Post on 10-Aug-2020
TERMS OF REFERENCE
FOR
COMMODITY TRADING REPORTING
IN NIGERIA
14th SEPTEMBER, 2017
1.0 BACKGROUND
The Federal Government of Nigeria (FGN) embraced the Extractive Industries Transparency
Initiative (EITI) in 2004 as a major component of the anti-corruption reform in Nigeria which
ensures that revenues from the extractive sector contribute towards sustainable development.
More details on the EITI as well as the NEITI can be found at www.eiti.org and www.neiti.gov.ng
respectively. Nigeria was the first EITI-implementing country with a statutory backing for its
operations by passing into law the Nigerian Extractive Industries Transparency Initiative (NEITI)
Act 2007 which empowers NEITI Secretariat as government body that carries out mandatory
annual audits of the extractive industries and allocates to it a broad range of mandates. A key
one amongst these mandates is to ensure conformity with the principles of the EITI.
In 2013, the Extractive Industries Transparency Initiative (EITI) moved to require the disclosure
of information about the sale of the state’s share of production of oil, gas and minerals, and
further clarified this requirement in the 2016 version of the EITI Standard. The requirement
focuses on improving transparency in the sale of the state’s share of production by
government and SOEs, which this guidance refers to as “first trades”.
The 2016 EITI Standard includes provisions requiring disclosure of the sales of the state’s share
of production and other ‘in-kind’ revenues (EITI Requirement 4.2): “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.” According to this requirement, all material commodity sales by SOEs or other
government agencies related to the government’s share of production or other revenues
collected in kind must be disclosed in the EITI Report, including exports sales as well as sales to
domestic buyers and refineries. The Report will also include sales of petroleum products
produced/sourced through domestic crude allocation. This would require that state-owned
enterprises (SOEs) will disclose the volumes of commodities sold and the revenues received,
broken down by buying company. The EITI requirements further states that “the published
data must be disaggregated by individual buying company and to levels commensurate with
TERMS OF REFERENCE
COMMODITY TRADING REPORTING IN NIGERIA
the reporting of other payments and revenue streams” (EITI Requirement 4.7). The Report will
further break down disclosures by the type of product, price, market, blend and sale volume.
Where practically feasible, the multi-stakeholder group is encouraged to task the Independent
Administrator with reconciling the volumes sold and revenues received by including the buying
companies in the reporting process.
NEITI has conducted Seven (7) cycles of Oil & gas audit covering the periods (1999-2014), which
has consistently reported on details of ‘first trades’1 from the Nigerian SOE2 records in its audit
reports. NEITI reports typically include records of cargo-by-cargo lifting of crude oil, bill of
lading date, , trading company, crude type, quantity lifted, unit price, crude value, L/C number,
pricing option adopted, API3 and destination. In the 2013 Oil and Gas Audit, NEITI took it a step
further and wrote to the trading companies requesting for trading data/information in order to
reconcile the records between the trading parties. Presently, the Nigerian SOE publishes
production, lifting and sales values in aggregates but does not disclose details on off-takers and
the beneficial owners operating in commodity trading.
NEITI has recognized the gap in meeting these EITI requirements (4.2, 4.7) and thus seeks to
bridge these gaps in accordance with meeting the aforementioned EITI requirements. Against
this background, NEITI intends to engage the services of a consultant(s) to produce a
Commodity Trading Report that would give an in-depth analysis on commodity trade4 reporting
in Nigeria.
2.0 PROJECT OBJECTIVE
The primary objective of the assignment is to produce an adequate and comprehensive
Commodity Trading Report on disclosure of information on revenue from the sales of the
government/states share of production of oil, gas and other petroleum products including
reporting by product, price, market and sales volumes, as well as validating and reconciling
1 According to EITI, this refers to the sale of the state’s share of production of oil, gas and mineral(commodity) by government and SOEs 2 SOE- State-Owned Enterprises 3 API gravity - The American Petroleum Institute gravity is a measure of how heavy or light a petroleum liquid is compared to
water 4 Commodity trading in this report refers to trading in Crude oil, gas and other petroleum products
same data with data reported by trading companies in accordance with the relevant EITI
requirements (Requirement 4.2). The Report will establish whether or not government receives
a share of proceeds commensurate with expected market value from all commodity trade
transactions and that the process of transfer of proceeds to the budget is also transparent and
accountable.
