Compared to its peers, NNPC’s ‘historic’ profit fails to impress
The Nigerian National Petroleum Company Limited (NNPC) posted its second consecutive annual profit of N674.1 billion in the 2021 financial period, 135 percent higher than the previous year, but in comparison with its peers, the performance is underwhelming.
Taiwo Oyedele, fiscal policy partner and Africa tax leader at PwC, put these numbers in context, presenting how the inefficiency in NNPC was leading to value destruction in Nigeria.
He said: “Last year (2021), with an average daily crude oil production of 9.2 million bpd, Saudi Aramco generated revenue of $400 billion and net income of $110 billion after paying $95 billion in taxes. Additionally, dividends of $75 billion were paid (mostly to the government). Given higher oil prices, profits have soared in 2022 with the company’s market capitalisation now about $2.5 trillion.
“If we assume that the Nigerian government’s share of daily crude oil production is just below 1m bpd, NNPC proportionately could have generated about $50 billion revenue, net income of $11 billion, paid taxes of $9.5 billion and dividends of $7.5 billion with market capitalisation hovering around $250 billion. This means even if only 20 percent of the shares were to be listed, government will raise about $50 billion to pay off our public debt if we wish to.”
Oyedele said this meant even if only 20 percent of NNPC’s shares were to be listed, “Nigerian government will raise about $50 billion to pay off our public debt”.
Nigeria’s total public debt rose by 2.98 percent in the second quarter of this year to N42.84 trillion ($103.31 billion), data released by the Debt Management Office showed.
A further analysis of the profit declared by NNPC showed that it received a first-of-its-kind tax waiver of N173.7 billion from the Federal Inland Revenue Service (FIRS) “with approval from the Presidency in respect of its outstanding tax liabilities” to arrive at a profit of N674 billion in 2021.
“Tax waivers are yearly one-off effects which are not dependable for sustainable profits,” Niyi Awodeyi, a chartered accountant and CEO of Subterra Energy Resources Limited, said.
“There is nothing wrong with tax waivers, but for a country struggling with rising budget deficits and growing borrowing, is tax waivers ideal at this point?”
Another revelation from the audited report is how the Nigerian Petroleum Development Company Ltd (NPDC), a subsidiary of NNPC, performed a reconciliation of its tax liabilities with the FIRS.
The audited report showed, based on NPDC and FIRS, a total under-provision of N112 billion for company income tax, petroleum profit tax and education tax was written back.
“This might be due to two main reasons; it might be because of lower income earned during the period or lower applicable tax rate,” Kayode Oni, a tax expert attached to one of Nigeria’s major consulting firms, told BusinessDay.
“In a period where Nigeria’s peers record bumper profits due to higher oil price, Nigeria’s oil company depends on reverse impairment, now it’s tax gimmicks to boost profits,” Oni added.
Other experts highlighted concerns about NNPC’s high credit sales, high indebtedness, low revenues and low gross profits as factors likely to hinder the success of the company’s transitions to a commercial entity.
For instance, NNPC’s cost of sales increased by 47 percent to N5.3 trillion; selling and distribution expenses by 42 percent to N51.7 trillion; while general and administrative expenses by 21.6 percent to N788 billion.
“This increase is in line with the rise in revenue from petroleum product costs during the year under review,” Mele Kyari, group chief executive officer of NNPC, explained.
According to NNPC, total assets increased by 2.6 percent from N15.86 trillion in 2020 to N16.27 trillion, while total liabilities decreased by 8.3 percent from N14.68 trillion in 2020 to N13.46 trillion in 2021.
It added that the shareholders’ fund position of the NNPC Group also followed an upward trend as it rose to N2.81 trillion in 2021, as against N1.15 trillion in 2020. This represents a 144 percent increase at the end of December 2021.
“The performance would have been greater if the operations in the year under review were free from incessant vandalism, crude oil and products theft among others,” NNPC said in a statement accompanying its results.
NNPC’s total revenue, which came from the sales of crude oil, petroleum products, gas, and other services, including seismic contracts and gas transmission tariffs declined by 72 percent to N6.4 trillion in 2021.
For most Nigerians, the transparency around the oil company seems to be gradually unfurling after poor mismanagement in the past years.
Running it was merely gulping huge funds for many years, with no returns.
The NNPC board and management also chose to pump an equivalent of 4.5 percent of Nigeria’s 2021 budget into the refurbishment of the Port Harcourt Refinery Company, which comprehensively lost N152.89 billion between 2017 and 2019.
“The group and corporation during the year donated a total sum of N621 million and N48 million respectively to various charitable organisations, higher education institutions and other organisations during the year ended 31 December 2021,” said the auditors of NNPC, made up of PricewaterhouseCoopers, SIAO Partners, and Muhtari Dangana & Co.