The World Bank has raised concerns about the Nigerian National Petroleum Company Limited’s (NNPCL) reporting practices, highlighting inconsistencies and a lack of crucial financial details in submissions to the Federal Account Allocation Committee (FAAC).
The critique was detailed in the World Bank’s May 2024 report on “Accelerating Resource Mobilisation Reforms” (ARMOR).
According to the World Bank, reduced net oil revenues and the opaque governance structure of NNPCL are key obstacles to effective transmission of oil earnings to Nigeria’s federal treasury.
“Non-transparent reporting to the Federal Ministry of Finance (FMF) and the Federation Account Allocation Committee (FAAC) makes it difficult for the authorities to oversee NNPCL’s performance, calculate anticipated oil and gas revenues, and determine the difference between revenues received by the Federation and NNPCL’s total revenue,” the report stated.
The World Bank cited gaps in NNPCL’s FAAC reports, specifically a lack of detail on pledged revenues, the tradeable value of crude oil, actual payments, and receipts from international sales.
The report also criticized the company’s quasi-fiscal activities, including in-kind revenue reporting and direct cost deductions that reduce contributions to the Federation Account.
A case highlighted by the World Bank involved NNPCL’s pledge of 35,000 barrels of crude oil per day for a 20% stake in the privately-owned Dangote Refinery. Although this deal was initially valued at $5.8 billion by year-end 2022, NNPCL’s reported revenue fell short of expectations, raising transparency concerns.
The ARMOR report also discussed Nigeria’s ongoing fiscal reforms, including the government’s aim to boost non-oil revenue through improved VAT collection, higher excise taxes, and enhanced corporate tax compliance.
Despite recent improvements, Nigeria’s tax revenues remain low. In 2023, non-oil tax revenue increased to 3.7% of GDP from 2.3% in 2020, partly due to higher VAT rates and digitalization of tax systems.
However, VAT revenues, at only 1.2% of GDP in 2022, are significantly below global benchmarks, with Nigeria’s current VAT rate of 7.5% trailing the African average of 15.8%.
Corporate tax revenue is similarly constrained by a narrow tax base, discretionary expenditures, and low excise taxes.
The World Bank suggested modernizing Nigeria’s tax and customs administrations to enhance efficiency and broaden the revenue base, underscoring the need for ongoing reforms to address fiscal challenges and improve Nigeria’s economic resilience.
