2019 AFS: Amid Losses, 2020 Outlook Promising for NNPC
-By Gideon Osaka
Barely five months after publishing its 2018 Audited Financial Statement, the Nigerian National Petroleum Corporation (NNPC) recently released its 2019 Audited Financial Statement (2019 AFS).
The 2019 Audited Financial Statement, which was concluded five months after the release of the 2018 Audited Financial Statement, was published on the Corporation’s website in keeping with NNPC Management’s commitment to transparency and accountability and in consonance with the principles of the Extractive Industries Transparency Initiative (EITI) of which it is a partner.
It would be recalled that the Group Managing Director of NNPC, Mallam Mele Kyari, had promised to sustain the publication of the Corporation’s Audited Financial Statement as part of efforts to deepen transparency and accountability and keep stakeholders abreast of NNPC operations.
The Corporation had on Thursday 11th June, 2020 made history with the publication of its first audited financial statements after 43 years of its operation. It was a day, in all intents and purposes, the National Oil Company erased all doubts about its total commitment to transparency and accountability in its business transactions as it published, for the first time, its comprehensive Audited Financial Statements (AFS), in compliance with President Buhari’s commitment to accountability and transparency.
The no holds barred publication of the corporation’s 2018 and now 2019 AFS is, however, not fortuitous
In his maiden statement on assumption of office on 8th July, 2019, the NNPC GMD, Mallam Mele Kyari, had stated unequivocally that the corporation’s business dealings and governance, under his watch, would be accountable to the 200million Nigerians whom, he believes, are the true shareholders of the company.
Transparency, he explained at the ceremony marking his assumption of office, would be his watchword.
The publication of the 2018 and 2019 AFS of the corporation is therefore a promise fulfilled.
The recent full disclosure of the corporation’s books involved those of 19 Strategic Business Units (SBUs) and a Corporate Services Unit (CSUs).
The release of the AFS was in compliance with the directive of President Muhammadu Buhari and his Administration’s commitment to accountability and transparency, heralding a new regime of full disclosure of government agencies’ transactions. It was also made in accordance with International Financial Reporting Standards, apart from being a requirement for the Companies and Allied Matters Act (CAMA).
In all, 19 entities of the corporation, registered under the Companies and Allied Matters Act (CAMA) as amended and the National Petroleum Investment Management Services (NAPIMS), had their books published on the NNPC website.
NNPC’s entities covered in the 2019 AFS are: NAPIMS, IDSL, NPDC, NETCO, Port Harcourt Refining Company (PHRC), Warri Refining and Petrochemicals Limited (WRPC), Kaduna Refining and Petrochemicals Company (KRPC), Duke Oil Services (UK) Limited, Duke Oil Incorporated and Duke Global Energy Investment Limited, the Wheel Insurance, Petroleum Products Marketing Company (PPMC), Nigerian Pipelines and Storage Company (NPSC), NNPC Retail Limited and NIDAS UK Agency.
Others include; NIDAS Shipping Services, NIDAS Marine FS, Nigerian Gas Marketing Company (NGMC), Nigerian Gas Company (NGC), and N-Gas.
Highlight of the 2019 AFS conducted by international auditing and financial advisory firm, Pricewaterhouse Coopers, indigenous accounting firms, SIAO Partners and Muhtari Dangana & Co., show a 99.7% reduction in NNPC loss profile from N803bn in 2018 to N1.7bn in 2019.
Further insight into the 2019 AFS, show that the Corporation’s general administrative expenses also witnessed a 22% dip from N894bn in 2018 to N696bn in 2019.
Unlike in the 2018 audit, majority of the subsidiaries posted improved performance in 2019. For instance, the Nigerian Petroleum Development Company Limited (NPDC) recorded N479billion profit in 2019 compared to N179billion in 2018 representing 167% increase; the Integrated Data Sciences Limited (IDSL) recorded N23billion profit in 2019 compared to N154million in 2018 representing 14966% increase; the Petroleum Products Marketing Company (PPMC) recorded N14.2billion profit in 2019 compared to N9.3billion in 2018 representing 52% increase.
Other subsidiaries which posted improved performances included the Nigerian Gas Company Limited (NGC) which had its total asset increase from N221 billion to N361 billion, representing about 63 per cent rise in the company’s asset base. NNPC Retail Limited, a subsidiary established in 2002, recorded a profit after tax of N2.6 billion as against N1.9 billion in 2018.
Among others, the company is engaged in the sale of refined products in the filling stations run by the corporation.
