Inside NNPC’s unending deficit bubble
A significant feature of the Nigerian National Petroleum Corporation’s (NNPC) monthly financial and operations report is its trading deficit, which is over N5.74billion for August alone.
The figure grows astronomically as you travel further backwards, and so does your incredulity. Between 2012 and 2016, NNPC generated N15.5 trillion but it also recorded a deficit of N3.1 trillion, and recorded expenses valued at N18.6 trillion in the same period, according to an investigation by a senate committee.
Shortages are not new though. Former Central Bank governor, Sanusi Lamido Sanusi, raised alarm in September 2013, that between January 2012 and July 2013, NNPC had diverted the sum of $20 billion meant for the Federation Account. Probes carried out by PwC Nigeria, a professional service firm, revealed unaccounted oil sales, including $20 billion established for 2014 alone.
To prevent further abuse, the Senate committee, headed by Adeola Olamilekan (Lagos APC), which also indicted other federal agencies, recommended an amendment of the laws to make it mandatory for all revenue generating agencies to include resident auditors that will have unfettered access to all financial records and books of these agencies.
But this is hardly a new counsel. The Natural Resource Governance Institute, (NRGI), an extractive sector transparency watchdog carried out a comprehensive analysis of NNPC’s oil sales recently, and found serious irregularities.
It reported that the NNPC, while trying to resolve deep structural problems, improvises with poorly designed oil-for-product swap deals and Domestic Crude Allocations. It soon began to unilaterally spend billions of dollars without appropriation and retaining funds that should have been transferred to the treasury. In 2013, the Federation Account received only 58 percent of what should accrue.
While NNPC is perhaps the organisation that has seen the most reforms in Nigeria, it remains dysfunctional.
Last year, Muhammadu Buhari, Nigeria’s president, inaugurated an inter-ministerial committee to re-organise and reform the NNPC. After a year, senior executives have been redeployed, a forensic audit conducted, new business units created, cancellations of contracts, monthly publication of operations report, separation of minister’s office from GMD of NNPC, reorganisation of NNPC board and the creation of 12 business focus areas.
Despite these, NNPC reported deficits when oil prices were less than $40 in the first quarter of 2016, to the current over $64 per barrel in fourth quarter of 2017.
Worse still, the NNPC GMD has been embroiled in a rift with Ibe Kachikwu, indicating gaps in governance and transparency. Kachikwu claimed Baru awarded contracts amounting to $26billion without due process.
However the structure of NNPC’s board and the reporting line of the GMD were always going to create controversy. The NNPC GMD is not compelled to defer to Kachikwu, the minister controls the national oil company, in this case the president.
Further, Buhari, appointed Abba Kyari, his chief of staff, to the board of the NNPC which Kachikwu chairs on his behalf but Kachikwu has to pass through the chief of staff to reach the president, effectively restricting access and undermining his recommendations. In this situation, board appointments and into the NNPC are highly sectionalised and susceptible to political patronage. This structure makes it impossible to sanction the NNPC for any infractions.
This necessitates the NNPC’s cavalier attitude towards its deficit. “The low performance in the period relative to previous month is attributed to reduction in surplus recorded in the upstream value chain,” said NNPC’s July monthly report. It did not even bother to provide any explanation in August.
Peter Egbule, national coordinator, Publish What You Pay, an international coalition that promotes public debate on the reforms in the extractive sector, speaking on the sidelines of a two-day multi-stakeholders’ workshop for civil societies working in the extractive sector recently, said the NNPC is still not transparent enough despite the reforms.
Will the PIGB help?
Many are counting on the Petroleum Industry Governance Bill to make the NNPC play the role of national oil companies like Statoil and Saudi Aramco. It splits the NNPC into three entities: the Nigerian Petroleum Assets Management Company (NPAMC) and the National Petroleum Company (NPC), which will be vested with certain liabilities and assets of the NNPC. There is also the regulator, the Nigerian Petroleum Regulatory Commission (NRPC).
The NPAMC shall be responsible for the management of the NNPC’s oil and gas investment in assets where government is not obligated to provide any upfront funding (essentially the production sharing contracts), whilst the NPC shall be an integrated oil and gas company operating as a fully commercial entity across the energy value chain.
Nigeria’s 2018 budget is to be partly funded from restructuring of the nation’s shareholdings in joint venture (JV) companies which will cap government’s stake in them below 50 percent like the NLNG.
Many have called for adoption of this model for the NNPC. Its operations are subjected to too much government scrutiny and political interference. By this arrangement, the corporation will run as commercial operations with the ability to raise its own funding, borrow and finance projects without recourse to the country’s budget.
Government has also been urged to develop a new, legally mandated mechanism for funding NNPC operations. This will resolve the conflict between the country’s constitution and the NNPC Act concerning revenue withholdings; create a binding budgetary process for NNPC with adequate checks and balances; and place strict limits on extra-budgetary spending. Clear rules on revenue retention by subsidiaries are also needed, said the NRGI.
ISAAC ANYAOGU