September 13, (THEWILL) – Managing Director/CEO, Taurus Capital & Advisory Services and Taurus Oil & Gas Limited, Dr Nnaemeka Obiaraeri, speaks on the N287 billion profit recently declared by the Nigerian National Petroleum Corporation (NNPC) and related matters, in this interview with SAM DIALA. Excerpts:
You are a finance/investment expert and a key player in the global oil and gas industry. What is your take on the N287 billion profit (after tax) recently declared by the Nigerian National Petroleum Corporation (NNPC)?
The Nigerian National Petroleum Corporation (NNPC) did not make any profit. Let us stop deceiving ourselves. 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? Let us face facts; the NNPC is an entity. What is its responsibility? What it is currently doing is to import petroleum products and distribute them to the marketers.
The NNPC buys PMS (petroleum motor spirit) at an average of N250 and N270 per litre, depending on what the market price. It will sell the PMS at a reduced or subsidised price of N148 per litre to the marketers. It brings in an average of 20 billion litres per annum. This year, it is going to be more than that, since its managers say they import 110 million litres per day. On this, they will be losing between N2 and N3 trillion 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 call 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 the NNPC does is managing the refineries. The refineries are not producing. The NNPC on its own creates 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?
Also, we have the subsidiary businesses. I want us to understand this: By the Act of the National Assembly, there are companies and other business entities in which Nigeria has stakes. Most of those companies in the oil and gas sector earn revenues and make profits. 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. Its responsibility is to manage the oil blocks and other assets on behalf of the Federal Government.
We also have the NLNG Limited (Nigeria Liquefied Natural Gas), where the government has 49 percent equity in private public partnership with the oil majors. That stake belongs to the federation not to NNPC. The NLNG is an entity which operates independently, has its own balance sheet, corporate governance and other statutory requirements. We have other entities, such as the West Africa Gas Pipeline and other ventures that the NNPC operates with other oil majors and investors, including insurance services. They all earn revenues on their own.
What has been the practice in the past and what has changed now?
In over four decades, dividends received from these joint ventures have been paid into the Federation Account. You will recall that under former President Goodluck Jonathan, the Federal Government disclosed the dividends received from the NLNG, which are paid into the Federation Account and shared among the three tiers of government (federal, states and local governments). If you remember, when the Buhari-led government came to power in 2015 and was faced with financial challenges, the $2.1 billion received from the NLNG as our dividend from the declared profit was paid into the Federation Account and shared among the three tiers of government. That provided some succour to the new government at the time.
The state governors, over time, have insisted that any money that comes from those entities must be paid into the Federation Account. 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. No governor went to court to challenge the action of the NNPC. So, it was taken as something permitted by law.
But the Constitution supersedes every other (subsidiary) law – NNPC, NLNG, NPDC … The law says that every revenue accruing to the federation must be paid into the Federation Account and shared among the three tiers of government in the approved formula. Did any governor go to court to ensure that the monies should be paid into the federation account? No.
Again, the 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, it declared $83 billion profit. In 2020, when COVID-19 was ravaging the world, it declared $42 billion profit, which is about half of the 2019 figure.
Look at Petrobras of Brazil, it declared over $10 billion profit in 2019. In 2020, because of COVID-19, it achieved a little over $1 billion.
Similarly, Petronas of Malaysia made a profit of about $21 billion in 2019. In 2020, it made a loss due to the COVID-19 pandemic. Check Emirate Oil and other nations’ oil and gas firms, there is no corporation or oil and gas industry operator that declared bumper profits in 2020. All of a sudden, NNPC is declaring over 2,000 percent profit. Profit from where? And Nigerians are clapping away. What it (NNPC) simply did was move numbers from one place to another. It is financial engineering.
Can you suggest how NNPC, as an entity, can make profit?
As a corporation, NNPC can make profit if its management does what is right. It can make profits if it wants. Remember that British Petroleum was once a public corporation until it decided to commercialise and privatise. The last profit it declared as a public enterprise was in 1987. That is what we have been urging the Federal Government to do. If the NNPC wants to make profit it should privatise or commercialise. Simple.
But the Group Managing Director of the NNPC explained how the corporation made the profit – through prudent management of resources, cost-cutting, etc
All this talk about prudent management and cutting costs is so annoying. In a country that has sharp minds, some people think they can just wake up and tell us that they made bumper profit? I can’t understand this. How can you tell us you cut costs by over 30 percent in a loss-making venture you have been carrying all along?
NNPC must cut costs to make profit. It is not cutting costs. There are obvious ones in its books – those refineries. You cannot be carrying a loss-making venture and still want to make profit. Let the corporation privatise the refineries. By privatising those refineries, it will be eliminating over N150 billion in losses from its operations. You can’t be carrying a loss and say you are making profit.
Secondly, it has to fully deregulate the oil and gas market. Through deregulation you remove the subsidies. That is the way you will make profit.
The NNPC has to concession the other assets. It has to commercialise or concession the onshore and offshore facilities, pipelines, etc. It will have to downsize and remove most of the bottlenecks in the system. That way, we know it is making profit. There is nothing that the leadership of the NNPC made that is novel or different from what they have been doing.
The NNPC has congratulated itself for seamlessly importing petroleum products to tackle the shortage of the commodity in the country. Is that not a plus for the corporation?
The refineries have not been working since 1999. Yet, they tell us we consume 103 million litres of PMS (premium motor spirit) per day and they will blame smugglers. How can we believe such stories?
Look at the daily domestic demand of all our neighbours in West Africa, from Cameroun to Benin Republic, Togo, Niger Republic, Chad and Burkina Faso. Assuming these countries are so unwise that they cannot even import their own petroleum products, assuming they depend 100 percent on smuggled petrol from Nigeria, which is not true, they would not consume the quantity of petroleum products that is ascribed to them.
