Publication of NNPC’s Audited Accounts Signals Openness

-By Benjamin Ike

Prior to the advent of the current administration in 2015, the level of secrecy associated with the operations of the Nigerian National Petroleum Corporation (NNPC) presumably encouraged high corruption, performance failures, inefficiency and mismanagement of the nation’s oil resources.

At that time, NNPC’s faults were described by a number of scathing reports, many commissioned by government itself. Various audit reports had uncovered cases where the corporation apparently failed to remit revenues running into billions of dollars into the Federation Account and that the opaque activities at the NNPC had made tracking payments from oil and gas companies quite challenging.

The largest problems with the corporation at that time stemmed from the rising number of ad hoc, makeshift practices it introduced to work around its deeper structural problems. And those poor practices came with high costs to the Nigerian economy and nation as a whole.
But President Muhammadu Buhari had on assumption of office initiated a reform in the NNPC, targeted at enhancing transparency and competitiveness of Nigeria’s oil and gas industry.

Also in an unprecedented move to restore public confidence in the activities of the NNPC, Minister of State for Petroleum Resources at that time, Dr. Ibe Kachikwu, who doubled as the Group Managing Director of the NNPC in 2015, opened up the books of the state-run oil company to public scrutiny with the publication of the monthly financial and operational report of the corporation.

The early gains of the NNPC publication of its operations and financial reports were enormous as public and investor confidence was gradually restored in Nigeria’s oil and gas sector.
However, with the publication of the monthly finances, the books of the corporation were described as being relatively opened for the public to access information and form the right judgment and conclusions.

The challenge was that despite what seems to be an improvement in the efforts to enhance transparency, subsequent audit reports still indicted the NNPC for running its operations in an opaque manner.
For instance, in its 2017 Resource Governance Index, the Natural Resource Governance Institute (NRGI), an international extractive industry transparency watchdog, criticised the NNPC heavily, alleging that despite some improvements in transparency, the corporation’s performance and accountability challenges persisted.
According to the report, NNPC, which is the largest state-run oil firm in Africa, achieved a poor governance score of 44 out of 100.

NRGI acknowledged that while the NNPC has recently strengthened some of its reporting practices, particularly for high-level financial data, however, the company did not disclose detailed annual reports on its finances, despite top officials having made a commitment to do so. Little information was publicly available, particularly concerning some of NNPC’s least efficient and most questionable activities, notably earnings by its subsidiaries, the costs of its operations and its significant spending on non-commercial activities.

Break of a New Dawn
With the coming of Mallam Mele Kyari as Group Managing Director (GMD) in July 2019, the transparency drive within the corporation was taken a notch higher.
The Kyari-led NNPC management recently blazed the trail by making the audited report of all NNPC’s subsidiaries available for the public. The corporation made history with the publication of its first audited financial statements after 43 years of its operation.

Thursday 11th June, 2020 would remain indelible in the annals of the NNPC. It was a day, to 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 AFS is, however, not fortuitous.

In his maiden statement on assumption of office on 8 July, 2019, the NNPC GMD, Mallam Mele Kyari, 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 stakeholders of the company.

Transparency, he explained at the ceremony marking his assumption of office, would be his watchword.
He followed this pronouncement up by rolling out a programme known as TAPE – Transparency, Accountability and Performance Excellence, which has become the operating guideline and a way of doing business in the corporation. The publication of the 2018 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), even as the NNPC affirmed that its 2019 Audited Financial Statement of the corporation was already being prepared and expected to be ready in a couple of months.

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.
The 2018 NNPC’s AFS posted positives in many of the National Oil Company’s upstream going concerns. A perusal of the AFS for the year ended December 31, 2018 of the National Engineering and Technical Company (NETCO), an upstream subsidiary of the corporation, indicated a profit after tax of over N4.5billion, a remarkable improvement from the previous year’s record of over N2.4billion.

