September 18, 2021

How Mele Kyari Positioned NNPC For Improved Accountability

8 min read

The Nigerian National Petroleum Corporation (NNPC) is the state oil corporation which was established on April 1, 1977. In addition to its exploration activities, the Corporation was given powers and operational interests in refining, petrochemicals and products transportation as well as marketing. Between 1978 and 1989, NNPC constructed refineries in Warri, Kaduna and Port Harcourt and took over the 35,000-barrel Shell Refinery established in Port Harcourt in 1965.

In 1988, the NNPC was commercialized into 12 strategic business units, covering the entire spectrum of oil industry operations: exploration and production, gas development, refining, distribution, petrochemicals, engineering, and commercial investments.

Currently, the subsidiary companies include: Nigerian Petroleum Development Company (NPDC); The Nigerian Gas Company (NGC); The Products and Pipelines Marketing Company (PPMC); Integrated Data Services Limited (IDSL); National Engineering and Technical Company Limited (NETCO); Hydrocarbon Services Nigeria Limited (HYSON); Warri Refinery and Petrochemical Co. Limited (WRPC); Kaduna Refinery and Petrochemical Co. Limited (KRPC); Port Harcourt Refining Co. Limited (PHRC); NNPC Retail and Duke Oil.

In addition to these subsidiaries, the industry is also regulated by the Department of Petroleum Resources (DPR), a department within the Ministry of Petroleum Resources. The DPR ensures compliance with industry regulations; processes applications for licenses, leases and permits, establishes and enforces environmental regulations. The DPR, and NAPIMS, play a very crucial role in the day to day activities throughout the industry.

It will be recalled that the NNPC in 2018 recorded loss of N803 billion and due to Diligence, Transparency and Accountability of the Kyari led Management, the loss reduced to N1.7 billion in 2019.

In June and October respectively 2020, the NNPC made public its 2018 and 2019 Audited Financial Statement, noting that it had achieved a 99.7% reduction in its loss profile from a whopping N803 billion to N1.7 billion in 2019.

On 26th August 2021, President Muhammadu Buhari declared a Profit After Tax of N287billion for the financial year 2020 and further directed the Corporation to ensure the prompt publication of its Audited Financial Statement in line with the requirements of the law.

With the progress, the NNPC joined other Government-owned global oil corporation which publish the details of their operations as dictated by the law setting them up which among others has the capacity to boost investors’ confidence and enhance business transparency.

The NNPC 2020 Audited Financial Statement showed that aside the already announced gains which rose after a loss position of N1.7 billion in 2019 to a profit of N287 billion in 2020, NNPC’s total current assets increased by 18.7 per cent compared to that of 2019 while its total current liabilities increased by 11.4 per cent within the same period.

In addition, the group’s working capital remained below the line at N4.56trillion in 2020 as against N4.44 trillion in 2019, while the corporation’s group revenue for the 2020 financial year stood at N3.718 trillion as against N4.634 trillion in 2019.

The decrease in the NNPC Group’s revenue could be attributed to the decline in production and price of crude oil due to global impact of COVID-19.

There is no doubt that under the Petroleum Industry Act (PIA), the NNPC will operate profitably as the recapitalisation of the Corporation will enable the resolution of all outstanding related party payables and receivables to enable NNPC start on a clean slate.

It is no longer news that the NNPC management and board attributed the N287billion Profit After Tax to the adoption of cost-cutting measures, hitting at least 30 per cent reduction in the last two years.

Mallam Mele Kolo Kyari has brought in a new viewpoint in the running of the NNPC and built on what he met, ensuring more efficiency by automating the Corporation’s processes and systems as well as choosing wisely what to invest in.

He has also been focusing on people’s issues as the workers are the backbone who will in the end deliver on the objectives of the Corporation.

“The first principle of course is elimination, that is, you don’t buy what you don’t need. And we simply stopped buying what we didn’t need. Also, during the particular fiscal year 2020, whoever we engaged on all our contracts, we insisted on cutting costs by at least 30 per cent.

“This worked and we were able to pull down most of our procurement costs by 30 per cent. We saw the opportunity to be much more efficient by automating our systems and processes and that made us faster and also ultimately it reduced so much of logistics costs that ordinarily would have been additional costs to our business.

“This is a very proud moment for us, because to our shareholders we’re no longer declaring losses. As a matter of fact, just like last year as we moved from loss level of N803 billion in 2018, we reduced it to N1.7 billion in 2019.

“There are very drastic changes to the way we do our business. One is to cut costs, to be more efficient, and also to ensure that this company is transparent and accountable to the Nigerian people.”

“And in the 2020 fiscal year, we’re making profit after tax of N287 billion. This is no doubt a huge progress, but by no means sufficient,” Kyari said.

The audited statement showed that in certain areas, the NNPC did remarkably well in its declared cost-cutting efforts during the year under review.

The Corporation slashed the various fees collected by Directors of the NNPC from N606million in 2019 to N214million in 2020.

Normally, Directors’ fees require compensation for services as a member of the Board of Directors of the Corporation, excluding reimbursement of expenses or other non-regular forms of compensation.

Despite the economic downturn occasioned by the COVID-19 pandemic in 2020, the NNPC embarked on internal restructuring of its operations, including cutting down unnecessary spending as well as automation of its processes.

