Nairametrics| NNPC released its financial report for the month of November detailing the operations of the state owned oil company. A cursory review of the report shows an organization that is struggling with its finances. Year to date (November 2016), the NNPC group had a deficit of N180 billion naira.
Details of the report show that apart from the month of May 2016, NNPC has consistently reported an increasingly operating loss for every other month between January 2016 and November 2016. The monthly loss went 6 folds from a deficit of 3.55 billion naira in January 2016 to N 18.72 billion naira in November 2016.
Refinery post losses
The losses were incurred at the three government-owned refineries and at the corporation’s headquarters. The Warri Refinery made a loss of N16.8 billion naira for the 11 months ended in November 2016. The Port-Harcourt and Kaduna refineries made losses of N24.9 billion and 28.3 billion naira respectively. In total all the refineries posted a loss of over N70 billion.
According to NNPC, for the month of November 2016, the three Refineries produced 178,107MT of finished Petroleum Products and 24,599MT of intermediate products out of 232,768MT of Crude processed at a combined capacity utilization of 12.78% compared to 23.53% combined capacity utilization achieved in the month of October 2016. The adverse performance was due to crude pipeline vandalism in the Niger Delta region coupled with ongoing Refineries revamp; however the three Refineries continue to operate at minimal capacity, only PHRC processed crude during the month.
Despite the losses incurred by the three state-owned refineries, the government has been slow in privatizing them. The Minister of State of Petroleum, Dr Ibe Kachikwu informed the media in 2016 that the government was favourably disposed towards the listing of some parts of NNPC on the Nigerian Stock Exchange.
The lion share of the loss was incurred by the Corporate Headquarters (CHQ) which incurred a loss of N121.8 billion between January-November 2016. Though the report does not state the exact nature of expenditure by the Corporate Headquarters and only provided the following reasons;
NNPC has been operating in a challenging environment which limits its aspiration to profitability. Overall, a trading deficit of ₦18.72billion was recorded for the month under review as against the reported October, 2016 trading deficit of ₦16.85billion. The deficit in the month of November 2016 increased by ₦1.87billion or 11.06% due to upsurge in the Group operating cost despite an improved revenue generation and enhanced cost control across the group. In particular, IDSL Operating costs has increased as a result of the ongoing mobilization activities in both Benue Trough seismic data project located in Bauchi and Party 05 in Elele, Rivers state. Also, the strike action by Bristow Helicopters workers delayed the planned lay-time of Okono Blend resulting to nil NPDC offshore export sales for the month
NNPC’s corporate headquarters cost in Nov 2016 rose 17% to N17.3bn, continuing a trend of increase in June when it was N8bn. Even though the annualized CHQ cost represents a major decline from the 2015 numbers, the leap in November is largely unaccounted for and represents the highest level spent in 2016. NNPC CHQ spent a total of N164bn in 2015 and is likely to spend about N132bn in 2016. As the main operational centre for the country’s oil operations, it generates no real revenues leading analysts to wonder why a purely administrative arm is incurring such a huge expense.
Why is the Corporate Headquarters, a cost centre generating most of the corporation’s deficit.?Could it be the staff costs, admin expenses? It’s either the support function it renders to its subsidiaries is not been properly apportioned or that the CHQ is a drain pipe of needless overheads. Curiously, the report does not provide detailed breakdown of the CHQ costs encouraging speculations among analysts that these costs is the sinkhole for all the political and extra-corporate expenses the corporation funds. In fact, the CHQ is often regarded as the Government’s ATM funding all sorts of expenses that eventually turn out not to be properly accounted for.
Also, the report alluded to the Integrated Data Services Limited (IDSL) operating cost as a major reason for the high operating cost. However, analysts opine that the IDSL was setup as a data services firm but is currently being used as an SPV for seismic and exploration efforts in the inland basins, Lake chad and Gongola basin. With little hopes that oil will be struck, the expenses might never be recorded.
Crude Oil Sales
The NNPC also reported that crude oil production averaged 1.8mbpd between December and November 2016. Total crude oil and Gas export receipts for the same period stood at $2.42 Billion out of which the sum of $ 2.35 Billion was transferred to JV Cash Call in line with 2015/2016 approved budget and the balance of “$0.073 billion” was paid to Federation Account.
It also noted that the amount fell short of the “calendarised appropriated amount” of $615.80Million and $712.46Million for 2015 and 2016 respectively. This it claimed was due to worsening production and fall in Crude Oil price.
The report also shows that between the period of December 2015 and November 2016, the NNPC has transferred a sum of about N699.3 billion to the Federation Account. The report also shows that transfer to the Federation account had reduced from an average of N58 billion in 2016 with the months of July and August N30.2 and N30.8 billion respectively.
The NNPC is yet to publish a full year’s audited financial statement in decades and only just started releasing monthly reports last year.
Download the full report below;