September 13, (THEWILL) – Finance and investment experts, as well as active players in the global space of oil and gas, have picked holes in the recently published accounts of the Nigerian National Petroleum Corporation (NNPC), which showed a humongous net profit of N287 billion in 2020. Notwithstanding the depth of professional touch that is reflected in the account presented, experts who spoke to THEWILL maintain that the document, going by its antecedent, could not be treated as one that contains the ingredients of transparency.
The Group Managing Director of NNPC, Mallam Mele Kyari, on August 26, 2021, presented the corporation’s 2020 Accounts at a press conference held in Abuja, after President Muhammadu Buhari, who also doubles as the Minister of Petroleum, had applauded the corporation’s feat after 44 years.
Kyari attributed the turn-around of the corporation from a loss of ₦803bn in 2018 to profit of ₦287bn in 2020 to the aggressive implementation of cost-cutting measures, improved efficiency through business automation, emphasis on commercially-focused investments and non-interference in the management of the Corporation from any quarters.
The GMD also added that the NNPC saved a lot of cost through contract renegotiation by up to 30 percent on the heels of the COVID-19 pandemic, introduction of technology that drastically cut travel cost through reduction in in-person meetings and the general automation of processes that enhanced efficiency across the group’s businesses. He said the management’s focus on the prioritisation of investment and staff welfare also helped in boosting the corporation’s overall productivity and bottom line.
But the views of most industry experts and stakeholders, who spoke to THEWILL, was that the NNPC’s published accounts should be taken with a pinch of salt as it may not have been a work of transparency and sincerity of purpose. They argue that for a legacy loss-carrying establishment to jump out of a deep hole of losses into the orbit of humongous profit means that not everything must have been considered.
The first salvo was fired by Nigeria’s foremost investment banker and founder cum pioneer CEO of Stanbic IBTC Bank Plc, who is also President and Founder of Anap Business Jets Limited, Atedo Peterside, told THEWILL that NNPC should come clean.
“There is an allegation that the management of the NNPC dipped their fingers in the federation’s cookie jar in order to announce a bumper 2020 profit; they should come clean and publish the details of all dividends received by them and tell us which ones they recently diverted from the federation to themselves,” Peterside said in a note to THEWILL.
In an exclusive interview with THEWILL, the Managing Director/CEO, Taurus Capital & Advisory Servicee and Taurus Oil & Gas Limited, Dr Nnaemeka Obiaraeri, explained that the NNPC financials that showed a profit of N287 billion in 2020 should be interrogated adequately. According to him, the business of NNPC falls into three which did not show any window of activity that would result in a profit since 2015, not to talk of hitting N287 billion in a COVID-19 year.
“The NNPC as a corporation did not make any profit. If a business enterprise says it made profit, the first thing is to find out what business it does. What goods and services does the business produce or offer?
“The NNPC buys PMS (petroleum motor spirit) at an average of N250 and N270 per litre, depending on what the market price is. They will sell it at a reduced or subsidised price of N148 per litre to the marketers. They bring in an average of 20 billion litres per annum. This year, it is going to be more than that since they say they import 110 million litres per day. On this, they will be making between N2 and N3 trillion loss because they are buying at a higher price and selling at a discounted price. Now, they will dip their hands into the Federation Account to make up the price. That is what they called subsidy which, on its own, is an offence because it was not appropriated by the National Assembly. The law says you cannot spend such funds that have not been appropriated by the National Assembly. That is one side.
“The other business they do is managing the refineries. The refineries are not producing. NNPC, on their own, create losses on those refineries. Between 2015 and 2020, total losses incurred by those refineries are over N800 billion. So, from where did the NNPC make the profit?” Obiaraeri said.
The investment and energy expert noted that the NNPC collects the profits made by its subsidiaries and the dividends from the Nigeria National Liquefied Gas Limited on behalf of the Nigerian government.
