Business - Business & Economy - News - Oil & Gas - September 10, 2021

NNPC 2020 Annual financial statement: More than 35% of declared N3.72trn revenue is debt by related parties

MEDIATRACNET

Despite posting a hefty profit after tax of over N287.2 billion from its operations in 2020, details from the Audited Financial Statement by the Nigerian National Petroleum Corporation (NNPC) published on its website on Wednesday have shown related parties debts gulped more than 35.37 percent of the total revenue realised by the corporation during the year.

Out of the total revenue of over N3.718trillion, the statement showed the corporation is still being owed over N2.404trillion by related parties for various transactions undertaken in the course of the year.

A review of the statement revealed that the indebtedness grew by about 20.54 percent, from about N1.994 trillion in 2019, compared to the debt owed the parties by the NNPC over the corresponding period.

The debt by NNPC to the different parties dropped from N535.6 billion during the year to about N125.96billion.

Related parties are companies or entities related to the reporting entity with joint control, or welding significant influence over the entity.
All the companies listed in the report as related parties and indebted to the NNPC are either its subsidiaries or joint venture partners in various projects.

The list include Port Harcourt Refining Company Limited (PHRC); Nigerian Petroleum Development Company Limited (NPDC); Kaduna Refining and Petrochemical Company Limited (KRPC); Nigerian Gas Company (NGC); Petroleum Products and Marketing Company Limited (PPMC); Integrated Data Services Limited (IDSL); Warri Refining and Petrochemical Company Limited (WRPC) and National Engineering and Technical Company Limited (NETCO).

Others are Nigerian Gas Marketing Company Limited (NGMC); Nigerian Pipelines and Storage Company Limited (NPDC); NNPC HMO; Duke Global Energy Investment Limited; Duke Oil Company Inc; NNPC LPG; Nigerian Gas and Power Investment Company (NGPIC), and other related parties.

The other parties included Nidas Maritime Company Limited (NMC), Hyson Nigeria Limited and Nikorma Transport Limited, some of whose outstanding liabilities may have translated to bad debts considering their current legal status in liquidation.

Considering that most companies around the world were hardly having their heads above the economic waters throughout the financial year as a result of the impact of the COVID-19 pandemic, the details of the financial statement may have given critics good grounds to continue to question  NNPC’s huge profit during year.

Following the announcement by President Muhammadu Buhari about NNPC’s unprecedented declaration of the profit for the first time after over 44 years of operation, not a few analysts disputed the figures.

Some were of the view that there was nothing significant they observed that the NNPC did during the difficult period to result in such a phenomenal turnaround in its fortunes from a loss level of lover N803 billion in 2018 to N1.7 billion in 2019 and over N287.2 billion in 2020.
Regardless, the NNPC has insisted the profit was recorded as a result of new operational processes and systems as well as cost cutting measures adopted by its management to ensure transparency, accountability and efficiency in its operations.

For Henry Adigun, an oil and gas industry analyst and former Team Lead, Facility for Oil Sector Transformation and Reform, for NNPC to claim it made profit as a result of cost saving measures it adopted during the year is vague.

“If the NNPC has always recorded losses for a long time, and suddenly makes a profit at a period crude oil prices at the international oil market were low; when the same entity announced shortfall in remittances to the federation account, and did not do anything visible and significant to manage costs, such as retrenchment, what should we conclude?” Mr Adigun asked.

For Etomi Obeng, an Abuja-based lawyer and public commentator, the fact behind the figures is that the” “NNPC must have been busy engaging in motion without movement, by trading with itself  through its subsidiaries and accumulating debt among themselves to create the impression of efficiency and productivity.”

Further review of the financial statement showed the bulk of what was captured under cost of sales were mostly expenses on petroleum products under-recovery (popularly called subsidy payment) and operating expenses bordering on rig site and simulation acrivities, pipeline repairs and maintenance, security and protocol services.

During the year, about N2.24trillion, out of a total N3.65trillion recorded as cost of sales, was spent by the Group on petroleum products importation and distribution, against N2.82 trillion spent in 2019, with N2.13trillion by the corporation, from N2.56 trillion in the previous year.

Other components of the cost of sales included payment of royalty to the federal government (N345.4billion); gas purchase (N150.6billion); direct well expenses (N24.17billion); crude handling and port charges (N59.4billion); safe, environment and pollution control (N2.6billion); and Niger Delta Development Commission levy (N21.24billion).
Others include rig site and simulation expenses (N20.1billion); allocated technical and production cost (N65.04billion); pipelines maintenance cost (N14.6billion); dlowstations expenses (N86.5billion); Labour costs (N58.13billion); production costs (N62.62billion); technical and consultancy charges (N8billion) and other operating expenses (N154.2billion).

With the Group current liabilities exceeding current assets by N4.6trillion, up from N4.4trillion in 2019, the financial statement noted: “The sustained recurring losses over the years culminating into accumulated losses of approximately of N1.5trillion (Group) and N395 billion (Corporation) indicate that a material uncertainty exists that may cast significant doubt on the Group and Corporation’s ability to continue as a going concern and therefore may be unable to realize its assets and discharge its liabilities in the normal course of business.”

To support the NNPC continue its operational existence and function, the statement noted efforts by the Federal Government to make it commercially viable.

These include elimination of cost drivers responsible for the accumulation of the shortfalls in settling domestic crude obligation to Federation Account; implementation of the Petroleum Industry Act to restructure the Petroleum Industry, improve transparency and good governance and give the NNPC the autonomy to operate profitably.

The government says it plans to recapitalise the NNPC and set it up as public limited liability company quoted in the Nigerian Stock Exchange to enable it mobilise capacity to resolve all outstanding related party payables and receivables to start on a clean slate.

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