3.0 SCOPE OF WORK
The Commodity Trading Report shall cover government’s share of Crude oil, gas and other
petroleum products. The Consultant is expected to undertake the following tasks;
1. Collect, review and analyze data on;
➢ All volumes of government equity crude oil (including condensate) and gas
from all production arrangements. This will include crude allocated for
export and domestic allocation;
➢ All volumes of in-kind revenues received by the government or any of its
agents;
➢ All volumes of petroleum products produced/sourced through domestic
crude allocation;
➢ All marketing contracts for the sales of government equity crude oil and gas
for the period. This will also include sale of in-kind revenues identified above;
➢ All marketing contracts and other related agreements for the sale of
petroleum products produced/sourced through domestic crude allocation;
➢ All liftings of government equity crude oil (including condensate) and gas
from all production arrangements; and
➢ The Consultant shall ensure full correlation between the physical and
financial audits in this respect as it pertains to government equity crude
traded by the SOE
2. The Consultant shall present a clear description of the flow of funds into and out of the
Federation account. The Report will review;
➢ Interest/Investment by the Federation in the oil and gas industry including
cash calls, loans or loan guarantees extended by SOE with the objective of
assessing the impact of any such transactions on government share of
proceeds;
➢ The process of transfer of all income to the Federation from sales of crude oil
and gas (including authorizations for any deductions made therefrom). This
will also include transfers to other government agencies or accounts;
➢ The prevailing rules and practices related to SOEs retained earnings,
investments and reinvestments;
➢ Provide explanation on how exchange rate is determined and what exchange
is used when transfers involve multiple currencies (instances where sales are
made in dollars but transfers to treasury are made in Naira); and
➢ Provide explanation on Quasi fiscal expenditures where SOE undertake public
social expenditure such as payments for social service, public infrastructure,
fuel subsidies, national debt servicing outside of the national budgetary
process
3. On the process of pricing federation equity crude oil and gas, the Consultant shall
undertake;
➢ A review of the procedures for price setting of equity crude oil (including
condensates;
➢ A review of the process of how buyer/trader determine their proposed
purchase price (price it offers in tenders);
➢ A review of crude sales to the Nigerian SOE and its subsidiaries;
➢ A review of the procedures for pricing of gas (including feedstock);
➢ An assessment of whether or not Nigeria succeeded in realizing revenues
from sales of all its commodities in a manner that is consistent with market
conditions.
4. On payments made in-kind, the consultant shall;
➢ Document the processes for recording in-kind transactions by all parties and
summarize such transactions, identifying the contractual arrangements
under which they were executed;
➢ Report the financial value assigned by each party to the in-kind transfer and
shall report it separately, showing how the in-kind transfer was dealt with by
the recipient and any related financial flows and in particular, a confirmation
as to how the net of the crude proceeds and the initial liability were
reconciled and cleared;
➢ For this purpose, any Covered Entities that are party to contracts under
which in-kind transfers are made shall be required by the Consultant, to
make available all contractual documentation applicable to the transfer and
their complete calculations of the quantities transferred including a complete
analysis of the allocation of production and supporting detailed explanatory
calculation of cost oil, carry oil and profit oil.
5. The Consultant shall also provide contextual information as described below;
5.1 An assessment of the legal and regulatory framework for commodity trading in
Nigeria
➢ Discussion on current issues relevant to the trading of Oil & gas in Nigeria
and how the information in the Commodity Trading Report can address these
problems and be aligned with ongoing reforms in the sector;
➢ Provide an analytical review of the present situation of commodity trading
reporting and guidelines in Nigeria;
➢ Identify existing gaps, issues and weakness that could be strengthened to
ensure transparency in commodity trading reporting of oil & gas sector;
➢ Information regarding best practices in commodity trading reporting that
could be used as the basis for advocacy and stakeholder engagement;
➢ Identify other oil-producing countries with a transparent and comprehensive
commodity trading reporting system which Nigeria could benchmark and
model their guidelines towards.
5.2 A description of all production arrangements in the Industry;
➢ Describe the shares between the NOC and its partners hold for the respective
production arrangement, and how cost and profit oil allocations are determined
among those partners.
➢ Provide details on the type of oil and the NOC sales, acting either as an
equity participant in the sector or as an agent of the state (JV equity oil,
profit oil, in-kind oil, etc.) including gas and other petroleum products.
