By Udeme Akpan

With the prolonged coronavirus, COVID-19, pandemic, many analysts did not expect much from operators in the oil and gas industry globally for some reasons.

First, the pandemic culminated in lockdown and low demand for oil and gas, especially in China and India, which constitute Nigeria’s major buyers.

Second, it also impacted negatively on prices and revenue of petroleum exporting countries.

For instance, in its August 2020 Monthly Oil Market Report, MOMR, obtained by Vanguard, the Organisation of Petroleum Exporting Countries, OPEC, had stated that “the global economic growth forecast for 2020 is revised down to -4.0 per cent, compared to last month’s forecast of -3.7 per cent, following a further negative impact from the COVID-19 pandemic.

“The recovery in 2021 is forecast to reach 4.7 per cent, unchanged from the previous month. The US is revised down slightly and now forecast to contract by 5.3 per cent in 2020.”

Despite these negative global forecasts, the Nigerian National Petroleum Corporation, NNPC, which also bears Nigeria’s fuel subsidy burden, managed to record profit. The Group Managing Director, NNPC, Mele Kyari, in August, disclosed that the corporation made N287 billion as its first Profit After Tax in 44 years.

Specifically, he said: “This is a very proud moment for us and our shareholders. We are no longer declaring losses.

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“As a matter of fact, just like last year as we moved from a loss level of N803 billion in 2018, we reduced it to N1.7 billion in 2019, and in the 2020 fiscal year, we made a profit after tax of N287 billion.

“This is no doubt a huge progress but, by no means, sufficient. This is the largest corporation in Africa.”

Driving factors

Providing insight, he said: “There are very drastic changes to the way we do our business. One is to cut costs, to be more efficient and also to ensure that this company is transparent and accountable to Nigerian people and, therefore, is a process that started in 2015.

“The first principle of course elimination is that, don’t buy what you don’t need. And we simply stopped buying what we do not need.

“Also, particularly in fiscal 2020, whoever was engaged in all our contracts, we insisted on cutting costs to at least 30 per cent.

“This worked and we’re able to pull down most of our procurement costs by 30 per cent totally.

“We saw the opportunity to be much more efficient by automating our system and process, and processes that made us faster and also, ultimately, it reduced so much of logistic costs that ordinarily would have been additional costs on our business.

“So, why do you combine all these.”

Audited Financial Statements

Beyond profit, the apex oil corporation followed up with the publication of an Audited Financial Statements, AFS, on its official website. The publication of the statements was sequel to President Muhammadu Buhari’s directive.

Buhari, who is also the Minister of Petroleum Resources, had said: “I have further directed the NNPC to timely publish the Audited Financial Statements in line with the requirements of the law, and as follow up to our commitment to ensuring transparency and accountability by public institutions”

In compliance with the President’s directive, the NNPC fulfilled this very statutory requirement by publishing the AFS, which stated that the corporation’s group profit rose from a loss position of N1.7 billion in 2019 to a profit of N287billion in 2020.

Further highlights of the AFS showed that while the corporation’s group financial position increased in total current assets by 18.7 per cent, compared to that of 2019, its total current liabilities increased by 11.4 per cent within the same period.

The group’s working capital remained below the line at N4.56 trillion in 2020, as against N4.44 trillion in 2019, the AFS further revealed.

Similarly, the corporation’s group revenue for the 2020 financial year stood at N3.718 trillion, as against N4.634 trillion in 2019, a decrease that could be attributed to the decline in the production and price of crude oil, due to the global impact of COVID-19.

Implications

However, the profit and publication of the AFS have significant implications for the NNPC, the oil and gas industry and Nigeria’s oil-dependent economy, especially now that the Petroleum Industry Act, PIA, has become a reality.

First, they show that the NNPC has gradually evolved over the years to become more transparent and accountable, compared to the past.

Second, they illustrate that the corporation has also gone a long way in cutting costs and increasing profits in many areas of its operations.

Third, the developments further show that the NNPC is now ready to operate as a corporation, which bears in mind the interests of shareholders and others in accordance with the provisions of the PIA, which would bring about restructuring, reorganisation, increased productivity and profitability, not only in the apex oil company, but also the entire oil and gas industry.

Already, Kyari, who noted that the apex oil company will, henceforth, serve as a holding company for all its subsidiaries in the post-PIA era, said: “So, these shareholders can decide, as the law provides that, over time, they can reduce the shareholding into some private shareholding.

“That means it can be floated subsequently as a company that is quoted on the stock exchange.

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“The intention at the very onset is not to go to that step, but there is a provision in the law that allows us ultimately to sell shares of this company.

“This is very simple. This company will pay taxes and royalties, which are revenues that accrue to the Federation. So, every part of this country and every sub-national institution or government will benefit from it.

“Secondly, this company will pay company income tax that also comes to the Federation for the benefit of all. So, what is different is that this company will now have profit to make and declare a dividend, which will be decided by the board of directors.”

Experts

In any case, the National President, Oil and Gas Service Providers Association of Nigeria, OGSPAN, Maxi Obasi, said: “The timing of the developments in NNPC is very apt.
It speaks volumes to the local and the international communities currently watching our space that Nigeria is the nation to be at this time, for oil and gas business.”

Also, a Port Harcourt-based Energy Analyst, Dr. Bala Zaka, said: “Indeed, we look forward to increased inflow of investments in the coming months.

“But that would depend on the ability of the Steering Committee for the implementation of the PIA to meet set targets.”

The PIA Implementation Committee comprised of Timipre Sylva, Minister of State, Petroleum Resources, as Chairman; Dr. Sani Gwarzo, Permanent Secretary, Petroleum Resources; Mele Kyari, Group Managing Director; Muhammad Nami, Executive Chairman, FIRS; Dr. Nuhu Habib, Senior Special Assistant to the President on Natural Resources; representative of the Ministry of Finance, Budget and National Planning; representative of the Ministry of Justice, Barrister Olufemi Lijadu, External Legal Adviser, and Dr. Bello Gusau, Executive Secretary, PTDF, as Head of the Implementation Working Group/Coordinating Secretariat.

Terms of reference

Under its Terms of Reference, ToR, the Steering Committee is expected to guide the effective and timely implementation of the law, in the course of transition to the new petroleum industry envisaged in the reform programme.

The committee also aims at ensuring that “the new institutions created have the full capability to deliver on their mandate under the new legislation; to approve the roadmap for implementation, which will be presented by the Implementation Working Group/Coordinating Secretariat; to approve or ratify the appointments of consultants who will support the Implementation Working Group/Coordinating Secretariat; to approve all recommendations for the institutional design and personnel movements as envisaged by the law; to coordinate timely preparation of appropriate model licenses, leases and regulations, including reviews and endorsement for presidential approval; to approve all recommendations of actions or outcomes required to implement any provision of the law, and to do all such things as may be necessary and appropriate to give effect to and implement any provision of the law as approved by the President.”

Vanguard News Nigeria