For potential investors, the audited account of Nigerian National Petroleum Corporation (NNPC), the second time, 45 years after it was established is a tonic that will indicate the firm’s ability to make enough money to either stay afloat or how commercially viable the oil firm is despite challenges.
The state oil firm is on the verge of becoming a commercial entity following the consideration of the Petroleum Industry Bill, to make it attractive for potential investors, but this will hinge on how transparent it continues to be.
At first glance, the audited report showed a comprehensive loss of over N16.3 billion by the corporation and N20.2 billion by the group compared to the 2018 loss of N203.2 billion and N68.95 billion for corporation and group respectively.
However, at second glance, the Auditors of NNPC, made up of Pricewaterhouse Coopers, SIAO Partners, and Muhtari Dangana & Co. raised “material uncertainty” about the company’s liabilities of N9.68 trillion exceeded its assets by N4.4 trillion leading to an accumulated loss of about N1.55 trillion and N474 billion respectively, compared to N1.6trillion (group) and N490.7billion (corporation) in 2018.
The auditors warned that the NNPC may be pushed into bankruptcy by its unsustainable operational processes.
“These events or conditions 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 realise its assets and discharge its liabilities in the normal course of business,” the auditors noted.
In the report, the NNPC identified under-recovery as an incurred cost which the federal government allowed it to take from its revenues before passing the balance to the Federation.
These include the cost of crude and pipeline losses, pipeline maintenance, and under-recovery of the difference between the landing cost of fuel and the regulated price fixed by the government.
In 2018, Group’s current liabilities were over N3.3 trillion and the Corporation’s N968.7billion, although, in the opinion of the Directors, the market value of NNPC’s asset was not less than the carrying value reported in the financial statement.
To save the NNPC from going bankrupt, the report said the current management under the leadership of the Group Managing Director, Mele Kyari, with the support of the federal government has initiated a number of mitigating procedures to help in mobilising adequate resources to ensure the corporation continues to operate into the foreseeable future.
Apart from the NNPC’s cost optimisation and efficiency policy, indications are that the federal government is committed to assisting the corporation to remain commercially viable by removing all cost drivers responsible for the accumulated shortfalls over the years.
“Before the next audited account, the government must look at clearing all outstanding debts to related parties and receivables to enable the NNPC restart on a clean slate as a commercial entity,” Kelvin Atafiri who runs Cavazanni Human Capital Limited, an investment firm exposed to the oil and gas sector said.
Some stakeholders close to the NNPC said some of the policies include the removal of fuel subsidy, which constituted a major drain on the corporation’s revenue, making it difficult for it to settle domestic crude oil obligations to the Federation Account.
Other experts said the introduction of the price modulation mechanism in the Petroleum Products Pricing Regulatory Agency (PPPRA) fuel pricing template under the deregulation policy in the downstream sector of the petroleum industry was to curb a major cause of losses by the NNPC.
Other policies by the government include reducing petroleum products pipelines sabotage; fast-tracking the passage and implementation of the Petroleum Industry Bill (PIB) and restructuring the petroleum industry.
Apart from the privatization of NNPC, the bill will also amend the newly changed offshore royalties and raise the threshold of the price-based royalty to above $50 a barrel from $35 per barrel.
The above development will be crucial for NNPC ‘s going forward as Total revenue realised by the corporation during the year (about N2.58trillion) dropped by N55.56 billion, or 2.13 percent, from N2.64trillion in 2018, while the Group’s revenue of about N4.6trillion was lower by N105.95 billion or 2.24 percent from the corresponding figure in the previous year.
The revenues came from the sales of crude oil, petroleum products, gas, and other services, including seismic contracts, and gas transmission tariffs.
The corporation recorded a profit of about N24.39 billion in 2018, an increase in its cost of sales by about N5.61 billion, or 0.22 percent in 2019, from N2.61 trillion in 2018 to N2.62 trillion, resulted in a loss of N36.8 billion during the year.
However, a reduction in the corresponding costs by the Group by about N219.4billion, or 5.3 percent, from N4.14 trillion in 2018 to N3.92trillion led to a rise in profit from N600.6billion in 2018 to about N714billion during the year under review.
The corporation’s total operating costs, including expenses on sales and distribution, general and administration as well as net impairments losses on financial assets, rose from N354.3 billion in 2018 to N355.9billion, against the Group’s operating losses of about N301.6billion, down from N771.6billion.
General and administrative expenses included Directors fees and expenses of N21 billion for the corporation from N60 billion in 2018, and N606billion for the Group, from N403 billion in the previous year.
The NNPC Group consists of the NNPC Corporate headquarters and 21 strategic business units or subsidiaries, including the National Petroleum Investment Management Services (NAPIMS), Nigerian Gas Company Limited, Nigerian Petroleum Development Company Limited, National Engineering and Technical Company Limited among others.
The decision might be tough, but for Nigeria, a listed NNPC will not only drive huge capital accumulation in Nigeria it also means Nigeria is going for market forces to determine oil production, retail price for products, and proper deregulation of the oil sector.
