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NNPCL which had posted losses of N807 billion in 2018
and N1.7 billion in 2019 became profitable for the first time in 44 years when
it recorded a profit of N287 billion in 2020.
The remarkable turnaround saw the company grow its profit
ratio by 183 percent in four years, 2018 to 2021, a significant achievement
given the drastic drop in the international price of crude oil over the period.
The company backed up that performance with a contribution
(first in over a year) to the Federation Account revenue for the month of June,
2023 by remitting N123 billion (made up
of N81 billion monthly interim dividend and N42 billion 40 PSC profit oil) in
addition to compliance on payment of royalties and taxes.
This occurred after President Bola Tinubu ended petrol
subsidies that finally deregulated the downstream sector of the oil and gas
industry and freed NNPC Limited cash flows for trading activities.
And as part of
measures to push operational cost further down and boost profit margins, the
company has shut down all unviable Strategic Business Units, SBUs, leaving it
with only 21 subsidiaries. Notably, it
has merged its oil field services, the Integrated Data Services Limited, IDSL,
and Frontier Exploration to become NNPC Services Limited, EnSERV, with focus on
exploration, seismic data management, and general oilfield services.
The national oil company has also streamlined its shipping
operations with three entities, NIDAS Shipping Services, NIKOMA Shipping
Services and Marine Logistics merged to become NNPC Shipping Company.
A source familiar with NNPC and its operations told Vanguard
that the company has also brought the ongoing rehabilitation of its three
refineries located in Port Harcourt, Warri and Kaduna under a single
supervision.
According to the source, who didn’t want to be named, “in a
bid to optimise and reduce overhead costs, a couple of companies were merged
and others were optimized for better operability and profitability. The former
refining and petrochemical directorate was merged with downstream for better
alignment with an improved cost effective structure.
“There were 25 subsidiaries in NNPC Limited prior to
reorganization. All unviable SBUs were shut down in a bid to reduce overhead
cost and optimize revenue. Businesses with duplicated functions were merged for
economies of scale and optimization. New units were created like New Energies.
This led to the reduction in the number of subsidiaries from 25 to 21.
“The three refineries are currently undergoing rehabilitation
and are managed as rehabilitation projects supervised by a refinery
coordinator. Once completed, the plan is to hand the assets over to reputable
third parties with experience to operate and maintain them”, the source added.
Speaking on the funding for the rehabilitation of the
refineries, the source faulted the allegation that $1.6 billion was borrowed
under former President Goodluck Jonathan.
“Under President Jonathan, no money was borrowed for
Turn-Around Maintenance. Under President Muhammadu Buhari, only $1 billion was
borrowed. Rehabilitation is still on-going”.
Checks by Vanguard showed that the cost approved by the Federal Government
for the rehabilitation of the nation’s three refineries were $1.5 billion, $740
million and $548 million for Port Harcourt, Kaduna and Warri refineries,
respectively.
The two Engineering Procurement and Construction, EPC,
contractors are Tecnimont (France) for the Port Harcourt Refinery
rehabilitation and Daewoo (South Korea) which oversees the quick fix projects at
both Kaduna and Warri refineries.
Transforming NAPIMS into NUIS as assets hit $58bn
Following the enactment of the Petroleum Industry Act 2021
and the subsequent incorporation of NNPC Limited the net book value of assets
transferred to the company as at July 1, 2022 amounted to $58.8 billion worth
of assets, making it one of the most valuable companies in Africa.
This figure, according documents sighted by Vanguard, is
without assets belonging to the Pipeline and Storage Company (NPSC) which has
all the depots and pipeline network. That company was finally transferred to
NNPC in 2022.
NNPC Limited assets were boosted at transition when the
Federal Government asked it to manage assets held on behalf of the government
by the National Petroleum Investment Management Services, NAPIMS and pay
dividends to the Federation Account.
Another source at NNPC explained that “at transition, there
were joint venture (JV) assets of which 59 to 60 percent belonged to the
Federation. NNPC has its own assets, NEPL, Retail & the HQ which NNPC as a
commercial entity operates. Crude oil proceeds from NAPPIMS goes to the Federal
Government”.
Countering insinuations that at N21.04 trillion, NUIMS owns
more assets than the parent company, which reported assets of N15.84 trillion
in 2020, and N16.2 trillion in 2021, the
source pointed out that such insinuations
show a lack of understanding of the NNPC Limited structure, the
segregation between subsidiaries and Corporate Service Units, and the basis of
the financial statements.
“The accounts referred to are the 2020 and 2021 Audited
Financial Statements of NNPC and the separate accounts of NAPIMS (now NNPC
Upstream Investment Services, NUIMS, a Corporate Service Unit of NNPC not a
subsidiary) for the same period. These are two separate and distinct accounts
for two different entities.
