NNPC's "Blank Check," the PwC Nigeria Audit, and Upcoming Research from NRGI

This week, the Nigerian government released a PriceWaterhouseCoopers (PwC) audit report about the financial flows between the national oil company and the country's treasury. The document joins a long list of reports that reach a common conclusion: the Nigerian National Petroleum Corporation (NNPC) is broken, and requires urgent overhaul. PwC didn't mince words: NNPC, the auditors wrote, has a "‘blank' cheque to spend money without limit or control. This is untenable and unsustainable and must be addressed immediately."

The Nigerian government hired PwC to look into the allegations of former central bank governor Lamido Sanusi, who raised questions about NNPC's revenue remittances to the treasury. Sanusi initially said $49.8 billion was unaccounted for between January 2012 and July 2013, but later revised the figure down to $20 billion; a government committee said the figure was $10.8 billion.

By PwC's reckoning, from January 2012 to July 2013, NNPC received $69.34 billion in revenue from oil sales. Of this amount, it transferred $50.81 billion to the treasury and retained $18.53 billion. The PwC report includes NNPC officials' explanation for retaining this amount, and therefore concludes that there are no "missing" funds. But the real questions underlying the various reports and allegations are:

• Did NNPC collect the maximum value possible in exchange for the volume of crude it managed?

• Was the amount NNPC retained appropriate and justifiable, or does the company owe the treasury money?

Like other reports that examine Nigerian government oil sales – whether from the Nigerian Extractive Industries Transparency Initiative (NEITI), special committees like the 2012 inquiry led by former corruption prosecutor Nuhu Ribadu, or the KPMG report on NNPC that leaked in 2011 – the PWC audit contains some important data, raises further questions, and suffers from enormous blind spots.

Most usefully, the audit shows the scale of discretionary spending by NNPC. The company decides unilaterally how much money to retain from sale of its "domestic crude allocation," the 445,000 barrels per day of oil that are supposed to feed the nation's refineries but, in practice, flow in many directions.

On average, the treasury never saw almost half of the value of every barrel of domestic crude sold to NNPC. For instance, NNPC told PwC auditors that it retained domestic crude earning to cover $1.5 billion in salaries, $480 million in "monthly operations", and $810 million on "other third party payments (including training course fees, estacode, and consultancy fees)."

The PwC report also sheds light on several troubling ways that NNPC's upstream subsidiary, the Nigerian Petroleum Development Company (NPDC), costs the nation money. NNPC sold its shares in several joint venture licenses to NPDC. NNPC valued these assets at $1.85 billion, and NPDC has so far paid $100 million towards this amount. PwC, however, estimated the value of these assets at $3.4 billion. Adding insult to injury, NPDC apparently did not pay NNPC or the treasury any dividends on over $5 billion in oil sale revenues from its producing blocks.

Other parts of the report raise (but don't necessarily answer) important questions. The most fundamental question raised is whether the current revenue retention practices of NNPC and NNPC subsidiaries are constitutional – a critical line of inquiry that requires clarity once and for all. In other areas, citing "insufficient supporting documents," PwC could not verify NNPC executives' claim that the company spent $305.8 million on pipeline maintenance; nor could auditors learn anything about an opaque arrangement to transport oil to NNPC refineries by ship. Auditors uncovered cases in which NNPC apparently underpriced some of the oil it sold. It seems the corporation may also have underreported its oil sale earnings to the Federal Accounts Allocation Committee (FAAC), the government body that allocates Nigeria's revenue receipts each month.

The PwC report does not touch many of the claims Mr. Sanusi presented to parliament last year. For example, the former central bank governor presented preliminary evidence that NNPC's controversial crude-oil-for-refined-product swap deals with private commodities traders "were not properly structured, monitored and audited." He also raised issues with the goals, management and probity of the strategic alliance agreements (SAAs) that NPDC signed with two local companies to help finance its operations.

Due to its limited terms of reference and inability to access key information, the PWC report is more of a revenue reconciliation exercise and not a forensic audit. The firm relied mostly on documents (from NNPC and other agencies) that that it didn't—or in some cases, couldn't—authenticate. At times NNPC did not grant auditors access to the data or people they for which they had asked. Most notably, PwC staff were unable to talk with anyone from the NPDC subsidiary. At the front of their report, PwC authors included among the many caveats a statement that their work was not "in accordance with generally accepted auditing standards or attestation standards," and that it could not vouch for "the information upon which [their] work was based."

These limitations notwithstanding, the PwC report is a useful document, and president Goodluck Jonathan's administration deserves praise for publishing it. But it is far from the last word on the governance of NNPC oil sales, and throws yet another set of inconclusive figures into the fray. These latest auditors took pains to explain why some of their numbers don't match others from past investigations, but their report will not put the controversy to bed. President-elect Muhammadu Buhari already has said he'll probe the "missing" $20 billion.

Only NNPC reform can break the cycle of allegations and counter-allegations. In June, we at NRGI will release new research on NNPC oil sales that will hopefully contribute to this pivotal transition. Drawing on several years of primary research, the release will offer fresh, in-depth analysis that goes beyond current reports. It will provide new findings on some of the problematic practices in NNPC's oil sales system, including the oil-for-product swaps, the SAAs, and the striking dysfunction and complexity of domestic crude allocations. More importantly, it will offer specific and forward-looking ideas for tackling NNPC reform that are grounded in detailed assessments of what currently goes wrong.

When it comes to oil revenues, what Nigeria needs most right now is not a definitive number for NNPC's debts to the treasury, nor a final rebuttal to Mr. Sanusi. The country is facing a global oil price slump, shifting demand for its crude, and steep development needs of its young, fast-growing population. Any future audit of oil sales should be followed quickly by decisive actions that help Nigerian citizens get full and fair value for what is ultimately their crude.

Alexandra Gillies is the director of governance programs at the Natural Resource Governance Institute (NRGI). Aaron Sayne is an independent consultant and Nigeria specialist.