5.3 On process and criteria for buyer/trader selection process, the Consultant shall;
➢ Provide a description of the process for selecting the buying companies, e.g.
a tender for a specific cargo, or the selection of term contract recipients
➢ Tendering processes including technical and financial criteria used for crude
pricing and trader selection, and deviations from applicable legal and
regulatory frameworks
➢ Provide a list of selected buying companies, including any consortium if
applicable
➢ Provide and explaining any special exemption and/or other deviation from
the applicable legal and regulatory framework
5.4 On contract disclosure, the Consultant shall;
➢ Identify the types of sales contracts used, explaining their key attributes and
terms
➢ Obtain the full text of a standard sale contract along with the text of any
agreements that allow deviations from a standard contract
5.5 On Beneficial Owners of trading companies, the Consultant shall;
➢ Collect and present information on beneficial owners of trading companies
according to EITI Requirement 2.5 of the 2016 EITI standard.
5.6 Provide the criteria (if any) for allocating lifting quotas to approved buying
companies
5.7 Carry out a system documentation of the structure, management and operations
including governing laws and regulations of all relevant divisions and subsidiaries
of the SOE and other government agencies that are involved in the process of
sales of government equity crude oil and gas (and all its derivatives).
6. The Consultant shall present a comprehensive report of its findings and
recommendations;
➢ It will Identify the risks and issues that may be associated with present and
proposed commodity trading reporting system and recommendation to
mitigate such risks/issues.
➢ Suggest recommendations and corrective actions on strengthening the
process of commodity trading of federation equity crude oil and gas.
4.0 NEITI PROCESS FOR COMMODITY TRADE REPORTING
This section contains 5 phases which provide guidance on the process for producing the
Commodity Trade Report. These phases are;
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:
1.1. The Consultant shall provide the relevant background information, assessment of the
legal and regulatory framework including the governance arrangements and tax policies
in the oil and gas industry as it relates to commodity trading;
1.2. The Consultant shall identify the Nigerian SOE, providing a brief overview of the SOE, its
relevant subsidiaries and all other government agencies that participate in the
production, sales and lifting of all government equity crude oil, gas (all its derivatives).
This shall also include government agencies that participate it the collection or
management of the proceeds from the sales of same;
1.3. The Consultant shall examine the audit and assurance procedures in the government
entities participating in commodity trading. This includes examining the relevant laws
and regulations, any reforms that are planned or underway, and whether these
procedures are in line with international standards;
1.4. The Consultant shall examine the audit and assurance procedures in the trader/buyer
companies participating in commodity trading; and
1.5. The Consultant shall review the reporting templates with a view to assessing adequacy
of otherwise of same. Where inadequate, the Consultant is expected to recommend
changes to the NSWG to ensure all required data is sufficiently collected.
Phase 2 – Data Collection
The Consultant is expected to undertake the following tasks during the data collection phase:
2.1. Distribute the reporting templates and collect the completed directly from the
participating reporting entities, as well as any contextual or other information that the
NSWG has tasked the Consultant to collect in accordance with the Scope of work
enumerated above;
2.2. NEITI will provide contact details for the reporting entities and assist the Consultant in
ensuring that all reporting entities participate fully. The Consultant should provide
advice on ensuring that appropriate safeguards are in place to protect the integrity of
the process; and
2.3. The Consultant shall carry out an initial reconciliation of data with a view to identifying
any information gaps and discrepancies. It shall also prepare an initial reconciliation
report (unadjusted) data for consideration by the NSWG.
Phase 3 – Data Validation and reconciliation Report
The Consultant is expected to undertake the following tasks during the data validation and
reconciliation report phase:
3.1. The Consultant shall collect associated supporting documentation directly from the
covered reporting entities
3.2. The consultant shall validate data collected from the reporting templates directly from
the participating reporting entities.
3.3. The Consultant shall contact the reporting entities directly to clarify any gaps or
discrepancies identified in Phase 2;
3.4. Based on the information gathered in 2.2 above, the Consultant shall comprehensively
reconcile the information disclosed by the reporting entities including offsetting
discrepancies;
3.5. The Consultant should identify any discrepancies above the agreed margin of error
established at 0.5% of total sales/revenue
3.6. The Consultant shall prepare a post reconciliation report based on the adjusted data for
consideration by the NSWG.
