The World Bank has raised concerns over the Nigerian National Petroleum Company Limited’s (NNPCL) ‘’lack of transparency and inconsistent financial reporting,” which it claims has impeded accurate oversight of oil revenue distribution to Nigeria’s Federation Account.
These findings were outlined in the bank’s Accelerating Resource Mobilisation Reforms (ARMOR) Report, released on May 17, 2024.
The World Bank criticized NNPCL’s governance, noting that the company’s reports submitted to the Federal Account Allocation Committee (FAAC) were inconsistent and lacked crucial details, such as pledged revenue specifics, crude oil trade values, actual payments, and receipts from global transactions.
“Non-transparent reporting to the Federal Ministry of Finance (FMF) and FAAC makes it difficult for authorities to oversee NNPCL’s performance,” the report stated.
Additionally, NNPCL’s practice of pledging oil barrels for business deals was flagged. The report highlighted a deal where 35,000 barrels per day were pledged in exchange for a stake in the Dangote Refinery, with a total investment estimated at $5.8 billion as of 2022, yet the declared revenue was reportedly lower than expected.
The World Bank also pointed out that while international oil prices increased by 116% from 2020 to 2023, Nigeria’s net oil revenue to GDP ratio decreased from 2% to 1.8% due to declining oil production and fuel subsidies managed by NNPCL.
The ARMOR report warned that Nigeria’s reliance on oil revenue has made the economy vulnerable, with oil production falling from 1.8 million barrels per day in 2020 to 1.4 million in 2023 due to security issues and underinvestment.
In addition to highlighting these issues, the World Bank urged Nigeria to pursue fiscal reforms to diversify revenue sources and improve non-oil revenue collection.
The Nigerian government is seeking a $750 million loan as part of a broader $2.25 billion package from the World Bank to support its economic reform initiatives. These funds are contingent on measurable progress in increasing VAT collection, corporate tax compliance, and modernizing tax and customs administration.
The ARMOR program aims to bolster VAT collections to 1.8% of non-oil GDP and improve digital tax infrastructure. Despite tax reforms in 2020-2021, Nigeria’s non-oil tax revenue remains low compared to other developing nations. At 7.5%, Nigeria’s VAT rate is the lowest in Africa, falling far short of the Sub-Saharan Africa average of 15.8%.
