BEYOND PUBLISHING: NEITI AND THE BEYOND PUBLISHING: NEITI AND THE POST-AUDIT STRATEGYPOST-AUDIT STRATEGY

ByBy

Dr. Bright E. OKOGUDr. Bright E. OKOGUExecutive Secretary, Nigeria-EITIExecutive Secretary, Nigeria-EITI

Order of PresentationOrder of Presentation

IntroductionIntroduction Nigeria’s Quest for Transparency in the Nigeria’s Quest for Transparency in the

Extractive IndustriesExtractive Industries Audit of the SectorAudit of the Sector Remedial MeasuresRemedial Measures Next StepsNext Steps ConclusionConclusion

IntroductionIntroduction

Process was to enlighten the Nigerian Process was to enlighten the Nigerian public & to open up operations of sectorpublic & to open up operations of sector

Cultivate culture of transparency & end Cultivate culture of transparency & end mutual suspicionmutual suspicion

To share experiences with other countries To share experiences with other countries & incorporate best practice in our system.& incorporate best practice in our system.

Nigeria’s Quest for Transparency in the Nigeria’s Quest for Transparency in the Extractive IndustriesExtractive Industries

Started with a determination to make a clean Started with a determination to make a clean break with the pastbreak with the past

Government in 1999,commissioned a World Government in 1999,commissioned a World Bank study of the management of the oil & gas Bank study of the management of the oil & gas sector.sector.

Report revealed serious shortcomings in:Report revealed serious shortcomings in: crude oil output and disposal; crude oil output and disposal; funds inflows; funds inflows; funds outflow; and funds outflow; and institutionalinstitutional effectiveness.effectiveness.

Nigeria’s Quest for Transparency…cont’dNigeria’s Quest for Transparency…cont’d

Nigeria first country to sign up to EITI Nigeria first country to sign up to EITI membership in the Q4, 2003.membership in the Q4, 2003.

The National Stakeholders Working Group The National Stakeholders Working Group (NSWG) inaugurated in February 2004 to (NSWG) inaugurated in February 2004 to oversee the EITI process.oversee the EITI process.

NSWG/NEITI commissioned audit of the NSWG/NEITI commissioned audit of the oil and gas sector for the period 1999-oil and gas sector for the period 1999-2004.2004.

Nigeria’s Quest for Transparency…cont’dNigeria’s Quest for Transparency…cont’d

Final audit reports encompassing the financial, Final audit reports encompassing the financial, physical & process audits were unveiled in April physical & process audits were unveiled in April 2006; reports in public domain (see NEITI 2006; reports in public domain (see NEITI website).website).

Final reconciled audit report released in August: Final reconciled audit report released in August: resolved most discrepancies observed in the the resolved most discrepancies observed in the the April reportApril report

Several road shows to communicate purpose of Several road shows to communicate purpose of NEITI & audit findings to NigeriansNEITI & audit findings to Nigerians

Audit Results…IAudit Results…I

Financial audit: Financial audit: no loss of revenue: about 2% originally unaccounted no loss of revenue: about 2% originally unaccounted

for; later narrowed to 0.02% in the reconciled audit for; later narrowed to 0.02% in the reconciled audit report (well within the conventional margin of error)report (well within the conventional margin of error)

the system of data keeping was very weak. E.g. in the system of data keeping was very weak. E.g. in some years, CBN showed less revenue in Govt. some years, CBN showed less revenue in Govt. account than companies said they paid; account than companies said they paid;

in other years, CBN had more money in the accounts in other years, CBN had more money in the accounts than companies said they paid than companies said they paid

Office of the Accountant General of the Federation Office of the Accountant General of the Federation (OAGF) not fully in the picture; not in a position to (OAGF) not fully in the picture; not in a position to monitor or control amounts in Federation Account.monitor or control amounts in Federation Account.

Audit Results…IIAudit Results…II

Physical audit:Physical audit: Systematic loss of crude oil between the Systematic loss of crude oil between the

wellhead and the export/metering terminalswellhead and the export/metering terminals Flow rate at night was lower than during the Flow rate at night was lower than during the

day, suggesting theft activities during the day, suggesting theft activities during the hours of darknesshours of darkness

Also some issues with the handling of the Also some issues with the handling of the imports of petroleum products imports of petroleum products

Audit Results…IIIAudit Results…III

Process audit:Process audit: Report flagged some concerns, including:Report flagged some concerns, including:

• discretionary powers of Minister of Petroleum for allocating oil discretionary powers of Minister of Petroleum for allocating oil blocks arising from the Petroleum Act of 1969;blocks arising from the Petroleum Act of 1969;

• Subject to abuse as under the militarySubject to abuse as under the military Concern about use of Local Content Vehicle (LCVs) in Concern about use of Local Content Vehicle (LCVs) in

the 2005 Bid Roundthe 2005 Bid Round Use of strategic downstream investment considerations Use of strategic downstream investment considerations

in the bid round in the bid round Other issues on Petroleum downstream mass balance, Other issues on Petroleum downstream mass balance,

etc.etc.

Remediation MeasuresRemediation Measures

Inter-Ministerial Task Team set up by Inter-Ministerial Task Team set up by President to design remediation President to design remediation strategy for identified lapses in reports.strategy for identified lapses in reports.

Members drawn from all government Members drawn from all government entities involved in the Petroleum entities involved in the Petroleum sector managementsector management

A number of sessions already A number of sessions already convened.convened.

