…We’ve changed the way we do business – GMD
…It’ll boost investors’ confidence – SAN
…Corporation’s books manipulated – Obiaraeri
‘…NNPC still a loss-making entity’
‘…The agency showed positive results due to cash infusion’
Many Nigerians could not believe their ears when they heard that the Nigerian National Petroleum Corporation (NNPC) recorded profit in 2020, as they are yet to come to terms with the figures presented. According to them, over the years, the Corporation seems to have been managed only to record losses; BENJAMIN UMUTEME reports.
The announcement that the Nigerian National Petroleum Corporation (NNPC) recorded a N287 billion profit in 2020 jolted Nigerians that felt it was surreal, even as others took the announcement with a pinch of salt preferring to see the full report before they can speak.
Over the years, Nigerians have seen the state-run Corporate as the epitome of wastefulness as its four refineries have refused to work due largely to corrupt handling of Turn Around Maintenance (TAM) that have been carried out. The implication was that staffers were being paid without doing any work. In the 2018 and 2019 audited reports, the Corporation recorded losses and it was on that basis that many are yet to come to terms with the ‘profit’ that was recorded. More still, is the fact that in 2020, the Covid-19 pandemic shut down global production thereby making it difficult for the crude oil sale which prices entered negative territories.
Announcing the record profit, the first in 44 years of the Corporation’s existence, President Muhammadu Buhari said the feat became possible through prudent management of resources and the need to maximise value for the Nigerian people from its natural resources.
“I am pleased to announce the declaration of profit after tax of N287 billion in 2020 by the Nigerian National Petroleum Corporation. This is sequel to the completion of the statutory annual audit exercise for year 2020.
“The NNPC losses were reduced from N803 billion in 2018 to N1.7 billion in 2019 and the eventual declaration of net profit in 2020 for the first time in its 44-year history.
“I have further directed the Nigerian National Petroleum Corporation to timely publish the audited financial statements in line with the requirements of the law and as a follow-up to our commitment to ensuring transparency and accountability by public institutions,” he said.
NNPC GMD’s explanations
Throwing more like on the N287 billion profit recorded by the Corporation, NNPC GMD, Mele Kyari, said the turn-around from a loss position of N803 billion to a profit of N287 billion between 2018 to 2020 is an indication of the aggressive implementation of its cost-cutting measures, automation of business processes, emphasis on commercially-focused investments, and non-interference in the management of the Corporation from any quarters.
He said the Corporation saved a lot of cost through contract renegotiation by up to 30% 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.
Kyari said, “What we did to arrive at this (N287 billion profit), I think it is a continuous process. Since this administration came into being in 2015, there was a very drastic change in the way we do our business.
“One is to cut cost, to be more efficient and also to ensure that this company is transparent and accountable to Nigerians and therefore it is a process that started in 2015 on the commencement of the administration of president Muhammadu Buhari who has consistently being the Minister of Petroleum Resources in 2015 till this day and the end result is that, that piloting gave us the opportunity to do things differently.
“And because it is a continuous process, when I came on board, I learnt from what was on ground and also brought a new perspective which is to ensure that I build on what I met and to collaborate and steer the direction of the board of directors of this company to ensure that cost is reduced.
“The combination of all these is the result we posted. First is the reduction of the losses in 2019. It is a collective activity, collective action, but ultimately the things that we did made it possible.”
Doubts persist
Before the full audited report was released, a foremost economist and founder of Stanbic-IBTC Bank, Atedo Peterside, insisted that there was no way the NNPC, with the way it is presently run, can make profit. Peterside noted further that the Corporation dipped its fingers into the federation account to announce the N287 billion profits.
In a tweet, Peterside wrote, “There is an allegation that NNPC dipped their fingers in the Federation Cookie Jar in order to announce bumper 2020 profits; they should come clean and publish details of all dividends received by them and tell us which ones they recently diverted from the federation to themselves.”
Also, the investment banker challenged the Corporation to publish details of all dividends received by it and tell Nigerians which ones it recently “diverted from the federation.”
Likewise, Dr. Nnaemeka Obiaraeri, a petroleum sector expert, queried how the Corporation will suddenly move from a loss position of N.7 billion in 2019 to a record profit of N287 billion in 2020?
For Obiaraeri, it was all about manipulative balance sheet engineering through consolidation of the corporate actions of independent entities set up by acts of parliament for the benefit of the federation saying it was a ‘tad too deceitful.’
According to the petroleum expert, the dividends of the NLNG; The West African Gas Pipeline Company (Operated by Chevron); The Nigeria Gas Company (NGC); Duke Oil; NPDC; Bonny Transport Company, and Wheel Insurance were put together and declared as profit by the NNPC.
“When you add up all of the dividends for the year ended 2019, which was declared, paid and transferred to the NNPC accounts in 2020 on behalf of the federation , you will get in excess of over $2.5bn/N1 trillion (using the CBN official rate),” he said.