The AFS of the Nigerian Petroleum Development Company (NPDC) indicated a profit after tax of over N179.1billion which comes as significant improvement from the 2017 profit of over N157.4billion.
During the period, NPDC posted a revenue of over N1.3trillion compared to the 2017 revenue of over N882.3billion. The AFS indicated that the NNPC’s flagship subsidiary has a total asset of over N5.3trillion within the period, compared to the N4.007trillion asset recorded in 2017.
On its part, the Nigeria Gas Company (NGC) recorded a profit after tax of over N13.2billion with a comprehensive annual income of about N19.9billion. The AFS also valued the NGC total assets in 2018 at over N251.7billion compared to N196billion in 2017.

In the Downstream Sector, the Petroleum Products Marketing Company (PPMC), for the first time, recorded gross profit of N24.3billion in the year under review, while NNPC Retail Limited posted profit after tax of over N2.2billion compared to the N1.8billion recorded in the preceding year.

The statement also indicated that National Petroleum Investment Management Services (NAPIMS) posted revenue of N5.04trillion in 2018 and profit of N1.01trillion, with total assets under the portfolio of the services unit valued at N18.6 trillion. NAPIMS, among others, manages the Joint Ventures contracts in the Upstream Sector on behalf of the government.

Integrated Data Services Limited (IDSL), an NNPC Subsidiary in charge of acquisition and interpretation of seismic data, posted a total comprehensive income of about N3.2billion with profit of about N154million within the period.
NNPC’s entities covered in the 2018 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.

According to the NNPC, the 2018 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.

The Extractive Industries Transparency International’s (EITI) Executive Director, Mr. Mark Robinson, declared, no sooner than the NNPC AFS was made public, that the development came at a record time, commending the National Oil Company as setting a new standard of reporting.

The Nigeria EITI in its reaction described the development as laudable, saying it was a fulfilment of the promise the corporation made to NEITI Management last year. The Executive Secretary of the body, Mr. Waziri Adio, stated that given NNPC’s prominent role in the Petroleum Sector and in the national economy, the publication of the corporation’s audited accounts was not only positive, but it also signalled the imminence of more openness in the Oil and Gas Sector and for Nigeria in general.
On his part, Senator Bassey Akpan, Chairman, Senate Committee, Upstream, said the recently published AFS of the NNPC underscored the readiness of the new Management of the National Oil Company to pursue transparency, good governance and accountability in the Petroleum Industry.

Data analytics firm, BudgIT, commended the NNPC for publishing the audited accounts of its subsidiaries and business divisions for the first time, and for launching the OpenData segment on its website, as a measure to promote transparency in its financial operations.
Other experts who have lauded NNPC for the feat noted that NNPC was heading in the right direction for transparency and accountability.

Challenges Still Exist
While accolades for the state oil firm continue to pour in, some experts maintain that while these are important steps regarding transparency, more still has to be done by the Federal Government to reform the NNPC.

The 2018 NNPC’s AFS revealed some challenges in the midstream subsidiaries of the corporation, most significantly, in the refineries located in Port Harcourt, Warri and Kaduna, where losses were recorded, unsurprisingly because of their long downtime. It is, nonetheless, reassuring that the corporation has commenced the process of a comprehensive diagnostic assessment of the refineries that would culminate into their thorough rehabilitation, starting with Port Harcourt and Warri Refineries. In addition, proposals to change the refineries’ business models to that similar to Nigeria Liquefied Natural Gas Limited’s (NLNG), which has been a success story over the years is also afoot.

It should also be noted that there existed a seemingly wide gap between NAPIMS revenue and profit for the year as contained in the NNPC’s AFS. Noteworthy, again, is the fact that NNPC and its partners are already considering modalities to cap crude oil production cost per barrel at $10 by 2021 in order to ensure that Nigeria benefits more from the nation’s hydrocarbon resources. This is a position which the NNPC Group Managing Director, Mallam Kyari, has made clear at every avenue.

NEITI on its part requested the oil firm to go farther by publishing its previous audited accounts and in open data formats so that the reports could be more accessible to the citizenry.

According to BudgIT, “The Federal Government needs to reform the NNPC to reverse the trend of the massive losses recorded by some of the NNPC subsidiaries, annually. This audit report is a laudable step towards showing Nigerians the true picture of what is going on in NNPC.”