Nigeria EITI sheds light on spiralling petroleum subsidies

Record revenues dented by four-fold increase in subsidies claimed by the National Oil Company.

Nigeria EITI’s (NEITI) financial audits for 2009, 2010 and 2011 were published 31 January in Abuja, Nigeria. They reveal that the Nigerian government received US$ 143 billion over these three years.

The NEITI audits shed light on a significant increase in subsidies claimed by the national oil company, the Nigeria National Petroleum Corporation (NNPC). These subsidy claims have been a source of much controversy in the country.

In spite of similar oil production over the past years, government revenues have fluctuated significantly. In 2009 they went down 50% to $30 billion, then climbing 50% in each of the following years, to $45 billion in 2010 and a record $68 billion in 2011. While following world oil price volatility, these government revenues fluctuated more than the spot crude price, despite relatively stable production and sales.

 200920102011
Total government revenues (in million US $)30 13144 94768 444
Total production of crude oil (in million barrels)774898897
Government share of crude oil production (in million barrels)160221221

Disputing the spiralling subsidy claims from NNPC

The reports show that only 20% of domestic crude oil was delivered to local refineries. As a consequence, Nigeria remains highly dependent on imported refined oil products. The imported products sold in Nigeria are subsidised and sold at lower than the market price. NNPC, the seller of these products, has been subtracting their cost from their payments to the government.

The NEITI report shows that these subsidies have spiralled from US $1.3 billion in 2009 to $5 billion in 2011, or 380% over the three years. NEITI and other stakeholders are disputing the practice of deducting these subsidies from what the company should have paid to the government.

The NEITI audits have established that the amount NNPC owes to the government in 2011 reached US $8.3 billion.

From the EITI Blog: Making transparency work for development in Nigeria

Sales, largest source of revenue

By far the largest source of government revenues (58%) was sales of crude oil and gas. The government is entitled to a share of the extracted crude oil and gas as part of production sharing agreements and joint ventures. The crude oil and gas is sold by the NNPC on behalf of the government. In this period, it was sold both to international (56%) and domestic (44%) buyers.

The second and third largest contributors to Nigeria’s coffers from oil and gas were the Petroleum Profit Tax (23% of revenues) and royalties (9% of revenues).

The Federal Government collected 92% of the revenues with the remaining 8% going to the states and the Nigeria Delta Development Commission.

The audits show that the unresolved discrepancies, totaling US$ 77 million for the period, were well below the agreed threshold for requiring further investigation.

Read the Nigeria EITI case study

Going beyond the EITI transparency standard

NEITI audits go beyond what is required in the EITI standard in many ways. They, for example, disclose production volumes for domestic sales and exports, revealing that the government’s entitlement of crude oil totaled 1.1 billion barrels for the period covered.

The audits also review findings and recommendations from previous audits and provide a wealth of new recommendations. NEITI financial audits will be supplemented by the physical and process audits for the same period expected to be published next month.

NEITI audits continue to bring extensive transparency to their oil and gas sector in order to help Nigerians to see the results from their natural resources.

Download the Nigeria EITI Reports

For further information about EITI in Nigeria, visit the country page on the EITI website