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Oil & gas: Scrutinising gains from strategic reforms

The need to sustain recent positive developments in the oil and gas sector as heralded by the nation’s oil company has dominated discourse, stakeholders and critics.
REGINA OTOKPA reports

 

About a week ago, the Nigerian National Petroleum Corporation (NNPC) published its third Audited Financial Statement (AFS).

 

The first AFS first published in 2020, captured 2018 statement in a separate publication and the second dealing on its activities for 2019.

 

This came about two weeks after the corporation declared for the first time since its existence 44 years ago, a record of N287 billion Profit After Tax (PAT), for the 2020 financial year.

 

Financial standing

The AFS revealed that from a loss of N1.7 billion in 2019 to a profit of N287 billion in 2020, NNPC’s total current assets increased by 18.7 per cent compared with that of 2019, while its total current liabilities increased by 11.4 per cent within the same period.

However, the group’s working capital remained below the line at N4.56 trillion in 2020, as against N4.44 trillion in 2019, while the corporation’s group revenue fell by 19.76 per cent in 2020 to N3.718 trillion from the N4.634 trillion declared in 2019, with a difference of N916bn.

 

But the NNPC maintains that the decrease in the group’s revenue could be attributed to the global impact of Covid-19 pandemic, which gave rise to a decline in production and the price of crude oil.

 

Also explaining how the ground breaking profit of N287 billion was achieved, Group Managing Director of the NNPC, Mallam Mele Kyari, said it was due to aggressive cost cutting, automation of the NNPC system and renegotiation of contracts downwards by about 30 per cent, among other tough measures employed by the Corporation.

 

According to him, the NNPC donated a total sum of N3.6 billion and N9 million respectively to various charitable organisations, higher education institutions and other organisation, stressing that no donation was made to any political party.

 

Although the NNPC’s independent auditors, namely PriceWaterhouse Coopers (PwC), SIAO Partners and Muhtari Dangana & Co said the large discrepancy between assets and liabilities as indicated in a section of the AFS cast some uncertainty on the corporation’s operations, they however gave credence to the elimination of cost drivers responsible for the accumulation of the shortfalls in settling domestic crude obligation to Federation Account.

 

“We draw attention to note 42 of the consolidated and separate financial statements, which indi  cates that the group recorded a net profit of N287.2 billion (Corporation: N235.3 billion) during the year ended 31 December 2020 and, as at that date, the group’s current liabilities exceeded its current assets by N4.6 trillion (Corporation: N729.1 billion).

 

“As stated in note 42, these events or conditions, along with other matters as set forth in note 42, indicate that a material uncertainty exists that may cast significant doubt on the group and corporation’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.”

 

Price modulation

 

Acknowledging the introduction of the Price Modulator mechanism in the Petroleum Products Pricing Regulatory Agency (PPPRA) template designed to eliminate the major cause of the losses as well as minimising the breaches to pipeline networks, the auditors notes that the NNPC when given the autonomy under provisions of the Petroleum Industry Act (PIA), will be able to operate profitably, noting that the recapitalisation of the corporation would enable the resolution of all outstanding related party payables and receivables to enable NNPC start on a clean slate.

 

But despite the GMD’s explanation and positive postulations of the independent auditors, critics have continued to accuse the corporation of cutting corners including tampering with the federation account just to declare profit.

 

A report titled ‘2020 NNPC Annual Performance Review developed by BudgIT in partnership with Oxfam and released two weeks ago noted that the NNPC earned a revenue of N4.61 trillion and spent N4.52 trillion in 2020, recording a 23.8 per cent decrease from the N6.05 trillion it earned in 2019.

 

Not convinced that a profit of N287 billion was achievable in the midst of a global crisis, the report stressed that the oil and gas industry faced the twin shocks of the oil price crash and COVID-19 in 2020, which influenced the demand and supply of crude oil, plunging Nigeria into its second recession in six years.

It said the amount the NNPC claimed as crude oil losses rose by 35.33 per cent from N3.46 billion in 2019 to N5.35 billion in 2020, while NNPC’s product losses declined from N32.96 billion in 2019 to N15.71 billion in 2020.

 

The report reads: “The expenditure of all its subsidiaries stood at N4.52 trillion. Total crude oil production suffered an 11.61 per cent decrease, from the 734.27 million barrels produced in 2019 to the 649.00  indimillion barrels produced in 2020.

