Terms of Reference for Consultant services in accordance with the EITI Standard 2013 OIL & GAS ...

264 Pages·2016·7.75 MB·English

APPENDIX 1.2 - TERMS OF REFERENCE

Terms of Reference for Consultant services
in accordance with the EITI Standard

2013 OIL & GAS AUDIT
TERMS OF REFERENCE (SCOPE OF WORK)
Consultancy for the 2013 EITI Report - Nigeria
Approved by the NSWG on 11th December 2013
1. BACKGROUND
The Extractive Industries Transparency Initiative (EITI) is a global standard that promotes
revenue transparency and accountability in the oil, gas and mining sectors. It has a robust yet
flexible methodology for disclosing and reconciling company payments and government
revenues in implementing countries. The EITI process may be extended and adapted to meet
the information needs of stakeholders.
EITI implementation has two core components:
• Transparency: oil, gas and mining companies disclose their payments to the government,
and the government discloses its receipts. The figures are reconciled by a Consultant,
and published in annual EITI Reports alongside contextual information about the oil and
gas sector.
• Accountability: a multi-stakeholder group with representatives from government,
companies and civil society is established to oversee the process and communicate the
findings of the EITI Report.
It is a requirement that the Consultant is perceived by the multi-stakeholder group to be
credible, trustworthy and technically competent (Requirement 5.1). The Consultant’s report will
be submitted to the NSGW for approval and made publically available.
The requirements for implementing countries are set out in the EITI Standard1. Additional
information is available via www.eiti.org
By the EITI rules, implementing countries are required to publish their annual reports for the
period not later than two preceding years. The Oil and Gas Industry Audit 2013 Report must be
published by the end of the 2014 to ensure Nigeria meets the EITI Standard.
To facilitate delivery of the report by November 2014, NEITI has taken the proactive step of
obtaining the relevant data required for the conduct of the assignment. Therefore, Consultants
are expected to reflect in their proposals, methodology and timelines for completing the Audit
by November 2014.
EITI Implementation in Nigeria
Nigeria signed up to the EITI in 2003, implementation began on 16th February 2004 when NEITI
was established as part of the overall economic reform programme agenda of the Obasanjo
Administration at the time. For details of Nigeria’s sign up to the EITI, the functions, methods,
processes and benefits of NEITI, please visit our Website www.neiti.org.ng
NEITI implementation of EITI in Nigeria began with legislation - the NEITI Act of 2007. This law
was the first pillar in the institutionalization of NEITI and EITI process in Nigeria. It also made
Nigeria the first country to back the process with law. The NEITI Act 2007 is today a reference
point in all advocacy, public agitation and demand for transparency in the extractive sector in
Nigeria.
2. OBJECTIVES
On behalf of the Nigeria Extractive Industries Transparency Initiative (NEITI) and NSWG, the
NEITI seeks a competent and credible firm to provide Consultancy services in accordance with
the EITI Standard. The objective of the assignment is to produce an Audit Report for 2013 in
accordance with the NEITI Act.
Other additional objectives of the assignment include:
1. Report on the quantities of hydrocarbons (oil and gas and refined product, including
condensate where appropriate) produced, exported and utilized/imported in a manner,
which is insightful, and of such integrity as to be reasonably relied upon by NEITI and to also
make recommendations on any issues arising in the course of conducting the work.
2. To report on the revenue flows and investment flows amongst the Covered Entities, as more
fully described below, with transactions made by participants (both public and private) in
Nigeria’s oil and gas industry.
3. To undertake special verification work on certain classes of transactions
4. To report on balances payable / receivable at the end of the audit period for certain
financial flows
5. To reconcile the physical/financial transactions reported by payers and recipients as
appropriate, as per the scope set out herein.
3. Scope of Work
The Consultant shall:

1. Develop, as necessary, template reporting structures for utilization by either public or
private entities; and

2. Assess the volumetric aspects of production, liftings, utilization/exports, imports,
unaccounted oil and gas, and other relevant streams.

