The Rot In NNPC

The financial health of the Nigerian National Petroleum Corporation (NNPC) comes into serious question, as allegations of insolvency and corruption plague the oil behemoth
By Bayo Amodu
Is the Nigerian National Petroleum Corporation (NNPC) solvent?; is it not? This is a question which only time can provide answer(s) to. Only recently, the Minister of State for Finance, Remi Babalola, told newsmen in Abuja that the corporation does not have enough money to fund its operations and is, therefore, technically insolvent.
“NNPC is insolvent as current liabilities exceed current assets,” Babalola had told the Federation Accounts Allocation Committee (FAAC) meeting in Abuja two weeks ago, adding that the corporation is incapable of repaying the N450 billion it owes the Federation Account – unless it is reimbursed the N1.156 trillion (subsidies) it has requested from the Federal Ministry of Finance. Since Babolda’s disclosure, anxiety has gripped the nation’s prime honey pot, as officials of the Corporation, Ministers, and stakeholders continue to speak in varied tongues on the issue of the NNPC’s financial health.
The Source learnt that the NNPC in a letter it written to FAAC on July 12, 2010 explained that it would not be able to clear the debt, unless the Ministry of Finance pays it N1.15 trillion which the corporation described as “unreimbursed subsidy on petroleum products.” But Babalola has denied knowledge of any debt owed the NNPC by the Federal Government describing the corporation’s letter to FAAC as “copious and axiomatic.”
The Source gathered that the NNPC’s indebtedness to FAAC dates back to 2008, when the corporation refused to remit its portion of statutorily generated revenue as mandated by the 1999 Constitution to the Federation Account. FAAC had at various times summoned the Corporation’s GMD, Austen Oniwon, to come up with a repayment plan that would enable it settle the debt.
Oniwon’s letter read in part, “NNPC is facing financial difficulties evidenced by, among others, the inability to pay for the domestic crude as and when due, and delays in settling bills for fuel imports. The financial difficulties stem from disequilibrium between costs and cash inflow streams.
“The corporation is owed substantial amounts as unreimbursed subsidy on petroleum products. NNPC spends increasing sums of money in repairing/replacing vandalised assets and it is suffering from products losses arising therefrom. The costs of holding strategic reserves of petroleum products on behalf of the Federal Government, including demurrage, are borne by the NNPC,” Oniwon said.
It added: “NNPC is insolvent as current liabilities exceeded current assets by N754 billion as at December 31, 2008, and as such, NNPC is incapable of repaying the N450 billion owed the Federation Account unless it is reimbursed the N1.16 trillion requested from the Federal Ministry of Finance.”
When asked if FAAC would write off the N450 billion debt, Babalola said that since the issue was now beyond the committee, it had to be taken to President Goodluck Jonathan for consideration.
Meanwhile, President Jonathan has ordered the Finance Ministry to audit the accounts of NNPC, which had been plagued by mismanagement and corruption over the years. Babalola also said the President “has directed that henceforth, the Department of Petroleum Resources (DPR) should generate monthly oil production statistics for reconciliation on the second month, following the initial month of data generation.”
In addition, the President, he said, has instructed the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC), to ensure that the figures generated by DPR are used for computation and sent to the Ministry of Finance for revenue allocation by the third month following the initial month of data generation.
The presidential directives became imperative, sources said, because the FAAC “was for some time tackling recoveries for the over and under- payment to states from the 13 per cent derivation computation as a result of the late release of the derivation indices as when due,” Babalola said.
The Federal, states and local governments shared N413.277 billion in June, because of an N11.484 billion increase in Value Added Tax (VAT) earnings for that month. Accountant General of the Federation (AGF), Ibrahim Damkwambo, disclosed: “The total revenue available from VAT was N52.027 billion as against N40.543 billion distributed in the proceeding month.”
However, the NNPC spokesman, Levi Ajuonuma, in a swift reaction denied that the corporation was insolvent. He said that the corporation was not incapable of meeting its financial obligations to its partners and stakeholders.
Ajuonuma: “We cannot be classified as insolvent when we have a healthy cash flow and we can pay for our crude and product importation obligations. While it is true that the national indebtedness to the NNPC is putting pressure on our operations, nonetheless we are able to meet all our obligations. We therefore cannot be said to be insolvent.”
The Federal Executive Council (FEC) also distanced itself from statements attributed to Babalola on the NNPC saga. According to FEC, the national oil company was not insolvent. The FEC, which met for just an hour in the Council Chambers of the State House, Abuja – with President Jonathan presiding – said information available to it from the auditor’s accounts indicated that the NNPC was a going concern.
Speaking on behalf of the FEC, the Minister of Information and Communications, Professor Dora Akunyili, said Babalola was misquoted.
