In August 2015, the Nigerian National Petroleum Company (NNPC) commenced monthly publication of its financial and operations report, an impressive move towards accountability. The information contained in the monthly reports were collated into a single annual report for the year 2016 and reviewed by BudgIT. Based on the findings within the report, we invited officials from NNPC, the Ministry of Petroleum Resources, the Nigerian Extractive Industries and Transparency Initiative (NEITI), Civil Society Organizations and private individuals for a breakfast meeting in order to engage with the NNPC officials and bring better clarity to issues raised by the annual report.
There was an impressive turn-out by the officials of NNPC with at least 10 senior officials attending. Here are the five things we learnt:
Help is on the way for Refineries: With the knowledge that the Dangote refinery might produce about 39million litres per day of PMS when it comes on stream, the looming monopoly of oil giant, located at the Lagos Free Trade Zone calls for concern. NNPC has decided to fix the ailing refineries, which has previously constituted a huge drain on the financial performance of the institution. The officials of NNPC stated that the institution has contacted the original builders of the refineries. 21 engineers have already arrived from ENI to assess the Warri and Kaduna refineries while other engineers are expected to check the Port-Harcourt. The engineers are expected to provide a detailed cost, timelines and resources for the refineries. NNPC stated it has gotten a baseline quote for the refineries’ turnaround. Interestingly, the rehabilitation of the refineries will not be funded by the public but through private investors with First bank and Rothschild showing immense interest. 2019 might be the deadline to get the required refineries’ performance again.
NETCO with idle engineers: BudgIT also brought up the issue regarding National Enginereeing and Technical Company’s (NETCO) inconsistent financial performance. NNPC explained that the NETCO engineers relied on jobs from the International Oil Companies (IOCs) and without these jobs, the engineers were possibly idle. It is obvious that NETCO needs to re-strategize to maintain profitability as reduced productivity would typically require company restructuring.
NNPC didn’t adjust its costs: The Corporate Headquarters’ poor finances were rationalized. CHQ is yet to undergo the required downsizing that most of the IOCs went through in the light of the current slump in the oil market. The Federal Government decided not the downsize as a policy and this affected NNPC too. This kind of scenario raises conflicts on the status of NNPC as either a commercial entity or just another state bureaucratic institution. It is hoped that the Petroleum Industry Governance Bill (PIGB) might finally resolve this.
The FAAC Dollar is NOT Guaranteed & JVs are not over: In a ceremony last year, it was stated that Nigeria was exiting the Joint Ventures market. This was exciting news as shortfalls from the FG that had risen to $5.1bn debt will no longer be the case. Despite this, the NNPC failed to remit its monthly FAAC dollar payments as required and only did so thrice in 2016. It was explained that the inconsistency in payments into the FAAC account is because NNPC has to settle its JV Cash call obligations before remitting the balance to the FAAC account. BudgIt learnt that JV cash call obligations will be difficult to unwind (possibly taking up to three years) before Nigeria can fully transit to the IJVs structure. With the implementation of the PIGB, the process may however be accelerated.
Who monetizes payments for crude, taxes and royalties?: Questions were raised about this and the fact that favourable exchange rates are usually utilized for the payments as shown in NEITI report. NNPC officials explained that the exchange rate is set by the Central Bank of Nigeria, which monetizes the cash receipts of the Production Sharing Contracts (PSC) and the Joint Ventures (JV) arrangements. However, it still remains unclear as regards domestic crude allocations. NNPC remits the dollar component for domestic crude sold, which is mostly used for Joint Ventures Cash Calls. However, a part of the naira payments (received from sale of finished products) is exchanged at N197 to $1 augment Joint Venture Cash Calls. The question is who exchanges naira for NNPC at N197 to $1 in this era?
The conversation keeps going on. Here is the report.
This project was supported by Open Society Initiative for West Africa.