3. The Consultant shall validate information collected on allocation of licenses including
transfers and map showing license and other related information

4. Review all licensing processes and beneficial ownership and to report on the signature
bonuses attributable. This includes Nigeria Sao Tome & Principe from the Joint Development
Zone (if any).

5. Validate information on beneficial ownership from SOE – State Owned Enterprise (NNPC),
Midstream, Downstream companies, JVs – Joint Venture companies and PSCs – Production
Sharing Contract companies. For this purpose, the NSWG has agreed that the beneficial
ownership shall be a minimum of 5-(five) per cent. The consultant should indicate whether
the companies are registered in Nigeria or abroad; whether they are publicly quoted or not
(in Nigeria or abroad). The consultant shall specifically obtain from NLNG their ownership
structure including the names of Beneficial Owners. This should be confirmed to the CAC
records.

6. Obtain description of government policy on Contracts disclosure. The information obtained
should include MOUs, Side Letters, Contracts, Farm-in Agreements and other relevant
documents including marketing contracts for crude oil, and swap agreements

7. Analyse, and reconcile the physical, financial and related information pertaining to the
revenue flows, investment flows, and such other transactions which affect such flows
amongst and between the Covered Entities;

However, activities and entities involved in the petrochemical industry (e.g. refineries,
chemicals production), or the processing of crude oil and gas are not within the scope of
work but such entities are required to confirm their relevant stocks, receipts from and
inputs to the oil and gas sector.

8. Report on NNPC’s share in export sales and domestic crude and circularize NNPC trading
partners to independently confirm NNPC’s volume and values of export and domestic sales.
9. Validate data obtained on revenue flows from the oil and gas industries detailing all
payment streams made by all Covered Entities to any Federation (Federal Government,
State Government, or Local Government) entity, including to / by NNPC. In addition, this
detailing is to encompass certain calculations that underlie the calculation of payments,
fees, taxes and royalties owned by private or public sector companies.

10. Validate investment flows involving Government payments by way of Joint Venture
investments, loans (including loan repayment), and equity investment transactions including
dividends paid or received by Covered Entities, cost and profit oil transactions. Otherwise,
the Consultant should report that the figures have not been confirmed.

11. Build upon the analysis, findings and recommendations of the previous audit

12. Confirm data obtained about all information on Social Expenditures as mandated by Law or
in Contract.

13. Validate information obtained on all Quasi-Fiscal Expenditure from NNPC such as fuel
subsidy, security, SURE –P etc.
14. Corroborate information collected on material arrangements involving provisions of goods
and services (including loans and grants and infrastructure works) in exchange for oil or
production concessions or physical delivery of such commodities.

15. Report royalties on a Project-by-Project basis. The NSWG defines a project as a license for
each OPL / OML.

16. Provide recommendations leading to standardized reporting methodologies which enhance
industry-wide reporting, sector analysis, and transparency

17. Provide both on and off the job training to the Secretariat Staff involved in the conduct of
the assignment with a view to building capacity and enhancing efficiency of future audits.

18. The Consultant will report in writing to the Client every month on progress made in
completing the work plan.

19. The Consultant’s final deliverable is to be titled – “Financial, Physical and Process Audit: An
Independent Report Assessing and Reconciling Physical and Financial Flows within
Nigeria’s Oil Industry and Gas Industry – 2013”.

20. The Consultant shall offer, to the extent applicable and/or necessary, recommendations for
improvements it finds or believes may improve the efficiency of the sector, or the
effectiveness of Government procedures for managing the sector, or any other such matter
the Consultant may consider pertinent.
It is noted that, for purposes of establishing the scope of work under these Terms of
Reference, Consultant is not obligated to undertake such tasks or activities necessary to
implement such recommendations, if and when proffered. Any such remedial actions
pursuant to these recommendations, if any at all, shall be pursuant to separate written and
mutual agreement between the Client and Consultant.