Speaking to the context of the accounts under scrutiny (202
& 2021) before the transition of NNPC to a Limited Liability Company and
NAPIMS to NUIMS, the source explained that NNPC account is for NNPC and its
subsidiaries, while NAPIMS Account is in respect of the Federations interest in
the Upstream Oil & Gas Industry.
“NAPIMS was set up to warehouse the Federation’s interest in
JVs, PSCs and Service Contracts arrangements with local and International Oil
Companies. “The principal activity of NAPIMS was managing and overseeing the Federation’s
interests in the joint operating agreements, the production sharing contracts
and other arrangements in connection with the Federation’s upstream petroleum
activities. The NAPIMS representing the Federation has participating interests
in certain Oil Mining Licenses covered under the various Joint Operating
Agreements.
“Thus, the N21.04 trillion assets of NAPIMS were captured
from the Audited Financial Statements of NAPIMS which represent the Federations
equity share in the 12 Joint Venture arrangements in the upstream sector of
Nigeria’s Oil and Gas industry. The reported assets of N15.84 trillion in 2020,
and N16.2 trillion in 2021 were captured from the then NNPC Audited Financial
statements and represent NNPC and its subsidiaries owned assets and excludes
Federation’s Upstream Oil & Gas Assets managed by NAPIMS and reported in
NAPIMS own Audited Financial Statements.
“However, based on the provisions of the PIA, all
Federations Joint Venture Upstream Oil & Gas being managed by the then
NAPIMS has been taken over by NNPC Limited. This means the Upstream assets
comprising the equities in the JV’s are now being managed by NUIMS and will be
reported in the books of NNPC Limited which took effect from 1st July 2022″,
the source added.
Investing into roads infrastructure
Debunking the allegation that NNPCL negotiated a tax credit
of N1.53 trillion with the Federal Government to construct 11 roads covering
737km nationwide, the source said this was not correct as the company did not
negotiate a tax credit with the government.
“We decided to participate in the road tax-credit scheme to
develop Federal Highways to minimize the accidents experienced by tanker
drivers on these roads. The Federal Executive Council on 18th of January, 2023 approved funding for the
rehabilitation and reconstruction of 65 roads. Phase 1 comprises 21 roads
totalling 1,804 kilometres at N621bn while phase 2 covers a total equivalent
single lane carriageway of 4, 445.16km at N1.9trn.
“Both ongoing projects serve as NNPC’s payment of Company
Income Tax due from two subsidiaries and Parent Company used to defray 3-year
company income tax liability. Without doing this, most of the Federal roads
will take 20 years to complete.
“We took advantage of this to make life easy for our tanker
drivers. It is not a credit given to us by FIRS. It is our tax obligation being
used to pay contractors working on the roads. We will keep paying our petroleum
profit tax and royalties. This scheme has saved the government variation from
contractors owing to the prompt payment within 30 days and saves the federal
government funds”.
Playing at the global stage with NTLD
To position itself to play effectively at the global stage,
NNPC established a new trading company, NNPC Trading Limited, NTLD, to manage
the sale of its crude oil, this followed oil industry experts complain that the
company is the only major oil company in the world that sells all its crude
through middlemen, fuelling illegal arbitrage and corruption.
But the source explained that NNPC as an oil company “owns
refineries and a trading arm where you can buy and sell. When trading you can
sell to an end user which is the refinery and you can decide to sell to someone
who can resell to an international company. That is the beauty of buying and
selling where you can even take advantage of arbitrage. You as a trader can
hedge.
“For instance, if OPEC had said last month that they have
decided to curtail volume among OPEC plus producers, as a trader you can now
envisage that when it comes close to winter there will be high demand because
of heating oil. If today as a national oil company I decide to set aside a certain
quantity for my refinery and produce some more, I can hedge and trade it for
future demand and prices. Instead of selling at $80 today, if it will sell at
120 in three months, I could just hedge. People miss-use the term middlemen
without proper understanding.
“International Oil companies like Aramco, Pantamina and even
BP reach out to us to come and bid for their cargoes. They also reach out to
buy. It’s a willing buyer, willing seller arrangement. It is a different ball
game if the refineries are working and then I refuse to sell to my refinery or
give to someone else to sell to my refinery, then that is using middle men.
“In that portfolio we also give priority to our local
traders to sell crude over the foreign oil companies. So we sell crude to our
local traders who are also into the business. Considering the trade terms, if I
were to sell to an end user with a refinery in Spain, if the terms of payment
are not favourable to me, like late payment, which will affect my delivery to
shareholders, if I find a Nigerian company willing to pay me in 30 days. I will
sell to the Nigerian company and pay my obligation to shareholders. This
arrangement is probably what they mistake as middlemen”.
The source noted that NNPC is living up to its responsibility
as a private company and tearing down the iron curtain of silence on
information that will portray the company as a reputable company for investment
and business, dispel misconceptions and keep its 200 million stakeholders
abreast with developments in the company.