With its transition to a commercial entity, there are growing concerns that the Nigerian National Petroleum Corporation (NNPC) Limited may battle old problems as it seeks to raise capital from financial institutions to fund projects and tackle funding shortfalls with joint ventures.
Last Tuesday, the NNPC officially transitioned to a limited liability company, a development seen as the biggest attempt at transparency and accountability since 1977, and equally greeted with positive reactions across the country.
Like its peers Saudi Aramco and Abu Dhabi National Oil Company (ADNOC), NNPC can now leverage being a commercial entity to raise quick cash, fund its operations, attract investments and give some verve to the country’s beleaguered energy sector.
However, experts have raised concerns about the company’s employee structure, high credit sales, high indebtedness, low revenues and low gross profits as factors likely to hinder the success of the company under the new arrangement.
Niyi Awodeyi, CEO at Subterra Energy Resources Limited, questioned how NNPC will succeed as a commercial entity with a workforce employed for political reasons.
“Transiting from a political or civil servant culture with a nonchalant attitude to a business entity with profit culture is a very long ordeal for NNPC Limited,” Awodeyi added.
Adenike Aloba, programme director/managing editor at Dataphyte, a research and data analytics organisation, said the subsisting problems would resurface as the government-run corporation has transited to a limited liability company.
“Based on the 2019 and 2020 audit statements, there are issues that, if not addressed, may impede the successful operations of the organisation as a private business entity in the short and long term,” Aloba said.
To arrive at a profit of N287 billion, the first in its 44-year history, NNPC declared a net impairment reversal of N713 billion in 2020, compared with a loss of N273 billion in 2019.
Reversal of impairment is a situation where a company can declare an asset to be valuable where it has previously been declared a liability, according to Association of Chartered Certified Accountants, a global body for professional accountants.
Financial experts questioned how the NNPC was able to revalue the N713 billion initially assumed to be doubtful receivables from the federation account.
Another shocking revelation from the audited report is a 153.95 percent increase from the NNPC’s other incomes from N266 billion in 2019 to N675.7 billion in 2020.
Three 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 N250 billion from variation in crude stocks, which represents movements in crude inventory, under-lift and over-lift positions.
“The cash infusion from the federal government is more than cash generated from the operations of the corporation,” Kalu Aja, director of finance and operations at a Washington-based Community Foundation of Snohomish County, said, adding, “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’?”
While NNPC struggles with inefficient operations, Saudi Aramco rewarded shareholders with $18.8 billion in the second quarter of 2022, capitalising on soaring crude prices following Russia’s invasion of Ukraine.
The payment is a vital source of revenue for the Saudi Arabian government, which still owns 94 percent of Saudi Aramco’s stock. It listed a sliver of the company’s shares in December 2019 and passed another 4 percent to the Saudi sovereign wealth fund this year.
The company also said it would use $4 billion in retained earnings to distribute bonus shares to shareholders — amounting to one share for every 10 shares held.
Aramco, which is at par with Apple Inc as the world’s most valuable companies, reported a net income of $39.5 billion for the quarter to March 31 from $21.7 billion a year earlier.
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“This is everything Nigeria wants to be in West Africa, but an inability to wean itself off petrol subsidies, coupled with a derelict government animated by corruption and inefficiency, continues to rain on its parade,” Charles Akinbobola, energy analyst at Lagos-based Sofidam Capital, said.
In the first five months of 2022, NNPC deducted N1.27 trillion for petrol subsidy — about 31 percent of the N4 trillion provision for the year.
Last Monday, Mele Kyari, group chief executive officer of NNPC, said the determination of fuel prices would continue to be a decision by the federal government despite the firm’s transition to a commercial entity.
Kyari, however, said the exercise would henceforth be performed for a fee for the Nigerian government.
“In the case of the price of petroleum, this is a policy matter. And the NNPC is going to be a supplier to the federation at a fee. So, the issue of at what price you sell petroleum will be the decision of the state,” Kyari said during an interview with Channels Television.
“Just like Saudi Aramco and ADNOC, how NNPC Limited inculcates international best practice decisions in its financial model will determine the success of the new private entity,” Akinbobola said.