Phase 4 – Draft Commodity Trading Report
The Consultant shall prepare a Draft Commodity Trading report which shall include;
4.1.1. The draft Commodity Trading Report should include a description of each component of
the physical flow and revenue stream, related materiality definitions and thresholds
(Requirements 3.2, 4.1). In view of the fact that all crude sales are significant, all
commodity trade transactions are considered material and are subject to reporting. The
Consultant should document the options considered and the rationale for establishing
the definitions and thresholds.
4.1.2 The Commodity Trading Report should include an assessment from the Consultant on
the comprehensiveness and reliability of the data presented, including an informative summary of the work performed by the Consultant and the limitations of the assessment provided.
4.1.3 The report should include an assessment of whether all companies and government entities within the agreed scope of the reporting process provided the requested information. Any gaps or weaknesses in reporting to the Consultant must be disclosed in the Report, including any entity that failed to comply with the agreed procedures, and an assessment of whether this is likely to have material impact on the comprehensiveness of the report.
4.1.4 The Commodity Trading Report should document whether the participating companies and government entities had their financial statements audited in the financial year(s) covered by the Report. Any gaps or weaknesses must be disclosed. Where audited financial statements are publicly available, it is recommended that the Report advises readers on how to access this information
4.1.5 The Consultant should recommend corrective actions and reforms and should make recommendations for strengthening the reporting process in the future, including any recommendations regarding audit practices and reforms needed to bring them in line with international standards.
4.1.6 The Consultant may wish to make recommendations on strengthening the Terms of Reference for Consultant services in accordance with the EITI Guidelines on Commodity Trading for the attention of the NSWG.
Phase 5 – Final EITI reconciliation report
5.1. The Consultant should produce electronic data files (in PDF, Microsoft Word & Excel) that can be published together with the Commodity Trading Report.
5.2. The Consultant should provide machine readable files and/or code or tag.
5.3. The Consultant should submit summary data from the Commodity Trading Report electronically to the NEITI Secretariat according to the standardized reporting format required by the EITI.
5.4. The NSWG should endorse the Commodity Trading Report prior to its publication. Where stakeholders wish to include additional comments in, or opinions on, the Commodity Trading Report, the authorship should be clearly reflected.
5.5. Addressing Specific Issues as the Need Arise: Considering the dynamic nature of the Oil and Gas Industry, the Consultant may be required to report on specific issues that may arise in the course of producing the Commodity Trading Report.
6.0 CONFIDENTIALITY
I. The Consultant shall enter into such agreements with each Covered Entity as may be
necessary concerning the confidentiality and protection of the confidentiality of a Covered
Entity’s data, provided that the Consultant shall not thereby limit its reporting to NEITI.
II. The Consultant is not responsible for, and shall assume no liability, for the Client’s
management or disclosure of data, including confidential information, shared with NEITI
after it has been presented to the Client.
III. The Consultant shall require all of its personnel to individually execute confidentiality
agreements which meet all terms and conditions established between the Consultant and
the Covered Entity, as proscribed in the preceding section.
7.0 DATA MANAGEMENT
I. The Consultant shall develop a systematic approach to data management that facilitates the
comparison and if necessary reconciliation of financial transactions between payer and
recipient.
II. The Consultant shall for this purpose develop template reporting forms. The design of such
templates shall reflect lessons learned from the experience of the previous NEITI Oil & gas
audits as it relates to Commodity Trading Reporting.
III. The transaction templates shall be designed to be completed using the cash basis except
where otherwise specified by the Consultant.
IV. Each Covered Entity shall specify the date on which the transaction occurred.
V. The Consultant shall, on a limited basis, review the proposed templates with a sample of
Covered Entities and other stakeholders to confirm their suitability for the purposes
intended.
VI. The Consultant shall determine an activity timetable with each Covered Entity, and both the
Consultant and the Covered Entity shall endeavor to recognize each other’s’ constraints.
VII. Without regard to the foregoing provision, the agreed timetable shall be consistent with the
Consultant’s reporting obligations, as set forth herein.
