By Adewole Kehinde
Prior to Mallam Mele Kyari’s assumption of office as the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) on 8 July, 2019, one issue that has been of serious concern to many Nigerians was the opacity of the financial standing of the company.
Everyone was left in the dark as to the profitability or otherwise of the corporation as its financial statements were never made public even though it is owned by the Nigerian people. This gave room to a lot of speculations with many believing that the corporation is entrenched in corrupt activities hence it has refused to expose its financial status in the public.
Upon his assumption of office, Mallam Kyari vowed to run the affairs of the NNPC on strict adherence to the twin principles of transparency and accountability.
To actualise this, he initiated a corporate vision of Transparency, Accountability and Performance Excellence (TAPE), which is championed by the management team since assumption of office as NNPC helmsman.
In pursuit of this vision, the current leadership of NNPC consciously committed itself to conducting the corporation’s businesses in a transparent and accountable manner, deploying Artificial Intelligence to boost the accounting processes of its Corporate Headquarters, subsidiaries, companies and Corporate Services Units.
In addition, it started making its contract award processes and financial reports, public to cast away the toga of opacity associated with extractive industries generally.
Subsequently, the current management has recorded a series of firsts on the transparency front. It published its 2018 Audited Financial Statement earlier in the year for everyone to see, rather than the maintaining the old style of surreptitiously submitting it to statutory agencies like the Office of the Auditor General of the Federation. It also got listed as an EITI-partner company thereby officially sealing its commitment to transparency.
It will be recalled that in 2020, Nigerian National Petroleum Corporation published its group-level audited financial statement for the first time in the corporation’s 43-year history. These were published alongside the 2019 audited accounts of its subsidiaries, following the disclosure of the 2018 audited accounts in June.
The move represents a significant milestone for NNPC. Since Mallam Mele Kyari became the Group Managing Director in July 2019, the corporation has undergone a number of reforms to bring about greater transparency and accountability – chief of which is the Transparency Accountability and Performance Excellence (TAPE) agenda. Since early 2020, NNPC has been publishing FAAC monthly reports which show how much the corporation transfers to the state from the sale of oil and gas, including royalty and tax payments. In August 2020, NNPC became an EITI supporting company, signalling its commitment to publish the group’s financial statements.
Nigeria’s oil and gas sector accounts for about 50% of government income and 90% of its foreign exchange earnings. Yet the COVID-19 pandemic has significantly affected these revenues, with crude oil prices falling to a record 18-year low of about USD 20 per barrel in April 2020. The government had to revise its budget, cutting projected benchmark prices for crude oil from USD 57 to about USD 30 per barrel. These realities have positioned NNPC – being the main revenue generating organisation in Nigeria – to play a vital role in increasing revenue to meet the government’s budget constraints and strengthen the nation’s economy.
NNPC’s Group Audited Financial Statement presents key information on the corporation’s financial health. The statement shows that NNPC reduced its loss by 99.7% – from N803 billion in 2018 to N1.7 billion in 2019 – thanks to a significant increase in profits from its subsidiaries between 2018 and 2019. These include:
A nearly 15,000% increase (N23 billion profit in 2019) by the Integrated Data Sciences Limited (IDSL)
A 167% increase (N478 billion profit in 2019) by the Nigerian Petroleum Development Company (NPDC)
A 124% increase (N2.83 trillion profit in 2019) by the National Petroleum Investment Management Service (NAPIMS)
A 52% increase (N14.2 billion profit in 2019) by Petroleum Products Marketing Company (PPMC)
A 15% increase (N10 billion profit in 2019) by the Nigerian Gas Marketing Company (NGMC)
These significant gains mean that NNPC will need to spend less of its resources offsetting losses and puts the corporation on course to generate profit from its operations, which could help to maximise revenues for the state. NNPC’s Chief Financial Officer, Mr. Umar Ajiya, explained that the improved performance in the 2019 financial year was mainly attributable to operational efficiency, cost optimisation and contract renegotiations. According to the disclosures, NNPC reduced its administrative costs by 22% between 2018 and 2019.
The 2020 publication of NNPC’s financial statements, in addition to other disclosures, indicates that transparency is becoming an integral and routine feature of NNPC’s governance and management systems. These disclosures allow stakeholders and citizens to scrutinise NNPC’s operations, thereby providing an avenue for public debate around the management of Nigeria’s natural resources.
