CONFIDEN TIAL DRAFT the years, the nation s entitlement has decreased as a result of various alternative funding arrangements for its upstream investments.
The Task Force found that legislation governing the industry and agreements with third parties are outdated, do not reflect current economic or legal realities; or include ambiguous clauses. Also, there are some provisions within the legislation that could significantly improve government s revenue that the government is yet to take advantage of. Examples include a provision to ensure that the share of the Government of the Federation in the additional revenue shall be adjusted under the Production Sharing Contracts if the price of crude oil at any time exceeds $20 per barrel; and the requirement for a periodic review of provisions in specified time frames. It was also observed that some traders lifted crude oil although they were not listed on the approved master list of customers who had a valid contract and were selected through an annual bidding process. The Task Force research also found that quite a number of traders did not demonstrate renowned expertise in the business of crude oil trading. Furthermore, the Task Force found that the use of crude oil traders was contrary to the global trend wherein national oil companies develop their own trading arms, such as the various NNPC trading subsidiaries which currently have limited capacity. The Task Force identified various concerns in this area with Nigeria being the world s only major oil producer that sells 100 percent of its crude to private commodities traders, rather than directly to refineries. Various submissions to the Task Force demonstrated the potential for lost margins to middlemen, manipulation of pricing, suboptimal returns and market fraud as emanating from this policy and practice. A review of NAPIMS s audited financial statements as at 31 December 2009 showed that Joint Venture cash calls payable was N459.568billion. Since 2006, government has not allocated enough funds to cover these amounts and NNPC has entered into a range of borrowing arrangements referred to as Alternative Financing Arrangements with the costs of financing this debt (estimated at around 8%) continuously mounting. This cycle will continue to increase in the coming years unless a systemic solution is found. 15