Reacting to the reports on the state of accounts of the NNPC, Akunyili read a statement from the FEC, which said, “NNPC, from the auditor’s account, is a going concern and does not have solvency issue as a corporation. Therefore, categorically, NNPC is not insolvent.
“Given the nature of NNPC, there are regular transactions between the Federal Government and NNPC and, as a result, there was always outstanding balances between the corporation and the Federal Government,” Akunyili said.
The Minister of Finance, Olusegun Aganga, who was also present, emphasised FEC’s declaration that NNPC was not insolvent. In defending FEC’s position further, Aganga stressed that the NNPC was an important arm of the government.
“Let me reiterate what the Minister of Information said; I want to make it very very clear, the NNPC is a going concern. It is a very important arm of the government. To say it is insolvent is not true.
“We have so many different transactions between the NNPC and the Federal Government. In some form of the balances, it may be a daily balance, and in another, it may be a trade balance, you need to make all of these things up, Aganga said, adding:” “What the Minister of state for Finance said were just balances arising from two types of transactions that we have made and that was the point they were trying to make. So it is incomplete and it doesn’t give you the complete picture. Payment goes back and forth between the two entities.”
Babalola who was present at the meeting did not talk, neither did he retract his claims – even after FEC had publicly dismissed it as baseless – thus fuelling suspicions that there was more to the FEC denials.
Charles Nwaogu, a public analyst reacting to this development opined that it clearly suggests that Babalola believes in the accuracy of the facts at his disposal; moreso as he buttressed his claims with figures.
According to Nwaogu, the statement from FEC on the purported solvency of the NNPC was largely unsubstantiated. “Besides, neither Akunyili nor Aganga has refuted media reports that the NNPC had actually written to the office of the Finance Minister of State, declaring that it was “Insolvent” and experiencing difficulties in fulfilling financial obligations, including paying the outstanding N450 billion it owed the Federation Account Allocation Committee. Babalola’s statement was apparently based on the contents of that letter and other facts available to him.
“FEC would need to clarify certain points it made on this subject. The Information and Communications Minister, for instance, alluded to an “auditor’s report” on the NNPC, but it is known that President Jonathan had directed the Minister of Finance last May, to appoint competent, independent auditors to examine the accounts of the corporation. Now, if an audit report already exists and is satisfactory enough to be cited, why has the President demanded an audit of NNPC’s accounts?” Nwaogu asked.
The Source learnt that the government has failed since 2007 to constitute a board of directors for the corporation. Such a board, with the Minister of Petroleum Resources as chairperson, is required by the corporation’s enabling statute to appoint auditors. The absence of a board of directors means that management decisions and corporate activities never received requisite approvals and direction during the period.
In fact, there are many instances showing that the corporation might be insolvent afterall. Back in May 2008, the then Secretary of Oil and Gas Sector Implementation Committee, Alhaji Bello Aliyu Gusau, had decried the corporation’s assets management and operations. According to him, “NNPC as a corporation has evolved into a huge cost centre without the required strategic commercial focus.”
Also, at the 13th Oil and Gas Conference and Exhibition held in Abuja on February 18, 2008, then President Umaru Yar’Adua had expressed regret that the “NNPC has lost focus.” How the corporation got to that sorry pass was explained by its former Group Managing Director, Abubakar Yar’Adua, at the graduation ceremony of Chief Officers courses on June 5, 2008. His words: “A situation where we spend all we generate and even beyond what we generate just on personnel cost does not make us look like a credible business outfit.”
Speaking further on the NNPC financial puzzle, Nwaogu said: “The state of affairs in the NNPC is desperate enough to warrant forensic examination of its accounts and operational activities during the period 1999-2010. Nigerians deserve to know the factuality of disclosures by the House of Representatives Committee on Petroleum (Downstream), last year, that NNPC was unable to account for funds allocated for Turn Around Maintenance of the refineries –$53 Million (in respect of Kaduna Refining and Petrochemical Company).
“And $128 million (in respect of Warri Refining and Petrochemical company). This is especially necessary as the four refineries in the country have remained problematic to this moment. The government also needs to look into how the NNPC has operated the two offshore accounts. It opened in 2002. There are just too many question marks on NNPC’s operations demanding forensic examination and decisive action,” Nwaogu insists.
With the issue of NNPC’s alleged insolvency yet unresovled, a fresh crisis of confidence may be brewing in the nation’s oil sector, over the sale of oil blocks by International Oil companies (IOCs) to suspected fronts, with stakeholders alleging scripted compromise ahead of the passage of the Petroleum Industry Bill (PIB). The Source learnt that several IOCs, in collusion with some indigenous operators have been floating companies with local profile, to beat PIB’s provisions, which offer incentives for indigenous participation.
