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 After the letter was leaked to Reuters and a local news site,
Jonathan publicly dismissed the claim and replaced Sanusi, saying
the banker had mismanaged the central bank's budget. A Senate
committee later found Sanusi’s account lacked substance.
Sanusi has since become Emir of Kano, the country's second highest
Islamic authority, and has smoothed over relations with the
president. He declined to discuss his earlier assertions. Before he
was sacked, though, the central banker submitted to Nigeria’s
parliament more than 300 pages of documentation in support of his
claim. Reuters has reviewed that dossier, which offers one of the
most comprehensive studies of waste, mismanagement and what Sanusi
called “leakages” of cash in Nigeria’s oil industry. Detailed here,
the dossier includes oil contracts, confidential government letters,
private presidential correspondence and legal opinions.
Sanusi’s letter and documents do not state whether he thinks the
money was stolen or lost through mismanagement. Nor did he make
allegations of illegal acts against any specific individuals or
entities. Both corruption and bad governance are perennial problems
in Africa’s most populous nation, and central issues in elections
due on Feb. 14.
Nigeria’s oil industry accounts for around 95 percent of the
country’s foreign exchange earnings. If Nigeria continued to leak
cash at the rate described in his letter to the president, Sanusi
said at the time, the consequences for the economy would be
disastrous. Specifically, the failure of state-owned Nigerian
National Petroleum Corporation “to remit foreign exchange to the
Federation Account in a period of rising oil prices has made our
management of exchange rates and price stability ... extremely
difficult," he wrote. "The central bank of Nigeria is always blamed
for high rates of interest,” but “given these leakages, the
alternative is a devalued currency ... and financial instability."
That is exactly what has happened. As oil prices have plummeted to
around $55 a barrel, half their level at the beginning of 2014,
Sanusi’s successor Godwin Emefiele has devalued the naira, Nigeria’s
currency, by 8 percent, and raised interest rates for the first time
in more than two years.
Nigerian foreign exchange reserves are down around 20 percent on a
year ago, while the balance in the country's oil savings account has
fallen from $9 billion in December 2012 to $2.5 billion at the start
of this year, even though oil prices were buoyant over much of that
period. Finance Minister Ngozi Okonjo-Iweala told reporters at a
press conference in November that a significant portion of that
money was distributed to the powerful governors of Nigeria’s 36
states instead of being saved for a rainy day.
Nigerians are rarely shocked by stories of billions going
unaccounted for, or ending up with politically powerful individuals.
Africa’s largest oil producer has for years consistently ranked
toward the bottom of Transparency International’s Corruption
Perceptions Index.
Sanusi handed his documents to a parliamentary inquiry set up last
February to investigate the assertion in his letter that billions of
dollars in oil revenue had not reached the central bank. He told the
inquiry that state oil group NNPC had made $67 billion worth of oil
sales in the previous 19 months. Of that, he said, between $10.8
billion and $20 billion was unaccounted for.
A spokesman for the president declined to comment on the specific
contents of Sanusi’s dossier. He referred to a statement made at the
time the banker was pushed out. It said the government “remains
committed to ensuring integrity and accountability and discipline in
every sector of the economy ... And indeed we look forward to a
situation whereby Mr. Sanusi will continue to assist the legislature
in their investigations.”
Those investigations include a “forensic audit” of the oil industry
set up by Okonjo-Iweala. The audit was given to Jonathan on Feb. 2
and he said he would hand it on to Nigeria’s auditor general. NNPC
said on Feb. 5 it had received a copy of the audit, before it was
made public. The firm said the audit cleared it of wrongdoing,
although it found NNPC owed the government $1.48 billion for a
separate shortfall.
A spokesman for NNPC rejected Sanusi's allegations and referred
Reuters to last August’s Senate inquiry. The inquiry expressed
satisfaction that most of the money not remitted was withheld for
legitimate reasons. But it urged the NNPC to remit $700 million that
the committee said it could not account for.
Diezani Alison-Madueke, the oil minister who oversees NNPC, did not
respond to a request for comment. She told the inquiry at the time
that the correct sum for money not remitted was $10.8 billion, which
was to pay for subsidies.
