NNPC Insolvent? Never , Levi Ajuonuma

By Oscarline Onwuemenyi
What is all the hue and cry about NNPC becoming insolvent?Over the years, at the end of every FAAC meeting, there has been this recurring talk about a N450 billion debt owed the Federation Account by the NNPC.

Levi Ajuonuma

It got to a point about two years ago we had to take out advert space in newspapers and went on TV, explaining how transactions in the oil and gas industry is done, how money is paid directly by a bank that transacts business for the Federal Government, JP Morgan Stanley, to the Federation Account; how the Federal Government’s transaction with NNPC revolving round things like product importation and gas. You know that government subsidizes gas for PHCN.

For many years we didn’t have investment in gas because investors were saying they make more money producing gas for LNG than for domestic power giving to PHCN, and they don’t get their money.

That was until the administration of President Umaru Yar’Adua, and for the first time we had what we call Domestic Gas policy that led to a reversal of the previous situation on gas production and introduced ‘Gas for Power’ for the country; what that meant was a cap on the level of gas that can be used for LNG. It charged oil companies in the country to produce first for domestic use before it can be taken out. That is how the term ‘dom gas’ came about. All of that was because investment on gas dried up and subsidy on gas was not forthcoming, just like subsidy on PMS and other petroleum products, all of us work for government and you cannot say no when the government say you should do something.

So, we transact business for and on behalf of the government, which they ask the NNPC to pay for pending re-imbursement in the future; all of us work for the government and you cannot say no when the government wants something from you. Over the years, the money that FG says it will pay the NNPC has now grown to the tune of N1.156 trillion, and all that from subsidy.

There was a time we were carrying out 100 percent importation at a high rate, and government says don’t sell beyond this price for convenience of consumers. When government says don’t go beyond this price and we have to sell at a lower rate than we produce or import; if it was a deregulated economy where production price determines how much you sell, that won’t be the case. The FAAC will meet monthly and insist on payment of certain monies, saying that it does not matter to it what transactions we enter into with the Federal Government, and NNPC will say “Well, we can’t disobey instructions from the Federal government,” and FAAC will say, “Bring the money first, we have to pay salaries, fuel is not our biggest need.” But the fact remains that we cannot disobey instructions from the Government. It is an argument that has been going on for some time now.
Did you at any time report to the FAAC that you are insolvent, or that you can no longer remit to the Federation Account?

What we did was to explain what the level of our transactions with the Federal government over the past eight years. The minister has been part of this administration for over three years and so he knows the back and forth nature of this debate; it is a continuum. Fuel importation and subsidy is what is known to everybody in this country. The Federal Government asks the NNPC to use its money to import products, that they will pay us later. NNPC is saying that government should pay the corporation what it owes, and then we can remit what is necessary to the Federation Account.

JP Morgan Stanley pays directly everything that accrues from the sale of crude into the Federation Account but, remember we have our own earnings from our own investments. However, we work for Government, who determines what we do with our money. But the argument that the states often makes is that since it is a federation, we should put everything together and they would decide what they want to do with it but that is not really how it works at the centre.
How did this N450 billion debt arise?

Really, it is not a debt; I mean it is not proper to describe it as a debt. This is because if I owe you N450 billion and you owe me N1.156 trillion, how can you say that I am indebted to you? We have said it over time that we do not owe, and the Minister (of Information, Prof. Akunyili) corroborated that when she said NNPC has a positive balance with the Federal Government. But if FAAC insists that we are owing, all they need to do is minus the debt from the money they owe us and give us the balance. All you need to do is to work out the difference.

What then does the so-called insolvency affect NNPC’s dealings with its partners?
We are not talking about NNPC but the whole country here.  The issue of insolvency is primarily about Nigeria more than about NNPC. If in a country like the United States of America, with all its wealth and multiple avenues of generating income, President Obama would not allow an insurance company,

AIG, to go down for the sake of the economy, what more Nigeria that relies mainly on the sale of crude for its existence. How do you think a sovereign government operating on a mono-economy would allow the source of its economic mainstay to go down? No government that is alive to its responsibility would allow a company such as NNPC to fail.

Here, we are even talking about an insurance company that sells an intangible product, not to talk about a company like NNPC that has a tangible product to sell and is producing everyday, how anyone could talk about NNPC going broke. NNPC is producing about 2.2 million barrels of crude everyday, which it sells on behalf of the government. There is something called sovereign will, such that even if all the oil wells were to dry up and nobody is producing even a barrel, I am sure the Nigerian government would even borrow money to give to the NNPC to search for more oil wells, so that we don’t fail.