8.0 CONSULTANT EXPERIENCE/REQUIREMENTS
It is a requirement that the Consultant is perceived by the NSWG to be credible, trustworthy
and technically competent. The consultant(s) must have technical competence in the oil &
gas sector having had years of practical hands on experience in the sector. In addition, the
following qualifications will be required:
I. Expertise and experience in the oil and gas and sector in Nigeria
II. Expertise in accounting, auditing and financial analysis.
III. A track record in similar work, and preferably proven experience with the EITI.
IV. Persons with advanced degree in Petroleum engineering, Petroleum economics or a related
field in Project Team;
V. Persons with expertise in accounting, auditing and financial analysis in Project Team.
VI. A minimum of 10 years’ professional experience as a consultant or equivalent in the oil and
gas sector (upstream & downstream);
VII. Previous experience in similar work and knowledge of EITI reporting is an added advantage.
VIII. Strong communication and report writing skills with ability to present and disseminate findings at highest forums.
IX. In order to ensure the quality and independence of the exercise, the Consultant is required to disclose any actual or potential conflicts of interest, together with commentary on how any such conflict can be avoided
9.0 PROJECT ADMINISTRATIVE ARRANGEMENTS
The consultant shall be solely responsible for the gathering, review, analysis and interpretation
of data, reports etc. as it pertains to this assignment and for the findings, conclusions and
recommendations in the report. During the course of the assignment, the Consultant reports
directly to the project lead at NEITI. The Consultant will confirm acceptance of the
administrative matters detailed below.
9.1 Project Implementation Schedule (PIS)
The consultant shall prepare and submit a Project Implementation Schedule (PIS)
covering the required period of the assignment. The schedule will include both an
outline of the project over the full period and a detailed work plan for each component
of the project. A draft Schedule should accompany the Consultant’s technical proposal.
The specific modalities and timetable of the consultations with stakeholders will also be
defined at this stage.
9.2 Project Work Plan
A draft timetable will be proposed by the Consultant as part of its Project
Implementation Schedule to include a schedule of key milestones within the expected
time frame. After discussion and approval of the timetable by NEITI, the timetable will
become part of the PIS in the Terms of Reference of the contract.
9.4 Logistic Arrangements
The Consultant shall be responsible for the following:
a. Local transport including vehicle hire and vehicle operation;
b. International air fares for expatriate staff;
c. Local transport for staff;
d. Hire of support and field staff;
e. Living allowances for the consultants staff;
f. Field allowances for own staff;
g. Office accommodation including computer equipment and consumables;
h. Any equipment as required to successfully complete the assignment
9.5 Conduct of the Consultant
a. The Consultant will, at all times, be expected to carry out the assignment with the
highest degree of professionalism and integrity. The Consultant will be expected to
conduct his duties in an open and transparent manner.
b. The Consultant will not, under any circumstance, take any actions or be seen to be
taking any actions, which may hinder or prevent the NEITI from executing this
assignment.
c. The Consultant will study all NEITI guidelines and policies with respect to the Nigerian
EITI program, and will be expected to ensure that the assignment is concluded with the
strictest adherence to all such policies and regulations.
d. The Consultant will not, under any circumstances, take any material decision pertinent
to this assignment without the express permission and written consent of an authorized
representative of the NEITI.
e. The Consultant will not, under any circumstances, discuss, divulge or use any
information regarding this assignment or any other transaction conducted as part of the
FGN’s EITI Program, without the express written permission of the Executive Secretary
of NEITI.
10.0 DELIVERABLES
The deliverables expected are as follows:
a. The Consultant shall submit a project implementation schedule(PIS) within 2weeks of
commencement of the assignment
b. The Consultant shall submit an inception review report within 4weeks from
commencement of the assignment.
c. The Consultant shall submit 5 copies of a satisfactory and acceptable draft commodity
trading report which would include the strategic review and needs assessment report
within 10 weeks of commencement of the assignment.
d. The Consultant shall submit 5 copies of a satisfactory and acceptable final commodity
trading report within 12 weeks of commencement of the assignment.
11.0 REPORTING SCHEDULE
The Consultant will report directly to the Director, Technical. The summary of the indicative
reporting schedule for submission of deliverables shall be as follows:
S/N Reports Timeline Payment Terms
Effective date of contract/
Commencement of services
Start date - Upon contract
signature is Month (M)
1 Signing of Contract M
2 Submission of PIS M + 2 Weeks
3 Inception Report M + 4 Weeks
4 Draft Commodity trading M + 10 Weeks
report
5 Final Commodity trading
report
M + 12 Weeks