 

“Pipeline breaks, a key cause of oil revenue leakage and production loss, had a 70.28 per cent decline from 1,484 breakpoints in 2019 to 441 breakpoints in 2020. Likewise, a corresponding 57.87 per cent decline in NNPC’s spending on pipeline maintenance costs was recorded as it plummeted from N126.66 billion in 2019 to N53.36 billion in 2020.”

 

The report further stated that despite announcements of investments in turnaround maintenance, the Kaduna Refining and Petrochemical Company wiped out a total of N100.03 billion from NNPC’s revenue in 2020.

Refinery boost

 

Also, despite announcing a deal to boost PHRC’s performance through a colocation agreement with Maire Tecnimont SPA a few years ago, the Federal Executive Council recently approved another $1.5 billion for a rehabilitation exercise of the PHRC.

 

The report argued that the NNPC was not struggling to keep its refineries operating profitably, but the last time the refineries were in operation was in July 2019 and also, the Kaduna, Port Harcourt, and Warri refineries incurred a cumulative loss of N100.39 billion and accumulated a total deficit of N486.54 billion between 2016 and 2020.

 

In addition, the report said there was a decrease of 7.99 per cent in the total volume of petrol imported into the country via the Direct Sales Direct Purchase arrangements in 2020, compared to the volume imported in 2019.

 

“NNPC continues to record shocking losses, with its corporate headquarters responsible for its biggest loss worth N123.96 billion in 2020. Six other subsidiaries made a cumulative loss of N125.12 billion.

“The Nigerian Petroleum Development Company emerged as a shining star in the 2020 financial year with a N148.80 billion profit, followed by the Nigerian Gas Company Limited with N80.37 billion and the Nigerian Gas Marketing Company with N38.01 billion profit.

 

“In 2020, $1.50 billion, representing 57.25 per cent of the total $2.62 billion receipts from crude oil and gas exports, was transferred to Joint Venture Cash call, while the balance of $1.12 billion representing 42.75 per cent was remitted to FAAC.

 

“From the proceeds from the sale of domestic crude oil, N826.03 billion was allocated to JV Cost recovery while N713.12 billion was transferred to the Federation Account.

 

Meeting national obligation

 

“In 2020, the NNPC made a total  payment of N1.05 trillion to the Federation Account.

 

“These include N713.12 billion for naira payments from domestic crude and $1.12 billion (N342.45bn) USD payments. year on year. This N1.05tn represents a 3.67 per cent decrease from the total N1.09 trillion remitted to the federation account in 2019 from both equity export and domestic export,” it noted.

 

But the NNPC has said it was absolutely impossible for NNPC to dip its hands into the federation’s revenue in order to declare its first profit of N287 billion in 44 years.

 

Group Executive Director, Finance and Account, Ajiya Umar, who spoke on Channels Television, said besides the occasional inquest by the National Assembly when accounts are sent to the Public Accounts Committee to review how much each revenue agency including NNPC brought into government’s coffers, they were other layers of control in place.

Umar said: “That is a false statement. It is impossible for NNPC to dip its hands into the federation’s revenues. First of all, there are interagency reconciliations every month as to what revenue accrued to the federation from the joint venture crude sales.

 

“Secondly, we have a resident revenue director from the office of the Accountant General of the Federation in the NNPC Towers who monitors what accrues to the federation on behalf of the Accountant General.

 

“Thirdly, there is the pre-Federation Accounts Allocation Committee post mortem meeting to which reconciliations are done, and finally at FAAC meeting where the Commissioners of Finance of all the 36 states and the FCT meet to review contributions from all revenue generated.

 

“So, with all these layers of control, it will be impossible for NNPC to dip its hands; NNPC will account for the revenues of the federation and only deduct what is allowed and what has been appropriated by the National Assembly in relation to cost of bringing the barrels out as well as cost of other projects that are being done on behalf of the Federation.”

 

Umar further explained that the NNPC profit originated from the writeback of N713.4bn saying, “this has to do with an impaired revenue, which was actually reclaimed against the federation and this was subjected to forensic audit and subsequently reviewed by an inter-ministerial agency committee and finally by the National Economic Council. Such revenue was now recognised in 2020.

 

“By virtue of the International Financial Reporting Standard guidelines, we could have recognised that in our books until such monies or revenues are received within the coffers of the federation.”

 

Last line

 

Having achieved such an outstanding feat after 44 years of its operation, the only thing left is for the corporation, in whatever guise as permitted by law, not to look back but set fresh goals, especially now that the Petroleum Industry Act has come to stay.

 

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