Audited report: The slow, steady road to solving NNPC’s underlying problems
The latest move by the Nigerian National Petroleum Corporation (NNPC), now in its 43rd year, to unveil its audited accounts has raised more questions than answers on the performance of the entity. Very few private entities would survive the losses incurred by the Corporation. However, stakeholders are hoping that NNPC’s decision to test transparency and accountability would be sustained to address systemic problems in the oil and gas sector and equally prepare for its reforms, FEMI ADEKOYA writes.
The coronavirus has been touted as one pandemic that would push countries to embrace a new normal. Having suffered huge revenue losses and witnessed oil prices tank below a level never witnessed, the reality of a new normal became clearer and reinforced the need for actions that would change the tide of events in the nearest future.
For the NNPC and other players, it has been a bad time for business as cargoes stayed longer on the seas, owing to dwindling demand, while ability to meet financial obligations weakened.
To address some issues that arose, the NNPC at first announced the removal of subsidy and all forms of under-recoveries and went further to publish its audited accounts for the first time in its history with the publication of its 2018 Audited Financial Statement (AFS) on its website.
For many decades, a steady stream of reports and reviews have documented the Corporation’s dismal legacy of lost revenues, inefficiency and corruption in many details. Its problems are well-known and widely agreed upon, yet meaningful solutions have not taken root.
Despite the lost earnings and glaring performance failures, and persistent poverty in many segments of Nigerian society, successive governments have avoided fundamental reform. Multiple versions of the Petroleum Industry Bill, aimed at reforming the company have died at the National Assembly, with the goal post for the new version shifted till later this year. The persistent absence of political will illustrates just how deeply NNPC is embedded in the power structures of Nigeria, and how difficult reforms can become.
On assumption of office, Group Managing Director, Mele Kyari, had in July, promised to open up its books to shareholders and the Nigerian public. Not many expected that promise to be fulfilled going by the snippets of revelation seen over the years.
The Nigeria Extractive Industries Transparency Initiative (NEITI), said: “Given NNPC’s antecedents and its prominent role in the sector and in the country, the publication of its audited accounts is positive, signalling more openness for the oil and gas sector and for Nigeria.”
To other stakeholders, publishing the audited statements of its 20 subsidiaries and business divisions for the first time is a landmark move towards instituting transparency in its financials, even as they advocated the need to overhaul the state oil firm, and make it profitable like other national oil companies (NOCs) around the world.
Being a perennial loss-making entity, the refineries recorded combined losses of N154 billion, while the production arm, Nigerian Petroleum Development Company (NPDC), recorded an after-tax profit of N179 billion for 2018 against the N157 billion that in 2017.
NAPIMS, which is responsible for managing Nigerian Government’s investment in the upstream sector, reversed its losses of over N1.65 trillion in 2017, to a whopping N1.01 trillion in 2018 realised from revenue of about N5.04 trillion.
Similarly, the Pipelines and Product Marketing Company (PPMC), raked in about N29.5 billion in 2018 against the N113 billion achieved a year earlier, reporting profit after tax of N9.3 billion against losses of N27 billion year-on-year.
In terms of personnel cost, the Nigerian Pipelines and Storage Company Limited, another subsidiary recorded N42.9 billion in profit after deducting its cost of sales of N1.49 billion, but spent N43.67 billion on administrative expenses to record an operating loss of N767.8 million for the year. Kyari had disclosed that Nigeria has the highest personnel cost in the global oil and gas industry, just as data from the recently released 2018 audited report of the NNPC showed that the Group’s subsidiary spent N43.6 billion on administrative expenses despite earning N44.4 billion.
“We welcome the eventual fulfilment of this important pledge and obligation,” said Waziri Adio, the Executive Secretary of NEITI. “When combined with the monthly reports that NNPC started publishing in 2016, this development marks a sea-change for a national oil company that used to be renowned for opacity,” Adio added. “We urge NNPC to make this a routine practice and to mainstream transparency into all facets of its operations.”
NEITI called on NNPC to go further by publishing its previous audited accounts and in open data formats so that the reports can be more accessible to citizens who are the shareholders of the Corporation. NEITI also urges NNPC to strengthen and sustain its commitment to data mainstreaming and systemic disclosure.
