How do you revitalise an underperforming downstream business model? If you are the Nigerian National Petroleum Company Limited (NNPC), you buy your competition to enlist their management to run your failing one.
Sources with knowledge of the transaction told BusinessDay that NNPC’s purchase of OVH Energy is aimed at acquiring top-notch professionals to help the national oil company manage its listless downstream business.
Last week, the NNPC said it acquired the downstream assets of OVH Energy, the second-largest downstream company with over 380 retail stations across the country.
“The acquisition, which is under our Accelerated Network Expansion (ANEX) Initiative, will bring over 380 additional filling stations under the NNPC’s retail brand in Nigeria and Togo on our journey to attaining 1,500 stations,” NNPC said.
Other assets in the transaction include a reception jetty (ASPM) with 240,000MT monthly capacity, eight Liquefied Petroleum Gas plants, three lubes blending plants, three aviation depots, and 12 warehouses.
“With this development, we are poised to become the largest petroleum products retail network on the African continent,” NNPC said.
Huub Stokman, CEO of OVH Energy, said: “This strategic move aims to create the leading downstream energy company in Nigeria and West Africa, driven by operational efficiency, best-in-class management, and physical infrastructure while offering premium petroleum products and related services to customers.”
The NNPC, set up by the government and operated on behalf of the federation, only recently pledged to be more transparent, saying it was poised to run a commercial operation. But it failed to disclose just how much it paid to buy OVH Energy and how it secured financing.
The NNPC has also been unable to remit funds to the Federal Allocation Accounts Committee which is shared by the federal and state governments, raising questions about how it could finance the acquisition that could be worth millions of dollars.
Garbadeen Mohammed, NNPC’s spokesperson, did not respond to BusinessDay’s questions.
An examination of the NNPC Retail Limited’s financial statement raised some red flags that could validate NNPC’s decision to improve its managerial competence.
NNPC Retail’s inventory turnover surged from N6.5 billion to N28.9 billion in one year, indicating that the company has inventory worth N28.9 billion.
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Consumer goods firms carry huge inventories when spending power is weak, crimping demand for the products. This is even more abnormal, considering that the bulk of the product is subsidised. It raises questions about why the company is carrying so much inventory.
The volumes of consumption and therefore revenue generated from the Northeastern region of Nigeria is curious, considering that this is a region in crisis with fewer filling stations and even fewer economic activities.
Yet, NNPC Retail said it generated a revenue of N62 billion from the North-East, while it generated revenue of N48 billion from the South-West and N1.7 billion only from the South-East.
The company also reported that contract liabilities or down payments from customers rose from N3.6 billion to N15.1 billion in one year, an increase of 319 percent, which is difficult to reconcile with the huge inventory.
Some marketers contacted say they are waiting to see what becomes of the NNPC with the acquisition.
The Major Oil Marketers Association of Nigeria (MOMAN) said in a statement that they welcomed the development.
“MOMAN welcomes and encourages the ongoing market consideration which will bring stability, cost, and logistics optimisation, enhanced competition, and best practice sharing as we progress to a deregulated market,” said Olumide Adeosun, chairman of MOMAN.