Industry experts have queried how the Corporation was able to re-value its N713 billion initially assumed to be doubtful receivables from the federation account. They are of the belief that “it’s just a one off thing that won’t happen every year.” There is also a widespread belief that the Corporation manicured its books to arrive at the profit.
Experts on revenue shortfall
A closer look at the financial statements revealed that the Corporation’s revenue fell by 19.76 per cent in 2020 to N3.718 trillion from N4.634 trillion declared in 2019. Further highlights of the financial statements revealed that while the Corporation’s group financial position increased in total current assets by 18.7 per cent compared to that of 2019, its total current liabilities increased by 11.4 per cent within the same period.
According to the report, the group’s working capital remained below the line at N4.56 trillion in 2020 as against N4.44 trillion in 2019. That is not all!
“Accumulated losses in recent years come to N1.5 trillion for the group and N395 billion for the Corporation,” the Premium Times had indicated in a report.
As far as the head of finance at American International School of Lagos, Elochukwu Oguebue, is concerned, despite the media hype, NNPC is still a loss-making entity.
“One assumption I can make from the disclosure on the impairment reversal and other notes to the accounts is that the Federal Government must have injected funds into NNPC in 2021. Or what else could have prompted the reversal. To reverse impairment on receivables, the auditors must have seen a document that convinced them that most of that amount is recoverable,” he said.
Others believe that backing out the N713 billion reversal of impairment and refunds showed that NNPC would have reported another year of loss. Going further into the report, the auditors explained how NNPC had been sustaining recurring losses over the years, culminating in N1.5 trillion as of December 2020.
“These events or conditions along with other matters indicate that a material uncertainty exists that may cast significant doubts on the group and Corporation’s ability to continue as a going concern,” PwC, SIAO Partners, and Muhtari Dangana & Co say in a joint statement.
Increased income
It is not really all gloomy as the audited report revealed a 153.95 per cent increase from the NNPC’s Other Incomes from N266 billion in 2019 to N675.7 billion in 2020. The major components of the Other Incomes include a N110.6 billion refund from the federation, N157 billion from sundry incomes (amounts recovered from the federation relating to strategic alliance balances), and a N250 billion from variation in crude stocks, which represents movements in crude inventory, under-lift and over-lift positions.
As the director of finance and operations at a Washington-based Community Foundation of Snohomish County, Kalu Aja, put it “the Corporation was able to show positive results due to cash infusion from the federal government.”
“The cash infusion is more than cash generated from the operations of the Corporation. To be legal and clear, this is correct. The question is should a Corporation that has a negative short-term position post billions in accounting ‘profits’”?
More questions
The shortfall of the value of the Corporation’s assets over its liabilities is one area of contention, especially as this raises concerns on the going concern of the supposedly most prolific and strategic asset of Nigeria. The experts wondered how a Corporation like NNPC can perennially be loss-making, while companies operating in the sector, with very limited assets and resources, are consistently reporting operating profits, with strong cash flow.
Speaking with this reporter, a source who would not want his name in print said to record profit in a pandemic year when the majority of businesses were recording losses is no mean feat. He noted that if the Corporation records profit in 2020 of all years, “it shows that they would have been recording profit in years past which has not been remitted.”
Other professionals wonder what could have eroded the assets of NNPC beyond its perennial losses, which have always been a subject of enquiry. While it’s a myth yet to be unravelled, analysts wonder how NNPC spends N678 billion on general and administrative expenses, including some N65 billion staff cost of its refinery subsidiary, despite the public knowledge that the refineries are moribund. While some say petrol subsidy has been one of the major factors responsible for NNPC’s poor performance, that argument seems weak given that NNPC usually passes the cost to the federation account.
Positive devt
Some experts have, however, commended the Corporation for the courage to make its financial statement public. According to them, the move is a positive development for the extractive industry.
An energy law expert, Damilola, Olawuyi (SAN), explained that international law emphasises the need for openness and transparency across all aspects of regulatory enforcement and supervision. NEITI has been particularly active in raising awareness of the need for proactive information disclosure as a tool for enhancing public confidence and eradicating corruption.
“The publication of audited financial statements by the NNPC shows that such efforts are paying off and will significantly boost investors’ confidence in the on-going efforts by the federal government to sanitise the extractive industry.
“Reducing secrecy, through the publication of open and transparent data, allows stakeholders to monitor corruption risks across the entire oil and gas value-chain and to make sure they are properly addressed,” Prof. Olawuyi said further.
An Abuja-based chartered accountant, Ifeanyi Onuba, in his reaction, expressed surprise that people question the report because they have not been following the Corporation’s publications of its monthly financial and operational reports (MFORs).
“It is unfortunate that despite NNPC’s Monthly Financial and Operations Report including the published Audited Financial Statements for 2018 and 2019, Peterside could still claim that the Corporation took funds from the federation account in order to announce a profit of N287 billion,” he said.