NNPC Health Maintenance Organisation Limited with total revenue of N2.5 billion, however, bounced back from its N6.6 million loss in 2018 to a profit after-tax of N277 million in 2019. The National Petroleum Investment Management Services (NAPIMS) also recorded a profit of N2.8 billion for the year against N1.2 billion in 2018.
Speaking on the improved performance for the year, NNPC Chief Financial Officer Umar Ajiya explained that the improved performance in the 2019 financial year was driven mainly by cost optimization, contracts renegotiation and operational efficiency.
He said “the 2019 AFS goes further to demonstrate our unwavering commitment to the principle of Transparency, Accountability and Performance Excellence (TAPE) while the outlook for 2020 looks promising in view of the Management’s strong drive to prune down running cost and grow revenues.”
However, the refineries maintained the same level of losses as in 2018 due largely to their non-functional state. The Port Harcourt Refining Company (PHRC) recorded a loss before taxation of N46 billion, higher than the N45 billion recorded in 2018, and a total comprehensive loss of N50 billion in the year under review.
The story wasn’t different for the Warri Refining and Petrochemical Company Limited (WRPC), which made a loss before tax of N49.2 billion against N44.4 billion in 2018. It had total revenue of N921million in 2019 as compared to N1.9 billion in 2018.
The Nigerian Pipelines and Storage Company Limited (NPSC), the company which provides transportation and storage facilities for the distribution of petroleum products, recorded a loss of N1.3 billion for the year. This, however, represented a reduction when compared to 2018 when the company lost N2.4 billion. Wheel Insurance Limited recorded a loss, as its total comprehensive income for the year fell from $18.1 million in 2018 to $7.3 million in 2019.
In all, the NNPC consolidated statement of account for the year ended December 31, 2019 showed a comprehensive loss of over N16.3 billion and N20.2 billion by the group.
In 2018, the corporation recorded over N203.2 billion in losses while the group lost about N68.95 billion.
The report further said recurring losses by the NNPC over the years have culminated in an accumulated loss of about N1.55 trillion and N474 billion respectively, compared to N1.6trillion (group) and N490.7billion (corporation) in 2018.
Despite the net loss of about N1.8 billion by the Group and N107.8 billion by the Corporation, compared to N803.1billion and over N254billion for the two entities respectively in 2018, being an improvement, the report said the Group’s current liabilities still exceed its current asset by over N4.4 trillion, and the Corporation’s by N1.1 trillion.
In 2018, Group’s current liabilities was over N3.3 trillion and the Corporation’s N968.7billion, although in the opinion of the Directors, the market value of NNPC’s asset was not less than the carrying value reported in the financial statement.
The report warned that material uncertainty exists that cast significant doubts on the ability of the NNPC to escape bankruptcy.
Valuechain analysis shows that though the corporation made overall loss in 2019, the losses dropped by 99.7% from N803bn in 2018 to N1.7bn in 2019 which is a positive for the Corporation going forward.
Also, the 2019 comprehensive AFS may not be a perfected report, the fact that is being made available to the public, nonetheless, projects a significant progress in institutionalising transparency and accountability in NNPC, a bold move which, in many respects, is a worthy example for others to emulate.
For a company most maligned for opacity in recent past, the publication of NNPC’s books is a big deal. Any wonder that extractive industries watchdogs across the world have touted the feat as a glorious example worthy of emulation.
Available data show that the current management under the leadership of the Group Managing Director, Mele Kyari, with the support of the federal government has initiated a number of mitigating procedures to help in mobilising adequate resources to ensure the corporation continues to operate into the foreseeable future.
Apart from the NNPC’s cost optimisation and efficiency policy, indications are that the federal government is committed to assisting the corporation remain commercially viable by removing all cost drivers responsible for the accumulated shortfalls over the years.
One of such critical cost saving measures embarked on by the government was the removal of fuel subsidy, which constituted a major drain on the corporation’s revenue, making it difficult for it to settle domestic crude oil obligations to the Federation Account.
Other policies by the government include reducing petroleum products pipelines sabotage; fast-tracking the passage and implementation of the Petroleum Industry Bill (PIB) and restructuring the petroleum industry. The PIB aims to improve transparency and corporate governance in the petroleum industry and allow the NNPC to operate as a commercial entity.
The government is also contemplating the recapitalisation of the NNPC to help it in clearing all outstanding debts to related parties and receivables to enable the NNPC restart on a clean slate as a commercial entity.