NNPC’s disclosures help to address pressing governance challenges, enabling the government and public to have oversight of important revenue streams at a time when Nigeria’s economy is under strain. The publication of financial statements is key to ensure that NNPC is held accountable, and shows a good example for other state-owned enterprises in the region.
Despite the impact of COVID-19, Mallam Kyari said no organisation can meet the expectations of its shareholders without being efficient and prudent in service delivery and payment of dividends to its investors.
He said over the years, the NNPC failed to meet the expectations of its shareholders because its management has always been running from one crisis or opacity to another.
Apart from Nigerians always seeing the corporation as the representation of corruption, Mallam Kyari said successive managements were scared they would not be able to stand the test of scrutiny if they opened up their operations to the public.
“We decided to open up to our shareholders, which are Nigerians, after all, we are not angels, neither are we saints. If it were so, there would not be eternal life, and if everyone was having eternal life, there will not be any rendition of accounts.
“We recognized that everyone makes mistakes. But, in running this business, NNPC does not make deliberate mistakes.
“I told Nigerians we were going to be accountable to them by being transparent to them in our transactions, which is a matter of entitlement to the shareholders. This will help us do better in the business,” Kyari said.
Mallam Kyari said he was proud to note that NNPC was the only national oil company that publishes its operational and financial records every month.
He said his management did not stop at publishing the monthly operational report of the NNPC, but went a step further to publish its annual audited financial statement, which it had not done in 43 years of its operation.
Despite some unflattering contents in the 2018 financial statement, including reports of over N803 billion losses in its refining operations, pipeline business, and other expenditures in many segments of its business that should not have been, he said the NNPC went ahead to still publish the report.
To demonstrate its readiness to learn from the previous years’ mistake, Mallam Kyari said the corporation in its 2019 audited financial statement, recorded a significant improvement, with a cut down in its operational costs by over N800 billion.
He said the cut, which saw the NNPC reduce its net loss by over 97 per cent, was the first time in the history of the company that such a reduction would be achieved within one financial year.
Apart from a commitment by his management to cut its cost of operation, improve its efficiency and be profitable, the NNPC GMD attributed his success to his management’s unfettered control of the affairs of the company without any distraction or interference from any quarter.
He said the NNPC was not only allowed to take decisions and commit to be accountable in its operations, but was given the privilege to take responsibility for such decisions in a manner that has never happened until under the current administration.
“I make bold to say that President Buhari is the only one who has not asked the NNPC to do anything for him. I can tell you that under no circumstance or any issue has Mr President asked us to do anything that we should not do, or to direct us on what we should do, other than to ask if we are sure the decision we have taken would work in the best interest of Nigeria.”
Lamenting the impact of COVID-19 pandemic, which has significantly altered plans in the oil and gas industry, Mr Kyari said he remained fulfilled that the NNPC and its partners were able to record some of the most significant achievements during the period.
He identified the Final Investment Decision on Train 7 of the Nigeria LNG as one of such achievements, saying it remains the only major project anywhere in the world in the oil and gas industry valued at close to $4 billion that was taken during the period.
He said the other significant achievement was reaching an oil production level of 2.49 million barrels per day (MBPD) on April 17 of this year out of the target of 3 MBPD.
Mallam Kyari said the last time a production figure close to the 2.49 MBPD was last attained was 15 years ago.
Mallam Kyari emphasized the need for NNPC to improve on its operational processes, systems and become more transparent and accountable.
“We now know it is possible to achieve our target if we improve our efficiency and reduce our costs, focus on our production choices, carefully select the assets that would work for us.
“So, three million barrels production capacity is within sight. If COVID-19 had not come, we would have been celebrating that today. We have clear visibility of what assets we need to produce the balance of 450,000 BPD that would enable us to achieve our target.
“We are not giving up because of the prevailing market conditions. We are constrained by the OPEC plus alignment to cut production to avoid producing to glut the oil market,” he said.
I am optimistic that in 2021, the Nigerian National Petroleum Corporation (NNPC) will fulfil its commitment to efficiency, openness, transparency and prudence in service delivery if it is to realise its objectives and meet the expectations of its shareholders.
Nigerians remain optimistic that the Nigerian National Petroleum Corporation is indeed on the march to fulfill its glorious destiny as the biggest and most profitable National Oil Company in Africa.
Adewole Kehinde is the publisher of Swift Reporters and Chairman, Online Reporters Association of Nigeria and can be reached via 08166240846