By Obas Esiedesa, Abuja
For NNPC Limited, the past three years have been remarkable as it moved from a loss-making government controlled entity in 2018 to a vibrant, commercially driven conglomerate with a N674.1 billion profit in 2021.
The company 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.