These countries have their own oil and gas corporations. For instance, Niger Republic refines three times what they consume. They have a refinery at Zinder that is refining 20,000 barrels of crude oil every day, whereas what they consume is about 6,500 barrels.
Let us assume that all these neighbouring countries are buying from or depend solely on Nigeria, which is not true. If you add their 8.6 million litres total consumption per day to what the US EIA record says is our consumption rate – about 39 million litres per day – it means that we and our neighbours are consuming about 46 million litres. So, where is the remaining 57 million litres that the NNPC says is being smuggled? To smuggle 57 million litres of PMS every day, will require about 1,800 12.5 feet long trucks. If you line up those trucks at the same time on the road, bumper to bumper, they will cover about 22 kilometres stretch of road. How can trucks move in a convoy that covers over 22 kilometres without security agents – Police, Army, Air Force, Navy – seeing it? We are not fools. The NNPC should deregulate and we will listen to it.
Do you see any connection with the 30 percent NNPC profit that the PIA made provision for – to explore oil in the frontier basins – in this bumper profit that the corporation declared?
No. You cannot apply the law retroactively. This account is for 2020. The law was passed this year; you can only apply it for 2021.
Can it be related to the proposed privatisation?
Yes. Under the new PIA, they will have to privatise and that means they will have to show a balance sheet that will be attractive to potential investors. But investors are not unwise. They are industry players. You do not need to doctor books to be able to get value from investors. Just put all the assets in one basket – refineries, the oil blocks that NPDC is managing, and all the Joint Venture assets – and aggregate them. Determine the net asset value and then add a premium to show the investors who are willing to buy.
When Aramco of Saudi Arabia issued an IPO, it was oversubscribed. This was because the world saw that it was transparently done. Nigeria is a country with huge potential, but we are just mismanaging everything. Look at this, NNPC wants to build petrol filling stations in Niger Republic. Is it not very unwise? Niger Republic refines three times what it consumes. The country has fully deregulated its oil and gas sector. It does not subsidise products. Now somebody wants to buy products into Nigeria, subside it with money that is supposed to go into the Federation Account to take care of the masses, then sell to Niger Republic at a discounted price? It is very unfortunate.
Is it late for this matter to be challenged in court?
If the states have the guts, they can go to court. The funny thing about our kind of federation is that most of the states swallow hook, line and sinker what is given to them. As stakeholders, the states have the right under the Freedom of Information Act to request the details of these transactions and appoint their own forensic investigators to review it, ask questions and possibly, go to court and demand answers. But who are the state governors? They do not care as long as they get the FAAC and enough IGR to spend; they do not care about what happens in Abuja. I say, with every sense of responsibility and sadness, that Nigeria is a crime scene. The aspiring looters are more than those on the stage now. It is free for all.
Are you saying that NNPC lied about the N287bn profit it declared recently?
The facts I have laid before you do not support the numbers they churned out. From N1.7 billion loss in 2019 to N287 billion profits in 2020, over 2,000 percent profit in 2020? Remember, this was a COVID-19 year when there was no oil and gas company in the world that did not suffer a slump in revenue.
It is the same trend with petroleum consumption in Nigeria. In South Africa there are over 12 million registered motor vehicles, yet they consume about 32-33 million litres per day. They have a land mass that is three times bigger than Nigeria. So, they travel faster and farther away. Look at the United States, it has over 300 million cars and they consume about 1.4 billion litres of PMS daily. If you divide the 1.4 billion litres consumed by 300 million registered vehicles, you have a daily consumption of 4.6 litres per car. South Africa’s consumption rate is about 3 litres per car. If you look at those countries with a larger land mass than Nigeria, where people use cars on a three-day journey that consumes a lot of petrol, it is about 4.6 litres per car.
Nigeria has about 11 million registered motor vehicles, half of which were registered in Lagos. And NNPC says we consume 103 million litres per day. If you divide it by 11 million cars, you get about 9 litres per car consumption. Remember that about half of the 11 million cars are not on the road because they are out of circulation. Many people can no longer maintain cars. There are about 100 million people in the extreme poverty bracket. Only about 8 percent of Nigeria’s population earn up to N60,000 and above per month. The population that can buy or fuel a car is not up to 5 percent.
Out of the about 5 million vehicles registered in Lagos State, about 200,000 are commercial. So, NNPC is telling us that Nigeria is the only place in the world where per car fuel consumption is about 9 litres? In those places where they consume gasoline like water, it is about 2- 4 litres per car.
Do you think this development will adversely affect NNPC’s plan to go public?
No. It will not affect it. But look at this paradox. They asked the GMD of NNPC when the subsidy will go; he said that subsidy had no timeline to go. The same person is telling you they have a six months window to implement the PIA. Does it make sense? You want a fully, transparent, deregulated market under the PIA; yet you are subsidising and you say you don’t know when the subsidy will end. You don’t want to scrap or privatise the refineries that are making losses. Does it make sense?
Where have you seen a company going into a full limited liability status that will still be creating avenues for losses? If the NNPC is like any of the major oil and gas companies, will it still be talking about subsidies, yet carrying refineries that make losses? If you have any entity in your portfolio that is not making profit, you spin it off. The NNPC is talking about implanting the PIA in six months’ time and it is not talking about privatising the refineries and removing subsidies. Subsidy has no timeline. I have never seen a country that is so confused.
The refineries are going to be rehabilitated. Can this help?
They should stop deceiving us. We have spent over $3 billion since 1999 on those refineries, yet they are not working. They should scrap them and save us this madness if they do not want to privatise them.