According to the latest report by the Auditor General of the Federation, two agencies that oversee Nigeria’s petroleum industry failed to properly account for over N313 billion, and as a result, the government lost money.
The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) are the two petroleum organisations named in the report.
As interim observations, the findings in the auditor general’s most recent audit report from 2021 require the regulators to give the auditor general an explanation. The auditor general stated that some of their explanations were unworkable, even in instances where they offered justifications.

In addition to regulatory shortcomings, the report documented a lack of respect for due process and accountability standards.
The NUPRC and NMDPRA were found to have mainly unaccounted for N309 billion and $2.28 billion, respectively, in 2021.
The two agencies were founded in August 2021 after the Petroleum Industry Act was signed into law by then-President Muhammadu Buhari. Gbenga Komolafe was named the first CEO of NUPRC in September 2021 and continues to serve in that capacity, while Farouk Ahmed was named the first CEO of NMDPRA in September 2021 and continues to serve in that capacity. Therefore, the violations took place when both men were managing the agencies.
The unaccounted-for funds consist of unpaid royalties, unpaid bridging allowances, and atypical balances in marketers’ debt records.
Concerning Production Sharing Contracts (PSC), Repayment Agreements (RA), and Modified Carry Arrangements (MCA) liftings, the Nigerian National Petroleum Corporation Limited (NNPCL) owed $1.65 billion in royalties to the Department of Petroleum Resources (DPR) CBN account as of December 31, 2021.
However, DPR only received $1.4 billion of the $1.65 billion that was anticipated to be received, leaving a $254 million balance as outstanding royalties for the period under reference. The auditors noted that no explanation was given for the non-collection of the revenue arrears.
Financial Regulation (FR) Paragraph 227(i) states that “Accounting Officers who are responsible for the collection of revenue will furnish annually a Return of Arrears of Revenue due at December 31 in each year that remains uncollected by the following 31 March.”
Failure to collect revenue is a violation of this provision. Three copies of the return must be prepared and filed by May 31; one copy will be delivered to the auditor-general and the accountant-general, and the third will be kept for records. Whenever there is no unpaid revenue, a NIL return ought to be filed. For the benefit of the Public Accounts Committee, the accountant-general will include a list of these departmental returns in his annual report.
Additionally, according to paragraph 227(ii) of the FR, “Accounting Officers are responsible for following up on unpaid revenue items and taking all necessary steps to ensure collection or, if the collection is no longer possible, applying to the Ministry of Finance for authority for a write-off, explaining the circumstances.”

The auditor general is concerned that this approach has caused the government to lose money and has made it harder to finance the budget for 2021.
In response to the auditor general’s inquiry, NUPRC stated that $224 million of the $29.6 million in unpaid income owed from NNPC-COMD MCA/PSC as of December 31, 2021, had been paid.
To guarantee that the $29.6 million that is still owed is paid, the management further stated that it is working with the NNPCL.
Auditors claimed that the management’s response, however, did not fully address the matter at hand (i.e., recovery of outstanding royalties owed from the NNPC-COMD MCA/PSC). In light of the $29.6 million that was not collected, the conclusions are still relevant.
The Chief Executive of NUPRC (CCE) should retrieve the $29.6 million in unpaid royalties from NNPCL for 2021 and transfer them to the Federation Account, according to the auditor general’s recommendation.
According to the auditors’ review of NNPC JV schedules and other records, the state oil company withheld N204 billion from the oil royalty determined by the DPR for 2021.
Among the deductions made by NNPCL are losses from products and crude oil, strategic holding costs, and priority projects.
According to the auditor general, no explanation was given for the NNPCL’s deduction of royalties before repatriation. Additionally, the conduct violates Nigeria’s Constitution’s Section 162 (1).
The NNPCL deducts government priority projects at the source before sending royalties to NURPC, and NUPRC has no control over this, the NUPRC responded. As a result, NNPCL is better equipped to offer the required authorisations to support these deductions.
The regulator clarified that NNPC’s deduction of 4% of the cost of revenue collection from NURPC for government priority projects has been fully documented by the Office of the Accountant General of the Federation.
The auditor general, however, rejected the NURPC management’s answer, claiming it did not resolve the matter at hand (i.e., NNPC’s recovery of unwarranted deductions from Joint Venture Royalty).
After receiving this directive, the auditor general instructed the NUPRC CCE to retrieve the N204 billion and deposit it into the Federation Account. Additionally, he stated, “The CCE should make sure that operators in the industry do not deduct any amounts that are due for the Federation Account going forward.”
According to the Revenue Ledger review for 2021, audited papers showed that, as of the end of December 2021, certain oil corporations had yet to pay oil royalties totalling $1.74 billion.
As of December 31, 2021, auditors reported that N48.2 billion in arrears for gas royalty (local) and $13.8 million in revenue related to foreign royalty on gas sales were yet unpaid.
Twenty-three operators also failed to pay $496 million in unpaid Federation Account revenue related to the Gas Flare Penalty, and 17 oil corporations owed $7.68 million in unpaid concession rentals for 2021, according to the study.
The report stated that these enterprises’ failure to pay oil royalties in 2021 was a violation of current financial norms and a denial of vital money to the Federation account. It further stated that the aforementioned irregularities might be ascribed to flaws in NUPRC’s internal control system.
According to NUPRC’s response to this particular issue, the oil industry’s operations are set up so that, in most cases, there are delays of between sixty and ninety days before operators are expected to make payments from the assessed oil revenue.
The NUPRC stated that it is making every effort to guarantee that operators pay their federation dues as soon as they become due and payable, under current legislation and industry operational norms, notwithstanding the delays.
According to the agency, it has taken note of the auditor general’s suggestion and is working hard to make sure the whole sum is recovered as suggested.
The impacted operators have received letters, and payments are presently being made. The NUPRC stated that between January and August 2022, operators paid a total of $4.9 billion and N494 billion, which accounted for a significant portion of the 2021 outstanding and current 2022 dues.
“It has been customary to properly account for any payments of unpaid royalties and other fees from the operation to the Federation. The NUPRC already has an internal control system in place, but auditors’ comments and suggestions for enhancements have been taken into consideration for implementation.”