Remediation: CBNRemediation: CBN

Identified flaws & proposed remedies:Identified flaws & proposed remedies: CBN CBN Poor record keeping practices and weak accounting Poor record keeping practices and weak accounting

systems by CBNsystems by CBNProposed measures:Proposed measures: Introduction of robust IT infrastructureIntroduction of robust IT infrastructure An integrated document management system is being An integrated document management system is being

set upset up opened individual accounts to efficiently manage the opened individual accounts to efficiently manage the

different revenue streams it receives different revenue streams it receives Inter-agency committee to ensure convergence of Inter-agency committee to ensure convergence of

information/data by all government entities information/data by all government entities Capacity building Capacity building

Remediation: OAGFRemediation: OAGF

OAGF issueOAGF issue OAGF lacked proper accounting systems and OAGF lacked proper accounting systems and

efficient interfacing with the CBN and NNPCefficient interfacing with the CBN and NNPC Proposed remedial measuresProposed remedial measures

• OAGF working on a program on capacity OAGF working on a program on capacity building with PTDF funding supportbuilding with PTDF funding support

• CBN and NNPC would henceforth advise the CBN and NNPC would henceforth advise the OAGF on all transactions on a daily basisOAGF on all transactions on a daily basis

• Overall, a more empowered OAGF.Overall, a more empowered OAGF.

Remediation Measures: DPRRemediation Measures: DPR

Report noted that DPR lacked capacity to Report noted that DPR lacked capacity to carry out independent assessment of oil carry out independent assessment of oil companies’ royalty liabilities and also companies’ royalty liabilities and also lacked efficient accounting systems.lacked efficient accounting systems.

Proposed remedial measuresProposed remedial measures Skills upgrade; recruitment of right skillsSkills upgrade; recruitment of right skills National Data Repository (NDR) is currently National Data Repository (NDR) is currently

being set up to address issue of poor data being set up to address issue of poor data management.management.

Possible improved funding for DPR, including for Possible improved funding for DPR, including for IT systems upgrade & to improve operating IT systems upgrade & to improve operating equipmentequipment

Remediation Measures: NNPCRemediation Measures: NNPC

The report noted that NNPC’s interfacing with The report noted that NNPC’s interfacing with other government entities other government entities

was not organized and they also lacked proper was not organized and they also lacked proper data keeping systems.data keeping systems.

Proposed remediation measuresProposed remediation measures NNPC to introduce automated software NNPC to introduce automated software

package for data retrieval which would be package for data retrieval which would be released 3rd or 4th quarter of 2007.released 3rd or 4th quarter of 2007.

Accenture was engaged to restructure the Accenture was engaged to restructure the corporationcorporation..

Remediation Measures: FIRSRemediation Measures: FIRS

The audit report noted that FIRS lacked proper The audit report noted that FIRS lacked proper accounting systems & poor record keeping practices.accounting systems & poor record keeping practices.

Proposed remediation measures:Proposed remediation measures: FIRS has embarked on in-house capacity building FIRS has embarked on in-house capacity building

for staff; for staff; Restructuring & recruiting qualified staffRestructuring & recruiting qualified staff IT systems being deployed to improve data IT systems being deployed to improve data

managementmanagement A revised bill on the PPTA Act currently before A revised bill on the PPTA Act currently before

National Assembly to address gray areas in ActNational Assembly to address gray areas in Act

NEXT STEPSNEXT STEPS

Study teams to be set up within each Study teams to be set up within each Government entity, & technical assistance Government entity, & technical assistance would be provided to enhance institutional would be provided to enhance institutional capacitycapacity

N-EITI procuring experts to conduct training N-EITI procuring experts to conduct training for agencies in critical areas of sectorfor agencies in critical areas of sector

Institutionalizing the EITI process (NEITI bill Institutionalizing the EITI process (NEITI bill currently before the National Assembly)currently before the National Assembly)

NEXT STEPS…Cont’dNEXT STEPS…Cont’d Extending the transparency template to the Extending the transparency template to the

Solid Minerals Sector. Solid Minerals Sector. Solid Minerals sector has been largely Solid Minerals sector has been largely

restructured; licenses and leases restructured; licenses and leases revalidated; IT-based mining cadastre now revalidated; IT-based mining cadastre now in placein place

REGULAR DATA RECONCILIATION FOR REGULAR DATA RECONCILIATION FOR ALL RELEVANT AGENCIESALL RELEVANT AGENCIES

Law enforcement to kick in after thisLaw enforcement to kick in after this

LINK WITH POVERTY REDUCTIONLINK WITH POVERTY REDUCTION

Development program spelt out in NEEDS; Development program spelt out in NEEDS; poverty reduction a key elementpoverty reduction a key element

NEEDS Funding gap of about $4 bn p.a.NEEDS Funding gap of about $4 bn p.a. Transparency gives resource envelope, Transparency gives resource envelope,

including for Pro-poor programsincluding for Pro-poor programs Transparency in EI is part of wider reforms; Transparency in EI is part of wider reforms;

implied transparency helps value for money implied transparency helps value for money Information will empower citizens to ask Information will empower citizens to ask

questions about use of resourcesquestions about use of resources

CLOSING THOUGHTSCLOSING THOUGHTS

Nigeria has made substantial progress in Nigeria has made substantial progress in implementing EITIimplementing EITI

Audit work exposed weaknesses; now being Audit work exposed weaknesses; now being redeemedredeemed

Law enforcement to kick in after all honest effort Law enforcement to kick in after all honest effort is made from an accounting and data angleis made from an accounting and data angle

Need to engender culture of accountability in Need to engender culture of accountability in systemsystem

Will help fight against povertyWill help fight against poverty Transparency being pursued as an integral part Transparency being pursued as an integral part

of wider reforms; process is mutually reinforcing.of wider reforms; process is mutually reinforcing.