“We do not want to be the only entity talking about and practising transparency,” Adio stated. “There is little use being an island of transparency. Our goal is for all our stakeholders to believe in and model transparency. And to demonstrate our commitment to this new way of working, we are engaging with all covered entities bilaterally and collectively on outstanding issues and how we can further push the boundaries of openness.”
In his comments, the Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, commended the decision of the NNPC to open its books, but urged the Corporation to embrace reforms that would address concerns in the industry.
He said: “Embracing reforms in the oil and gas sector will free resources for investment in critical infrastructure such as power, roads, the rail systems, health sector, education sector etc. The deficits in all of these infrastructure areas are phenomenal. It will unlock the huge private investment potentials in the downstream oil sector especially in petroleum product refining.
“This will ultimately reduce importation of petroleum products and ease the pressure on the foreign exchange market as well as the burden on our foreign reserves. It will eliminate the patronage, rent seeking activities and corruption that currently characterise the downstream oil sector. It will create more jobs for the teeming youths of the country in the downstream as investment in the sector improves.”
A Professor of Energy Economy, and Policy Research and Director, Energy Information Division, Centre for Energy Studies, Wunmi Iledare, said it was the right thing to do.
He also sees the move as the beginning of a better future, especially when a new administrator finds something good from his predecessors and follows through, noting that the losses coming from some subsidiaries were unavoidable, because the Corporation has many cost centres that are highly subsidized by other business units.
Another energy expert with the Facility for Oil Sector Transparency (FOSTER), Michael Faniran, noted that by publishing audited accounts of its subsidiaries for 2018, NNPC was heading in the right direction. He equally sees the development as a positive move for greater transparency and accountability at the Corporation, saying it should be sustained.
“Also, the reports have validated the calls by stakeholders for NNPC to exit or restructure loss-making enterprises, most especially the refineries. The huge annual losses from these special business units (SBUs) erode the profits made by the other profitable subsidiaries.
“It is my opinion that the federal government should not spend any additional funds on repairing or maintaining the refineries, but should undertake road shows, investment drives, and other necessary actions to facilitate the privatization, outsourced management or outright sale of the existing refineries, while seeking to attract or promote investments in new full or modular refineries,” he stated.
However, Faniran noted that there appears to be no audited accounts for the Central Headquarters (CHQ), where the Crude Oil Marketing Department (COMD) is located, which according to NNPC Monthly Financial and Operational Report for December 2018 accounted for N158.64 billion or nearly 45 per cent of the total losses of N355.62 billion incurred by all NNPC subsidiaries and units.
Unions advocate NLNG model for NNPC
To check losses by the Nigerian National Petroleum Corporation (NNPC), advocacy groups in the oil and gas industry have urged the Federal Government to apply the Nigeria Liquefied Natural Gas (NLNG) ownership and operating model for the resuscitation of the nation’s refineries.
According to them, the success of the NLNG model is a pointer to ways the country can maximize its national assets. They noted that the lack of significant investment in the oil and gas industry continues to limit the overall contribution of the sector to economic growth and development.
Unions including PENGASSAN, NUPENG, Ministry of Labour and Employment, NECA, industrial relations managers, human resources managers, academia, media, civil society organizations, leaders of oil and gas union also urged that the new Petroleum Industry Bill (PIB) should promote good governance.
The bill should also allow for indigenous participation, revitalize the midstream and downstream operations, protect the environment, emplace fiscal regimes that will at the end attract investors and address community concerns.
The National President of the Nigerian Union of Petroleum and Natural Gas Workers (NUPENG), Williams Akporeha, urged the government to continue to embrace transparency and block leakages. Kyari however noted that the failure to fix the refineries over these years was a strategy problem, as the government never knew what they wanted to do with it.
He said that the Corporation didn’t get the right advisory services and the right strategy to go through with it. Going further, Kyari said Nigeria has changed its strategy to ensure that they have a new framework. The framework is to help the Corporation and also the investors to put their money into it and ultimately change that equation. He said the way to go is to first fix the refineries, and have set a target for that and have a clear strategy for achieving it.
With the NNPC appearing to embrace reforms and transparency, the Natural Resource Governance Institute and other stakeholders, are hopeful that reforms would be sustained to reposition the Corporation into a company that serves the interests of the nation’s 200 million citizens.
They added that keeping the status quo would cost Nigeria billions of dollars every other year, obstruct broader efforts at oil sector reform, and make way for further political controversy.