“The corporation saved a lot of cost through contract renegotiation by up to 30 percent on the heels of the Covid-19 pandemic, introduction of technology that drastically cut travel cost through reduction in in-person meetings and the general automation of processes that enhanced efficiency across the group’s businesses,” Kyari, said.

Under General Administrative Expenses, although the NNPC paid N6.2 billion for rent and rates as opposed to N5 billion in 2019, but repairs and maintenance costs reduced from N38billion to N26.6billion, security expenses were N12.6billion and N12.3billion respectively for 2019 and 2020, while Directors fees reduced from N606million to N214million, a slump of about 62 percent.

For General and Administrative charges, the Corporation’s bank charges increased from N370million in 2019 to N845million in 2020, exchange loss was N72million, advertisement and publicity gulped N5.3billion, up from N1.2 billion in 2019.

In addition, Employee Benefits Expenses Cost increased from N357billion to N397billion, donations rose from N279million to N3.63billion, Audit Fees rose from N1.040 to N1.07billion, while entertainment expenses was slashed from N8.3billion to N1.6billion in the 2020 financial year.

Between 2019 and 2020, Legal and Professional Fees paid by the Corporation reduced from N30billion to N24billion while Printing and Stationery came down from N1.6billion to N976million.

Staff training and recruitment cost slumped from N12.8billion to N7.5billion in the year under review and what the corporation termed management and facilitation fees increased from N1.3billion to N5.6billion.

However, the document revealed that transport and travelling gulped N13.5billion in 2019 and N14.2billion in 2020, a year marked by travel restrictions as countries embarked on lockdown due to the pandemic, even as postages and telephone expenses which consumed N8.5 billion in 2019, dropped to N5.6 billion in 2020.

Office running cost jumped from N11million to N83million, while under the subheading other expenses, which included Nigerian content expenses, business development expenses, decoration and beautification expenses, the amount spent was reduced from N53.2billion to N26.6billion.

Similarly, the NNPC paid N94billion as pensions in 2020, up from N90billion in 2019 and gratuity costs decreased from N51billion to N46billion in 2020. Cumulatively, the NNPC spent N678.171 on general and administrative expenses, a reduction from N695.949 in 2019.

In terms of monies from contracts, revenue from crude oil sales was N828billion in 2020 as opposed to N1.0trillion in 2019; revenue from petroleum product sales was N2.2trillion in 2020, from a high of N2.9trillion in 2019, sales of natural gas increased from N489billion in 2019 to N524billion in 2020 while monies from services rendered decreased from N144billion to N89billion in 2019 and 2020 respectively.

In all, group revenues from the above items for the group, decreased from N4.6trillion in 2019 to N3.7trillion in 2020, according to the document.

Meanwhile the Group Executive Director, Finance and Accounts of the NNPC, Mr. Umar Ajiya said it was projecting a further net gain in excess of N300billion by the end of 2021.

Ajiya who spoke on Arise Television explained that the Corporation had been able to reverse its impairment losses from previous years.

Ajiya who gave details how the NNPC was turning the corner, with current financial obligations being met as and when due, without default, adding that although there was a write-back, the process of restoring to profit provisions for bad or doubtful debts previously made against profits, the write-back was not responsible for its 2020 profit.

“We already achieved N147 billion by May and by end of June, we were nearing N200 billion. So, other things being equal, by our year end outlook, we should be far above N300 billion.

“And for sure, by the end of the year we should be able to surpass our 2020 performance, which will go a long way to reducing the accumulated losses of the group and at the same improve liquidity position such that the working capital is no longer in deficit,” Ajiya stated.

He noted that although the accounts of the corporation had been audited in the past, the audits were done some years in arrears, but were only being released to the public in the last three years since the corporation is now a member of the Extractive Industries Transparency Initiative (EITI).

Ajiya stated that a combination of aggressive debt recovery, cost optimisation, renegotiation of all contracts, rescheduling of debts, exiting joint ventures that did not bring value as well as non-interference from President Muhammadu Buhari and Vice President Yemi Osinbajo helped return the NNPC to the path of recovery.

However, he noted the federation continues to owe gas-to-power debts of N285billion, admitting that the write-backs that had to do with impaired revenues or incomes that were not initially recognised, including $1.57 billion had been refunded to the NNPC.

He listed other cost-cutting measures as automation of business processes, reduction of paper work, improvement in efficiency as well as reduction in cost of travels, general elimination of wastages and optimisation of staff.

“We had thousands of staff in the refineries which we had shut down but those engineers have now been moved to other businesses where they can add value, so that way cost is also optimised.

“There were so many initiatives within the system that were geared towards improving the profitability. The profit of N287 billion, one could say it’s small, but you recall that 2020 was a Covid year and we were faced with three variables, price collapse, demand which also collapsed, but we had to do something about cost,” he explained.

Ajiya maintained that shutting down refineries was a cost saving measure to reduce the challenge of crude oil disruption, saying that in some instances pumping 1 million barrels into the refineries could yield half the expected product.

Mallam Mele Kolo Kyari and his management team must be commended for the official release 2020 of its Audited Financial Statement; the third time since its establishment 44 years ago.

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