Some people, including government officials, have called for the probe of NNPC…
These people know the true story but choose to dance to the gallery. Do you know how many international, world-class audit and accounting firms have looked into the books of NNPC? Don’t forget that many government officials in the past have become popular just for initiating probes into the NNPC and the records are all out there for people to verify. Nigeria is an important member of the EITI family, but people don’t bother to check these things.

NNPC accounts are consistently audited and very open. We have always told anybody that calls for probe of the corporation, including the National Assembly members, that the NNPC has been over-probed; all they need to do is to go and read the previous records and see if there has been any change that would require a new probe, or is it just politically expedient to say demand for a probe of NNPC. There is no basis to the hues and cries that NNPC is not open. May be, that used to be the case in the past, but it was the former President, Chief Olusegun Obasanjo who opened up the activities of NNPC through the adoption of organizations like NEITI.

Whatever information you need today concerning the running of the Corporation, it is quite easy to access. For example, our due process mechanisms have been hailed as one of the most rigorous in the country. If you know how hard it is to get contracts passed in NNPC ; all checks and balances and other processes that have been put in place for this, you will agree that NNPC is the most efficient and transparently set-up in Nigeria.
When last was the annual report of the corporation presented to stakeholders?

The last annual report is that of 2009, and it has been made public. As we are talking, the GED Finance and Administration of the corporation is in London meeting with international banks that are willing to support investors. Remember that reputable companies are clamouring for investment in the nation’s oil and gas sector. For instance, the Russians are here for our gas, the Germans are here for power, and the Chinese are investing about N8 billion to establish three refineries in the country.

No serious investor goes to any country to invest without due diligence. What we are saying is that the Germans, Russians and the rest of the world would not be coming here and beating down our doors if they have not checked out our books. That is what due diligence is all about. If these foreign countries have bothered to look into our books in doing their due diligence, why do Nigerians find it hard to do likewise? These countries have done their due diligence and that is why they are here, and we want more of them to come in and invest in building more refineries because we cannot depend on 100 percent importation of petroleum products that we need to keep the nation going.

We understand that recent sale of some of the refineries in the country was cancelled because NNPC assured the Federal government that it could turn them around. What is the state of these refineries today?

The sale of the refineries was cancelled because it was not carried out properly. And, we did promise that we could return the refineries to full operations and today, I can tell you that the three refineries we have in the country are all running.

So, why do you have to depend so much on importation, if the three refineries are all running like you said.
Nigeria has a very large population that is growing everyday. On the average, we consume more than 33 million litres of PMS. When the refineries were built, the country’s population was not as high as it is today.

The 450,000 barrels which we get every day and is shared among these three refineries, is what they are built to handle and there output depends on how regularly they are maintained. You know that the refineries perform at optimal level when they are regularly maintained. Kaduna, for instance, just finished a Turn Around Maintenance (TAM), which means that the efficiency level has just gone up; next would be Warri, and then Port Harcourt. Do you realize that for more than 12 years, the TAM on the Kaduna refinery was not done because of bureaucracy?

That is why we are clamouring for the passage of the PIB, which would completely eliminate the bureaucracy related with the TAM of these refineries, and lead to the building of more refineries.

Today, Kaduna refinery is doing about 75 percent, Warri is running at about 70 percent capacity and Port Harcourt runs at about 60 percent capacity. If you put together all that the three refineries are producing in a day, even at optimum, it is less than 15 million barrels, and is not enough for our needs. Therefore, we have to import the balance.

Don’t forget that periods when production is down because of lack of turn around maintenance of the refineries, pipeline vandalism and the like, the country has to import in order to meet up with our needs for fuel and other petroleum products. Importation is important but we need more refineries to be built, and the only way more refineries can be built is if the prices are right.

What is the current landing cost of petroleum products?
PPPRA has the template, but I think the landing cost now is way above the price at which the products are being sold in the country. The point we are making is that the market must be deregulated so that we can attract more investment; so there can be a level playing ground. Government has no business building or running refineries.

What has been the impact of the amnesty programme on crude production in the country?
It has made a lot of impact, I must say. Do you realize that at the height of the violence in the Niger Delta region, Nigeria’s production fell to less than 1 million barrels per day? And for a nation that depends on oil production for about 90 percent of its foreign exchange earnings that was really critical. Then, even our foreign reserves plummeted. Thank God for the actions taken by the late President Yar’Adua;

I think the amnesty programme of government was indeed a master-stroke, and I am happy that President Goodluck Jonathan has continued with the programme otherwise we were going for broke as a nation.

People thought it was a joke and forget that a nation can fail; at least what is happening in Greece currently confirms that. Indeed, the amnesty programme has had a tremendously positive impact on crude exploration as our production has gone up significantly since it was introduced and oil and gas installations that were shut down has been re-open. However, to some extent, vandalism is still a challenge, but we are getting over it.