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