiscal, legal, and regulatory framework for the sector. International oil companies have been keenly watching the taxation provisions of the pending bill. Uncertainty over the taxation of the sector has allegedly caused billions of dollars of foreign investment to be withheld, and Buhari’s signaling that oil taxation will not be a policy priority is likely to only increase this uncertainty. But one thing is clear: Buhari is inheriting a petroleum sector in crisis, and the effectiveness with which the President-Elect tackles the problem will determine not just the trajectory of the Nigerian oil industry for years to come, but the success of his administration as well.