4. The EITI Reporting process
The EITI reporting process has five phases (see figure 1). The Consultant’s responsibilities in
each phase are elaborated below.
Figure 1 – Overview of the EITI Reporting process and deliverables

Based on previous NEITI Reports, the NSWG’s expectation is that the NEITI Report will cover
payments of PPT, Royalty, Signature Bonus, Rentals, PAYE, EDT, Crude Sales, NDDC Levy, WHT
and CIT made by all covered entities and receipts by the relevant government agencies.
Phase 1 – preliminary analysis and inception report
The objective of the first phase of work is to clearly establish the scope of the EITI reporting
process, the reporting templates, data collection procedures, and the schedule for publishing
the EITI Report. The findings from this first phase shall be documented in an inception report.
The Consultant is expected to undertake the following tasks:
1. The Consultant shall review the relevant background information, including the
governance arrangements and tax policies in the oil and gas industries, the findings from
any preliminary scoping work (if any), and the conclusions and recommendations from
previous NEITI Reports and Validations.
2. The Consultant shall submit a proposed contextual framework for reporting, ensuring
that it conforms to the EITI standard. Additional information on proposed approach to
collating contextual information is as seen below:
Contextual information to be provide in the EITI Report Commentary on work to be undertaken by
the Consultant
A description of the legal framework and fiscal regime Analyse various contractual arrangements and
governing the Oil and Gas industry (Requirement 3.2) relevant regulatory agencies. i.e.
DPR,NNPC,FIRS,etc.
An overview of the Oil and Gas industry, including any Reports on existing acreage and noteworthy
significant exploration activities (Requirement 3.3) developments in the Oil & Gas Sector.
Where available, information about the contribution of Reports on contributions of the Oil and Gas
the Oil and Gas industries to the economy for the fiscal Sector to National Development
year covered by the EITI Report (Requirement 3.4)
Production data for the fiscal year covered by the NEITI Report on Production and Export data.
Report (Requirement 3.5)
Information regarding state participation in the Oil and Report on cash call, and any other quasi-fiscal
Gas industries (Requirement 3.6) expenditure.
Distribution of revenues from the oil and gas industries The consultant should refer to the distribution
(Requirement 3.7); of revenues accruable from the sector for the
period under review.
Any further information requested by the NSWG on Additional Information as may be relevant to
revenue management and expenditures (Requirement the audit for the year under review as per Oil
3.8) and Gas revenue management. e.g. SURE-P
Information on the licencing process and register Bid Process and Signature Bonus Report
(Requirement 3.9) and the allocation of licenses
(Requirement 3.10)
Any information requested by the NSWG on beneficial Report on beneficial ownership of companies.
ownership (Requirement 3.11)
Any information requested by the NSWG on contracts Reports on concession contracts. JVs, PSCs etc
(Requirement 3.12)

[Add any other contextual information that the NSWG has
agreed to provide]