“Their profits are meant for the Federation Account. The money (in the Federation Account) belongs to the federal, state and local governments. For instance, we have the Nigerian Petroleum Development Company (NPDC) which is a subsidiary of NNPC. It is an independent entity with its own balance sheet. Their responsibility is to manage the oil blocks and other assets on behalf of the Nigerian government,”
Obiaraeri further explained that dividends received from these joint ventures had been paid into the Federation Account but the arrangement changed in 2019 when NNPC began to retain a portion of the receipts which it did not pay into the Federation Account. He noted that “over four decades, dividends received from these joint ventures have been paid into the Federation Account”, adding. “What I suspect may have happened was that in 2019, against the usual practice, most of those companies paid dividends and NNPC decided to retain a portion of those dividends.”
“Again, NNPC has been making losses. From 2015/16 to 2020, they made accumulated losses of over N800 billion. Now, all of a sudden, in 2020 when the world was on lockdown, it made such a humongous profit. Did NNPC operate in a different world? Look at the balance sheets of other nations’ oil and gas corporations: Saudi Arabia’s Aramco declared over $110 billion profit in 2018. In 2019 they declared $83 billion profit. In 2020, when COVID-19 was ravaging the world, they declared $42 billion profit which is about half of the 2019 figure,” Obiaraeri said (see full interview).
Dr Olu Fasan, Visiting Fellow at the London School of Economics, argues that the government has no business running a refinery as that should create an avenue to prevent the losses being recorded by the national oil corporation.
“My view is that the government has no business running a refinery. The seven refineries in the U.K. are owned by private companies, while the government provides a regulatory environment. The NNPC should be fully privatised, and it is a mistake to “privatise” with 100% federal government ownership as required under the PIA.
“The NNPC can’t be properly run and make profit as a state-owned enterprise. SOEs are not known to be well-run and profitable anywhere in the world. Nigeria won’t attract quality investment into the oil and gas sector unless the government’s role is reduced to that of a light-touch regulator.
“In any case, if the NNPC is not making profit, where will the 30% for exploration in frontier basins come from, as under the act it should come from NNPC’s profits,” Dr Fasun said in a note to THEWILL.
Dr Ik Muo, Economist and Finance Teacher, Olabisi Onabanjo University, Ago-Owoye, Ogun State, said NNPC must have made profits since they receive and retain monies from the subsidiaries and profits from other government investments.
“I was among those elated and surprised when NNPC declared such a humungous profit . I was surprised because most of the refineries are either idle and are maintained with intimidating sums or are operating at laughable capacities while the full operational costs are borne. However, technically speaking, the NNPC did make some profits because they could have finished all these monies on 1001 expenditure subheads.
“If they retained the monies and had a right to spend then but decided to save and report some of them as profits, then, it can be taken as profits. It may also be possible, that as in the case of JAMB, surpluses in previous years were underreported and flittered away by the previous by the Executive management. So, on the surface, we should commend the GMD and watch out for the sustainability of this profitability,” he told THEWILL in a note.
The breakdown in the NNPC 2020 report showed that the group’s current liabilities stands at N10.8 trillion as against the current assets of N6.2 trillion. Finance experts say that this raises ‘material uncertainty’ about the group’s operations as it carries liabilities of N4.6 trillion in excess of its assets. The report also explained how NNPC had been sustaining recurring losses over the years, culminating into N1.5 trillion as of December 2020.
Obiarari noted that NNPC could not have made profit with its depth of loss-making. “NNPC must cut costs to make profit. They are not cutting costs. There are obvious ones in their books – those refineries. You cannot be carrying a loss-making venture and still want to make profit. Let them privatise the refineries. By privatising those refineries NNPC will be eliminating over N150 billion loss from their operations. You can’t be carrying a loss and say you are making profit,” he said.
Calls and text messages sent to the NNPC spokesman, Mr Garba Deen Muhammad, were not answered at the time of going to press.