Already, the Trade Union Congress (TUC) and Independent Shareholders’ Association of Nigeria (ISAN), have called on the Federal Government to probe the recent sale of oil blocks following allegations of under-hand dealings by some IOCs. TUC’s President-General, Peter Esele, said the allegations were weighty enough to be probed by the government.
Esele’s position came against the backdrop of claims that some IOCs sold three oil blocks to foreign firms with the facade of using local companies in order to beat the law. The TUC president, a senior employee in the oil and gas industry and former President of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSA), said that sanctions should be meted out to any firm found to be sabotaging the government’s efforts in this regard.
Already, controversy has been trailing the sale of three oil blocks belonging to Shell Petroleum Development company (SPDC), Total and Eni in Oil Mining Leases (OMLs) 4,38 and 41 to Seplat Petroleum Company Limited, an indigenous company jointly owned by two Nigerian firms - Platform Petroleum Limited and Shebah Petroleum Development Company Limited, along with Maurel & Prom of Finance.
The deal, which was first announced in January, was said to have been officially approved by the NNPC on June 15, while the final process was to be concluded in the coming weeks. However, queries are being raised over the genuinenessof the indigenous tag of the two ‘Nigerian’ companies, as observers believe that an IOC is merely waiting in the wings to take over the indigenous companies.
For instance, investigations by The Source revealed that Maurel & Prom (a foreign company) has already acquired a 45 per cent stake in Seplat, officially registered as a Nigerian company. Subsequent to the deal, Maurel & Prom would own 20.25 percent of the rights before royalties (20 per cent for oil) in oil blocks.
Seplat’s other shareholders include Platform Petroleum Limited (22 per cent) and Shebah Petroleum Development Company Limited (33 per cent). The two companies with indigenous tags operate production and exploration assets in Nigeria, as well as a Floating Production, Storage and Offloading vessel (FPSO). Maurel & Prom was expected to make an initial investment of $193 million in Seplat, and was to undertake necessary measures to facilitate a similar amount to finance the equity holding of the other Seplat shareholders.
In January this year, Seplat, SPDC, Total E&P Nigeria Limited, and Agip Nigeria Oil Company signed an agreement concerning the acquisition by Seplat of a 45 per cent stake in OML 4, 38 and 41 in Nigerian onshore operations. The outstanding 55 per cent stake was expected to remain with the Nigerian National Petroleum Corporation (NNPC).
However, The Source learnt that industry operators are sceptical about due process in the transactions and therefore query the level of transparency applied. One of the beneficiaries, Platform Petroleum Limited, which operates a full-cycle, integrated oil and gas production, processing and marketing chain, has an eight-member board of directors with a broad spectrum of experience spanning petroleum exploration and production, law, finance and asset management.
Some operators fear that there is the possibility that the equity would be handed over to an IOC, immediately the bill is passed into law. This is because, prior to the deal, Maurel & Prom had acquired a 45 per cent stake in Seplat. Under the arrangement, it will now own 20.25 per cent of the rights before royalties, while Platform Petroleum and Shebah Petroleum will own 22 and 33 per cent, respectively.
The Source also gathered that there are special interest groups within government positioning themselves to be the ultimate beneficiaries if the blocks are sold to local oil companies owned by key government officials.
Senate President, David Mark, recently criticised the NNPC over its $35 billion contract with a Chinese company. To the Senate President, China does not possess the best of technology in refinery construction. Mark noted that it is only in Nigeria that a foreigner can come in with a briefcase, with absolutely no idea; only access to the corridors of power and be sure of getting a juicy contract, without due process.
While stating that almost $600 billion has left the shores of Nigeria in the last 50 years due to such intulgences, Mark asked rhetorically, “when will we bring the money back – either by incentives or by guaranteeing security of investments of Nigeria?”
A Chinese firm was three months ago awarded the contract for construction of three refineries in the country. In the view of the Senate President, Nigerian engineers should rather have been encouraged to do the job. This, he said, would have contributed to the actualisation of the country’s Vision 20:2020 objective.
Speaking at a one-day retreat for the implementation of the Vision 20:2020, Mark charged the government to move from a mere exporter of crude oil to exporter of petrochemicals and energy like other countries.
“Recently, the Nigeria National Petroleum Corporation (NNPC) signed a $35 billion contract for constructing a refinery in Nigeria. It is known that China does not have the best technology in refinery but Nigerians engineers working in Houston and other places could do the same if the infrastructure agency can raise the finance for them to do it. Even in Iran, the fracturalisation is done by Iranian engineers supported by their pension fund.
