The current context within which the workings of the NNPC should be debated and interrogated is how it can assume and maintain the status of a commercially viable entity, as its consecutive losses are not feasible in a shareholder environment, in the long term.
While it is important for Nigeria to diversify her revenue base to meet up with its fiscal responsibilities, it is also imperative to ensure all lingering issues with the country’s oil and gas resource governance framework are resolved, to maximise financial returns from our crude oil reserves for whatever period this resource would last.
The Nigerian National Petroleum Company (NNPC) began monthly publication of its financial and operations report in August 2015, an impressive move towards accountability. We analyse reports for the years 2015 to 2017, and compiled our findings into a single report. Based on the results within the report, we held officials from NNPC, the Department of Petroleum Resources, the Ministry of Petroleum Resources, Civil Society Organisations and other relevant stakeholders to a breakfast meeting where we engaged NNPC officials for precision to issues raised in the annual report.
There was an impressive turn-out by the officials of NNPC with at least 12 senior officials in attendance. Here are some of the questions we asked and the responses we got from the officials. They promised to send other required answers to us. As at the writing of this report, we are yet to hear them.
Questions on NNPC’s Corporate Headquarters
Question: Why are the CHQ losses huge? It doesn’t engage in any production activities, why are its losses higher than subsidiaries that do? Can CSOs get more clarity on what its crucial cost drivers are?
Answer: The Corporate Headquarters does not make revenue, it is instead a cost centre. The subsidiaries feed the head office, and the cost drivers are the salaries of staff, emoluments, and maintenance. There is a plan to reduce staff strength.
Questions on NNPC’s Subsidy/Under-recovery
Question: Why is under-recovery (which is used to subsidise the cost of PMS) being charged by NNPC from revenue payable to FAAC? Is there any form of oversight being played by the National Assembly on subsidy payment?
Answer: The government appropriates subsidy. The government should bear the cost of subsidy, NNPC is to supply fuel. Under-recovery is an operational expense to National Oil Company, NOC from doing business. Every marketer has access to import petroleum products and sell, but they do not import because they don’t want to make a loss.
Questions on NNPC’s Subsidiaries
Question: The NNPC continues to ensure that the financial and operational performance reports of three of its subsidiaries (Hyson, Duke Oil, and National Petroleum Investment Management Services (NAPIMS)) remain as opaque as the texture of the crude oil it presides over. Details of their expenses and revenue from the group’s financial records are excluded from the public domain, even though these companies have existed for decades. Duke Oil, for instance, has been registered by the NNPC group in Panama since 1989. Why is Duke Oil registered in Panama — a known tax haven & money laundering hub? Why does it continue to receive crude allocations from NNPC despite its glaring shortcomings exploited in the past and lack of capacity? Isn’t its existence as a middleman driving up the costs needlessly? Can NNPC include financial & operations breakdown of all subsidiaries’ performance including Hyson, Duke Oil, etc., in its monthly financial report?
Answer: Duke oil is not part of ventures; instead it is part of the downstream sector.
Questions on Natural Gas
Question: Why is the gas flared higher than gas used for Gas-to-Power? Is the penalty regime enough to ensure International Oil Companies (IOCs) upgrade their infrastructure to minimise flaring? Who owns the transportation infrastructure? There should be a spin-off for the Nigerian Gas Company (NGC.)
Answer: The government has put a Nigerian Gas Flare Commercialization Programme (NGFCP) in place, the objective of this programme is to eliminate gas flaring through technically and commercially sustainable gas utilisation projects developed by competent third-party investors who will be invited to participate in a competitive and transparent bid process.
Questions on PMS Consumption
Question: What is responsible for the rapid increase in PMS consumption? Can the daily dispatch statistics of PMS be made available in a granular format (perhaps in .csv format)? Why are petroleum products produced (especially PMS) always different from what is evacuated?
Answer: The consumption of PMS increases when power is terrible, also, the Petroleum Products Pricing Regulatory Agency (PPPRA) is in charge of the daily consumption of petroleum products.
It is essential to accelerate the passage of the Petroleum Industry Bills, particularly in this penultimate year to what will likely be a tight election. We note that political focus is already shifting, apparently delaying a start on the arduous task of restructuring the same industry that sustains the country’s spending power.
The conversation keeps going on. Here is the full report:
http://fixouroil.com/wp-content/uploads/2018/08/NNPC-Roundtable_August_31st_2018-copy.pdf
NNPC promised to provide more detailed answers to the questions via email. These answers have not been provided to BudgIT at the time of putting together this report.
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