The NNPC has consistently said it did nothing wrong. The oil company
said last year that Sanusi’s allegations came from his
"misunderstanding" of how the oil industry works. The central bank
is “a banking outfit ... how will they understand petroleum
engineering issues?" then managing director Andrew Yakubu asked
journalists. "They are not auditors."
Sanusi’s claims were seen by some Nigerians as part of the historic
tensions between the country’s wealthy, Christian south and poorer
Muslim north. Jonathan and oil minister Alison-Madueke are
Christians from the oil-producing Niger Delta in the south. Sanusi
is a Muslim from the country’s north, as is Muhammadu Buhari, a
former military ruler of Nigeria who is the main presidential
candidate running against Jonathan. The two regions have
historically taken it in turns to hold the presidency. Since 2009,
though, Jonathan has broken with this tradition.
Sanusi has said any notion there were religious or ethnic politics
behind his allegations is absurd. He has declined to be interviewed
since becoming the Emir of Kano.
But last April, two months after he was sacked but before he took on
his new role, Sanusi told Reuters he worried that the sheer
quantities of cash going missing were “unsustainable.”
 “You are taking what doesn’t belong to you and transferring it to
private hands,” he told Reuters. “The state is captive to vested
interests.”
NO-BID CONTRACTS
Sanusi’s documents identify three key mechanisms through which
Nigeria has allegedly allowed middlemen to channel oil funds away
from the central bank. Among the recipients, Sanusi alleges, are
government officials and high-flying society figures.
The three mechanisms are: contracts awarded non-competitively to two
companies that did not supply services but sub-contracted the work;
a kerosene subsidy that doesn’t help the people it is meant to; and
a series of complex, opaque "swap deals" that might be
short-changing the state.
Sanusi’s concerns around the first of these mechanisms center on the
2011 sale by Royal Dutch Shell of its interests in five oil fields.
The blocks were majority-owned by NNPC. The government, keen to end
the domination of the oil industry by foreign oil majors, had been
encouraging Shell and others to sell to local firms.
Shell sold its interest in the fields to companies in Poland and
Britain. But the new owners did not get the same rights Shell had.
To promote local control, the NNPC gave the right to operate the
fields to its own subsidiary, the Nigerian Petroleum Development
Company (NPDC).
Without soliciting bids, the NPDC signed "strategic partnership
agreements" worth around $6.6 billion with two other local firms to
manage them.
 One firm, Seven Energy, signed for three fields; another, Atlantic
Energy, for two.
Seven Energy was co-founded in 2004 by Kola Aluko, an oil trader and
Christian southerner. Aluko also co-owned Atlantic with another
southerner, former oil trader Jide Omokore. Atlantic was
incorporated the day before it signed the deals.
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Geneva-based Aluko is a high-profile member of Nigeria's elite. He
owns a fleet of supercars, including a Ferrari 458 GT2 that he races
with Swiss team Kessel Racing. He also owns a $50 million yacht,
according to Forbes magazine, and divides his time between a $40
million home in Los Angeles, an $8.6 million duplex on Fifth Avenue
in New York, and homes in Abuja and Geneva. A colleague describes
him as a "work hard, play harder kind of guy. He’s extravagant.
That’s just his style.”
Aluko, whose stake in Seven is now minimal, did not respond to
emailed questions.
Omokore has also become rich from oil and gas. Forbes has estimated
annual revenue at another of his companies, Energy Resources Group,
at $400 million. His jet-setting lifestyle is a regular feature in
the local press. Omokore could not be reached for comment.
Reuters has reviewed the contracts the firms signed with NPDC. They
give Seven Energy 10 percent of profits in the three oil blocks it
operates, while Atlantic gets 30 percent of profits in its two
blocks. The contracts also show that, unlike Shell, neither firm
pays royalties, profit tax or duties to the state.
Both companies quickly sub-contracted production work to other
operators, according to Sanusi's submission to parliament and
several market sources. The companies did not disclose terms of
these contracts.
Atlantic does not publish accounts, but Seven’s 2013 annual report
shows its deal with NPDC helped its revenue more than triple to $345
million.
In May 2013, Nigeria’s parliament threatened to investigate the NPDC
contracts because they were not issued through competitive tender.
But the NNPC argued no tender was needed because the contracts
involved no sale of equity in the oil fields; the probe did not go
ahead.