“While we appreciate that we are in an era of globalisation, the Vision 20:2020 must be truly Nigerian project, with Nigerian soul and psychology. While the nation could benefit from the experience of others, be they nations or international institutions, we must be careful not to limit ourselves entirely to their development paradigm and definitions,” Mark further said.
After the recent revelations by Babalola and the discordant tunes that followed, the senate has once again reiterated the imperative of a probe of the whole saga. The chairman of the Senate Committee on Petroleum (Downstream), Senator Lee Maeba, disclosed recently that his committee would persuade the senate to take a holistic look at the NNPC.
The Upper House of the National Assembly had insisted, after the sack of former Group Managing Director (GMD) of the NNPC, Sanusi Barkindo, that it would probe the financial records of the corporations in order find out the depth of financial dealings there since 2007. Thirteen lawmakers in the Upper House had put together a motion requesting a comprehensive investigation of the records of the oil conglomerate.
For several weeks early this year, the motion was listed for deliberation but was curiously skipped several times, leading to fresh grumbling among lawmakers. Those who pushed the motion last April were Majority Leader, Teslim Folarin; Minority Leader, Ma’aji Lawan; Deputy Majority Leader, Victor Ndoma-Egba (SAN); and Deputy Minority Leader, Adeleke Mamora. They were among the Senators that signed the senate document calling for an extensive inquiry into the money that accrued to the NNPC in the last two years and how it was spent.
Portions of the motion reads: “The senate committee on Petroleum Resources (Upstream) had on several different occasions including the 20th day of April, 2009, the 20th day of May, 2009 sent correspondence and reminders to the office of the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), which were duly signed and received even in the office of he Honourable Minister of Petroleum Resources. The committee had requested the Group Managing Director to submit to the committee the revenue and expenditure profile of the NNPC on quarterly basis, with a window of two weeks on each of the notices sent to him for the documents to reach the committee.
“Inspite of the several requests and follow-up reminders, the Group Managing Director has wilfully and intentionally refused to either acknowledge any of the several requests of the committee or provide the documents as requested, inspite of his awareness of their importance to the successful accomplishment of the committee’s lawful oversight responsibilities,” the Senators said.
As a follow-up, the lawmakers sought the permission of the Senate to investigate among others: the profile of revenues from all sources accruing to and paid to the NNPC, including all income statements from September 2007 to September, 2009; the total records of crude oil sales and remittances into the Federation Account, if any, within the period; All monies paid by the corporation within the period, with receipts and payment invoices; the contracts and projects approved by the board, including joint venture contracts and payment for such projects; and all internal and audited accounts of the corporation for the period.
David Oluwajuwon, a Lagos lawyer and public affairs analyst while speaking with The Source on the issue said that although the Federal Government has argued – apparently in a bid to safeguard its business interests – that the NNPC, from the auditor’s account, was a going concern which had no solvency issue, it would be of a little gain to call an albino a white man in this situation.
According to Oluwajuwon, watchers of the sordid NNPC Affair should not be surprised that the nation is being causally told that $400 billion of oil revenue was lost to corruption between 1960 and 1999, all against the backdrop of the financial mismanagement, inefficiency and first rate corruption that contributed to policy inconsistency, frequent change in leadership that has plagued the oil behemoth.
He added that it is no longer news that profitability in oil business has been sacrificed for “pocket ability” since 1978 when government acquired the remaining 40 per cent equity of the Nigerian petroleum refining company from Shell and British Petroleum. This, he said, was after the initial compulsory acquisition of 60 per cent equity shareholding that came with Decree 77 promulgated in 1977 to establish the NNPC.
The Source also learnt that the corporation’s Insurance premium was inflated over a period of 10 years, covering between 2001 and 2010. The Federal Government was said to have lost about $363.8 million to the London Insurance market through phoney deals at the NNPC.
Speaking on the development in Lagos recently, chairman of the Nigerian Insurers Association (NIA), Olusola Oladipo-Ajayi, who exonerated the local insurers, said that the terms, as regards the underwriting, were agreed upon at the London market.
“The terms and conditions were agreed upon at the London market. I think it is some people who are saying those terms and conditions were skewed against the Federal Government, that NNPC connived with insurers to defraud the government,” Oladipo-Ajayi said.
Oluwajuwon: “Political interference, corruption-ridden bureaucracy and incompetence in high places over the years, has earned for the NNPC lurid awards of inefficiency which politicians capitalised upon to milk the country’s resources on a wicked large scale, leaving the majority of the population in perpetual poverty.”
“Sadly, however, past efforts to uproot enemies of progress from the system through forensic audits later proved to be empty threats, perhaps spearheaded by masquerading marauders. The result is that after over three decades of operations, corruption, which appears to walk on all fours at the NNPC, continues to nibble at the nation’s resources.