3. The Consultant should review the taxes and revenues to be covered in the NEITI Report
in accordance with the EITI Requirement 4 as listed below:
I. The revenue streams to be reviewed are:
➢ Crude sales (export and domestic)
➢ Petroleum Profits taxes.
➢ Royalties.
➢ Dividends.
➢ Bonuses, such as signature, discovery and production bonuses.
➢ License fees, rental fees, entry fees and other considerations for licences and/or
concessions.
➢ Any other significant payments and material benefit to government.
II. The sale of the Federation’s share of production or other revenues collected in-kind.
Where the sale of the state’s share of production or other revenues collected in-kind is
material, the government, including state-owned enterprises, are required to disclose
the volumes sold and revenues received. The published data must be disaggregated to
levels commensurate with the reporting of other payments and revenue streams
(Requirement 5.2.e). Reporting should also break down disclosures by the type of
product, price,production share, contract type, vessel,and market and sale volume. The
Consultantshall reconcile the volumes sold and revenues received by including the
buying companies in the reporting process.
III. Coverage of infrastructure provisions and barter arrangements. The Consultant is
required to consider whether there are any agreements, or sets of agreements involving
the provision of goods and services (including loans, grants and infrastructure works), in
full or partial exchange for oil or production concessions or physical delivery of such
commodities. The Consultant need to gain a full understanding of: the terms of the
relevant agreements and contracts, the parties involved, the resources which have been
pledged by the state, the value of the balancing benefit stream (e.g. infrastructure
works), and the materiality of these agreements relative to conventional contracts.
Where the consultant concludes that these agreements are material, they are required
to ensure that the Audit Report addresses these agreements, providing a level of detail
and transparency commensurate with the disclosure and reconciliation of other
payments and revenues streams. Where reconciliation of key transactions is not
feasible, the consultant should agree an approach for unilateral disclosure by the parties
to the agreement(s) to be included in the Audit Report.
IV. Coverage of social expenditure. Where material social expenditures by companies are
mandated by law or the contract with the government that governs the oil and gas
investment, the Audit Report must disclose the transaction(s).
➢ Where such benefits are provided in-kind, it is required that the Audit Report
discloses the nature and the deemed value of the in-kind transaction. Where the
beneficiary of the mandated social expenditure is a third party, i.e. not a government
agency, it is required that the name and function of the beneficiary be disclosed.
➢ Where reconciliation is not feasible, the Audit Report should include unilateral
company and/or government disclosures of these transactions.
➢ Where the Consultant agrees that discretionary social expenditures and transfers are
material, the Consultant is encouraged to develop a reporting process with a view to
achieving transparency commensurate with the disclosure of other payments and
revenue streams to government entities. Where reconciliation of key transactions is
not possible, e.g. where company payments are in-kind or to a non-governmental
third party, the Consultant group may wish to agree an approach for voluntary
unilateral company and/or government disclosures to be included in the EITI Report.
4. The Consultant should review the companies and government entities that are required
to report as defined by the NSWG as listed in item (iii) below and in accordance with
EITI Requirement 4.2The inception report should:
i. Identify and list the companies that make material payments (cash or in-kind) to
the state. The consultant shall cover only entities that have produced oil or gas or
made any payment to the federation in the period under review (1st January to 31st
December, 2013). Specifically, the audit shall exclude all entities without financial or
production flow to the federation during the period under review
ii. Materiality Standard for Aggregate Reporting and Reconciliation. The Consultant
shall conduct such investigatory and audit services as are necessary to enable public
reporting upon the aggregate revenue and investment flows to the Federation to a
materiality level of zero point five percent (0.5%) of the annual total (meaning, that
the permissible margin of error for aggregate reporting by the Consultant is to be
less than zero point five percent of the aggregate value of all flows encompassed
within the audit’s scope), otherwise the Consultant shall report that the data has not
been confirmed. The consultant shall cover only entities that have produced oil or
gas or made any payment to the federation in the period under review (1st January to
31st December, 2013). Specifically, the audit shall exclude all entities without
financial or production flow to the federation during the period under review. All
financial flows (excluding PAYE, VAT, WHT and CIT) of $5 million and above shall be
reconciled subject to a net reconciliation difference of 0.5% for the aggregate value
of total financial flows and total physical flows.
iii. The Audit Report must provide a comprehensive reconciliation of government
production, revenues and company payments, including payments to and from
NNPC, in accordance with the agreed scope. All companies making material
payments to the government are required to comprehensively disclose these
payments in accordance with the agreed scope. An entity should only be exempted
from reporting if it can be demonstrated that its production, payments and revenues
are not material. All government entities receiving material revenues are required to
comprehensively disclose these revenues in accordance with the agreed scope.
iv. The following Government Entities that receive material payments will be required
to report in accordance with item (i) above:
➢ The Office of the Accountant General of the Federation;