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NNPC’s Audited Accounts: Matters Arising

By Joel Karibo

On January 28, this year, President Muhammadu Buhari attended the second edition of the Conference of Auditors-General in Nigeria. At the auspicious occasion, which also saw Mr. President crowned with the “Champion of Transparency and Anti-Corruption” Award, he dropped a very powerful message before the audience, nay before all Nigerians: “Nobody should be afraid of audit if they have done the right thing.”

In essence, the President was encouraging public servants to see audit as a means of improving their performance and not as a threat. While expressing concern that ineffective audits had contributed largely to governance challenges over the years, President Buhari also urged the audit professionals to embrace good governance, accountability and transparency, which are hallmarks of this administration.

The President didn’t stop there. He added: “We know that MDAs charged with delivery of activities that impact the lives of Nigerians can all monitor and report their own performance, but the most reliable measure is an accurate and independent assessment by external auditors. This is one key reason all tiers of government in Nigeria need a strong external audit function.”

Talking about Mr. President’s reference to impacting Nigerians, the Nigerian National Petroleum Corporation (NNPC) is one government agency whose operations impacts the economy of the nation apart from directly affecting the lives of 200 million Nigerians. So, it was very easy to connect the renewed interest of the NNPC and several other MDAs in the country with the Presidential speech in respect of ensuring full disclosure of their transactions. Fortunately, the corporation has since keyed into the President’s directive, having realized that it pays a lot to be more open, transparent and accountable in conducting business.

Therefore, on Thursday, 11 June, 2020 and in line with the Presidential commitment towards transparency and accountability, the NNPC did what many Industry watchers described as bold and unprecedented in the 43-year-old history of the corporation. It released its Audited Financial Statements (AFS) to the public. If the national oil company was known for publishing its monthly financial and operations report since August 2016, it was never known for laying bare its audited financial statements. That was unprecedented.

Leading this new wave of openness and transparency in the NNPC is Mallam Mele Kolo Kyari, the corporation’s 19th Group Managing Director, whose signature was well-embossed on the published 2018 financial statements. This development was not a surprise to many though. During an advocacy visit to the NNPC by officials of Nigeria Extractive Industries Transparency Initiative (NEITI) in August 2019, Mallam Kyari had pledged to make the corporation’s audited accounts public.

Ab initio, it is important to put some things in proper perspective. Prior to 2016 when the publication of the NNPC Monthly Financial and Operations Report commenced, the corporation over the years has come under a lot of fire for allegedly conducting the country’s oil business in secret by publishing only unaudited financial reports.

For instance, in its 2015 Report, the Natural Resource Governance Institute (NRGI) faulted past audits of the NNPC, describing them as questionable and lacking in due process. Also, in its 2017 Resource Governance Index, the NRGI rated NNPC 44 out of 100 in terms of poor governance and falling below the sub-Saharan African average for state-owned enterprises (SOEs). Critics always argue that there is virtually very little pieces of information that are made publicly available, most especially those on NNPC’s least efficient ventures and less profitable operations.

Aside allegations of very rare disclosures, NNPC’s perennial critics also believe there hardly are any useful or truthful information coming out of the corporation. Still from the NRGI’s observations, the NNPC has failed to reveal its detailed annual financial reports, despite the pledge by the leadership of the organization to always do so. Worse still, by not making public its audited accounts, the NNPC has over the years failed to comply with the International Financial Reporting Standards as well as the Companies & Allied Matters Act (CAMA).

With the coming of Mallam Kyari in July 2019, the transparency drive within the corporation was taken a notch higher. Today, under his corporate vision of Transparency, Accountability and Performance Excellence (TAPE), things, as they say, are changing for the better. Barely a few days in the saddle, Kyari stunned the world when he pledged that the corporation has nothing to hide, and that there will be more disclosures.

And so, if there is one good thing that the recent release of NNPC’s AFS has done to the corporation’s image, then it is the fact that it has now put an end to all the unfounded criticism about the opaqueness of NNPC’s many businesses across the entire oil and gas value-chain. According to Mallam Kyari, the corporation is witnessing the evolution of a new culture of openness and disclosure. “The NNPC has nothing to hide. We will never betray the trust reposed in us by the over 200 million Nigerians who are our shareholders,” Kyari said during one of his chats with newsmen.

An executive brief of the released AFS revealed that in all, the audited financial statements of NNPC’s 19 subsidiaries and the Corporate Service Unit (NAPIMS) were laid bare in a novel move at enshrining high level of transparency and accountability in the National Oil Company.

Some of the key achievements recorded as presented in the Group’s Financial Performance for the year include the recapitalization of Petroleum Products Marketing Company (PPMC) through transfer of the negative revenue reserve to the Corporate Headquarters; achievement of a second straight year without incurring additional cash call arears and repayment of over $2.7billion of total cash call arrears due to Industry operators.

A further perusal of the 2018 reports reveals positives in many of the National Oil Company’s Upstream going concerns. Based on analysis of the audited accounts, the National Petroleum Investment Management Services (NAPIMS) emerged the group’s most profitable division. The company recorded total revenue of N5.04 trillion in 2018 with a profit of N1.01 trillion. This is a remarkable improvement against a loss of N1.65 trillion reported in 2017. During the period, the total assets under management by NAPIMS were valued at N18.6trn, with the oil and gas components valued at N14.2 trillion.

Another critical look 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 N4.5 billion, a remarkable improvement from the previous year record of over N2.4 billion. The Integrated Data Services Limited (IDSL), an NNPC Subsidiary in charge of acquisition and interpretation of seismic data, posted a total comprehensive income of about N3.2 billion with profit of about N154 million within the period.

The AFS of the Nigerian Petroleum Development Company (NPDC) also indicated a profit after tax of over N179.1 billion which comes as significant improvement from the 2017 profit of over N157.4 billion. During the period, NPDC posted a revenue of over N1.3 trillion compared to the 2017 revenue of over N882.3 billion. The AFS indicated that the NNPC flagship subsidiary has a total asset of over N5.3 trillion within the period, compared to the N4.007 trillion asset recorded in 2017.

On its part, the Nigeria Gas Company (NGC) recorded a profit after tax of over N13.2 billion with a comprehensive annual income of about N19.9 billion. The AFS also valued the NGC total assets in 2018 at over N251.7 billion compared to N196 billion in 2017.

It is fair to say that amidst these heartwarming figures from the Upstream and Downstream companies of the NNPC, those from companies in the Midstream were unsurprisingly low, because of the long downtime of the nation’s four refineries in Port Harcourt, Warri and Kaduna.

Fortunately, 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.
So far, a number of accolades have greeted NNPC’s new wave of transparency and accountability, both locally and abroad. Setting the pace was Waziri Adio, NEITI Executive Secretary, who via his Twitter handle, acknowledged the development, describing it as good for the country’s transparency and accountability drive.

Yet, more encomiums are pouring in for this new chapter in NNPC. It is not yet uhuru for the corporation, as a number of its core businesses need to be more profitable. In particular, the refineries in Port Harcourt, Warri and Kaduna must, as a matter of urgency, be fully restreamed and restored to their optimal capacities, as the GMD promised, by 2023.

There are many implications to NNPC’s latest wave of transparency and accountability, majority of which look very positive in the long run. Whatever it turns out to be, one thing is certain. And that is the fact that sooner than later, Nigerians will have the cause to beat their chests at any time and proudly talk of their National Oil Company that is not only setting new standards in financial reporting, but also in growth and profitability. Most importantly, Nigerians will further agree with Mr. President that once your books are intact, you have nothing to fear.

 Karibo is a Public Affairs Analyst based in Port Harcourt.

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