Sanusi did not accuse Seven and Atlantic of any illegalities, but he
did question why the NPDC chose those companies. His report said the
deals’ only purpose seemed to be “acquiring assets belonging to the
federation (state) and transferring the income to private hands."
Asked about this, NNPC referred to the Senate report, which found
that no-bid partnership agreements are not new. It also said that
"it may be good policy to encourage indigenous players by giving
them greater participation," but called for such deals "to be
conducted in a transparent and competitive manner."
Seven did not comment. It says on its website its agreement with
NPDC pre-dated the Jonathan administration and included an allowance
for taxes. The company says it has invested more than $500 million,
more than doubled production from its three blocks, and paid $48.8
million in taxes in 2013. Atlantic did not comment.
KEROSENE SUBSIDIES
The second mechanism Sanusi’s report identifies as problematic is a
decades-old state subsidy provided to retailers of kerosene, the
fuel most Nigerians use for cooking.
Nigeria lacks the refining capacity to make kerosene, so imports it
instead. The government then sells the kerosene to retailers at a
cheaper price than the import price. This subsidy is meant to make
kerosene affordable for the poor. In reality, though, retailers have
long hiked prices so consumers pay much more than official levels.
In June 2009, Jonathan’s predecessor, Umaru Yar'Adua, ordered a halt
to the scheme on the grounds that it was not working. But the
subsidies carried on regardless. The NNPC told parliament last
February that it still deducts billions of dollars a year from its
earnings to cover it.
In his report, Sanusi called the kerosene subsidy a "racket" that
lines the pockets of private kerosene retailers and NNPC staff. The
report estimated the cost of the subsidy at $100 million a month. It
said kerosene retailers – there are hundreds of them around the
country – routinely charged customers much higher prices than the
government pays to import the fuel.
Sanusi’s report included an analysis of kerosene prices across
Nigeria’s 36 states over two years. It found that the government
buys kerosene at 150 naira per liter from importers and then sells
it to retailers at just 40 naira per liter. Sanusi’s analysis found
consumers pay an average of 170-200 naira per liter, and sometimes
as much as 270 naira.
“The margin of 300 percent to 500 percent over purchase price is
economic rent, which never got to the man on the street,” Sanusi
wrote.
NNPC said in a statement last year that it can't force retailers to
sell kerosene at the subsidized price.
SWAP DEALS
The third mechanism Sanusi identified involves other types of
refined petroleum products, such as gasoline. Like kerosene, these
are also imported. Nigeria is Africa’s biggest oil producer but it
depends on imports for 80 percent of its fuel needs because its
refining capacity is tiny.
To pay for the imported products, Nigeria barters its crude oil.
Sanusi’s dossier focuses on these barter exchanges, which are known
as "swap deals." The idea is that importers who bring in refined
fuel worth a given amount receive an “equivalent value” in crude
oil.
How that equivalent value is determined is unclear. Sanusi said he
was uncertain how much, if anything, is lost in these deals. But he
expressed concern at the sheer value of oil that changes hands and
the lack of oversight. His report estimated that between 2010 and
2011, traders involved in swap deals effectively bartered 200,000
barrels of crude a day – worth nearly $20 million at average crude
prices over the period - for a loosely determined equivalent value
in refined products. It is impossible to tell, he said, if all the
refined products were delivered, let alone if the terms were fair.
“It was clear to us that these transactions ... were not properly
structured, monitored and audited,” he wrote.
Sanusi wrote in his report that mismanagement and “leakages” of cash
in the industry cost Nigeria billions of dollars a year.
Since the price of oil has fallen by around half since the start of
2014, such losses are even more significant. As it approaches
elections, Nigeria faces plummeting oil revenues and a lack of
buffers to shield the economy. Construction projects are on hold and
the government is struggling to pay its sizeable workforce.
Multiple scandals in the oil sector since Jonathan took power have
boosted the popularity of his rival, former military leader
Muhammadu Buhari. Remembered by some for deposing a civilian
government in a 1983 coup and trampling on civil liberties, the
sandal-wearing general often promises to "free Nigeria from
corruption."
Jonathan, too, says he will “clean up” Nigeria. By using technology
and strengthening institutions, “I will solve the problem of
corruption in this country,” he told a crowd in Ibadan in January.
(Edited by Sara Ledwith and Simon Robinson)
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