Despite spending N9.3 trillion on petrol imports, fuel queues persist across Nigeria, raising concerns over supply chain issues and inefficiencies, according to the latest NNPC report.
It has been confirmed by the Nigerian National Petroleum Company Limited that in 2023, under-recovery and expenses for energy security with regards to fuel importation incurred a debt of N5.1tn on behalf of the Federal Government.
The report indicated that the Federal Government incurred receivables totaling N9.38tn for fuel imports in 2023.
The financial statement covering the fiscal year that concludes on December 31, 2023, shows that the national oil corporation accrued N6.25tn through domestic crude oil supply and N3.14tn through other receivables as explained by their report.
Accounts receivable, also referred to as receivables, represent the outstanding payments owed by customers to a company for products or services provided but not yet settled.
In comparison to the previous year’s expenses of N2.18tn in 2022, the amount spent totaled N9.38tn which represents a significant increase of 76.7 percent or approximately N7.2tn more expended this time around.
According to the report, “The Group incurred expenses on behalf of the Federation that resulted in receivables.”
The company confirmed that its under-recovery and energy security expenses totaled N5.1tn, which included costs for crude oil supply aimed at meeting domestic demands as well as other receivables on behalf of the Federation. The firm revealed that it had been directed by authorities not to sell Premium Motor Spirit (commonly referred to as petrol) above a certain regulated price, leading to these expenditures.
The entire cost comprises N3.3tn under-recovery from January to May 2023 and an energy security expense of N1.8tn for August-December 2023.
On Tuesday, petroleum engineer and oil and gas analyst Bala Zakka claimed that the term “under-recovery”, recently disclosed in NNPC’s financial statement for the fiscal year ending December 31, 2023, is a technical phrase used to obscure a hidden aspect.
When communicating with Nigerians, it’s important to use plain language for better comprehension. Technical jargon should only be used when speaking with experts. The term in question was utilized for the purpose of obfuscation and persuasion regarding a known secret that the company has not adequately addressed through their services.
Additionally, Waiziri Adio, who previously held the position of Executive Secretary at the Nigeria Extractive Industries Transparency Initiative (NEITI), urged NNPCL to conduct its operations with transparency and refrain from using misleading language that could deceive Nigerian citizens.
In response to reports that President Bola Tinubu had approved subsidy payment, he made this comment while reacting to the national oil company’s statement.
According to Umar Ajiya, the NNPCL’s Chief Financial Officer, the oil company was not providing a subsidy but merely covering what he referred to as a “shortfall.”
On Tuesday, Waiziri Adio – Executive Director of Agora Policy, a Nigerian think tank and non-profit organisation focused on finding practical solutions to pressing national issues – responded through several tweets. He expressed his confusion towards the company’s use of manipulative language.
Adio remarked that the National Nigerian Petroleum Corporation’s indecisiveness about petrol subsidy is insincere. Whether it is labeled a subsidy or shortfall/PMS FX differential, the end result remains the same. Marketers have not been given any form of subsidies by NNPCL and there has been no indication that they are responsible for providing such subsidies to them in their mandate.
The former PPPRA was responsible for sanctioning subsidies for both marketers and NNPC. The Ministry of Finance would reimburse the verified claims made by marketers whereas NNPC subtracted its subsidy as well as other expenses from the funds allotted to it for domestic utilization, setting it apart from others.
NNPCL is not obligated, both in practice and under the law, to provide subsidies to marketers. Providing this response without being prompted directly is a weak attempt at avoiding the issue at hand.
He stated that the assertion suggesting no subsidy exists because vending PMS beneath landing cost is an exchange between the organization and federation, which may be refunded or offset, is a cunningly deceptive trick aimed at taking advantage of people’s gullibility. He further advised NNPCL to cease digging once they find themselves in a deep hole.
Despite President Bola Tinubu’s announcement of the removal of fuel subsidies in his inaugural address on May 29, 2023, there are substantial indications that the government continues to spend billions on these subsidies. Nevertheless, despite consistent claims that they do not pay any form of subsidy by federal authorities.
President Bola Tinubu’s removal of fuel subsidies was criticized by Former President Olusegun Obasanjo during an interview with Financial Times amidst the nationwide hunger protest earlier this month.
He believes that the government ought to have implemented precautionary measures prior to removing fuel subsidies.
There is a significant amount of work that must be completed before removing the subsidy can occur. It cannot simply happen overnight without proper planning and execution.
Obasanjo stated that due to inflation, the subsidy that was eliminated has resurfaced.
In the previous month, it was revealed by the Major Energies Marketers Association of Nigeria that petrol’s landing cost totaled N1,117 per liter resulting in a subsidy of N707bn on a monthly basis.
At present, the price of a litre of fuel ranges from N650 to N950 depending on location within Nigeria. This has further compounded Nigerians’ financial struggles.
In the past month, Nigerians took to the streets in protest of their country’s hunger and adversity. Among their requests was for subsidies to be reinstated.
Tinubu dismissed the possibility of reinstating the subsidy in his nationwide address, deeming its cancellation a difficult yet imperative measure.
The NNPC Ltd has affirmed that it sells petrol for just half the land cost but assumes responsibility for the “shortfall,” rather than categorizing it as a subsidy.
The national oil company’s CFO, Ajiya, informed reporters that they were solely responsible for “managing the deficit in petrol importation between themselves and the federation.”
Despite the company’s demand for a refund of N4.7tn due to exchange rate differences from fuel import, this situation persists.
From the NNPCL records, it was revealed that the debt claims started with an initial balance of N2.1tn from 2022’s closing period. The unpaid expenses amounted to N4.84tn, while a sum ofN649.45bn went towards payment for defrayed costs- bringing the total cost to be incurred atN6. 25tn
The oil company stated that the total cost not yet covered includes an under-recovery of N3.3tn from January to May 2023 and an energy security expense of N1.8tn for August-December 2023, with implications explained accordingly.
The statement explained that “Under-recovery” happens when the price of Premium Motor Spirit upon arrival is greater than the controlled market price at a local level. The Group will receive these payments as they are taken care of and deducted from owed amounts to the Federation on a monthly basis.
The group incurs energy security expenses as the supplier of last resort for fulfilling its obligations on behalf of the federation in accordance with Section 164(m) of the Petroleum Industry Act, 2021.
By the end of 31st December 2022, payment for crude oil purchased must be remitted within a period of 90 days after lifting. The tally reveals that no cash was paid by the Company during this duration (versus N58.8bn in previous years) leaving an outstanding payable worth N6.25tn out of a total amount of N2.06tn during the year-end review in 2022.
As per Section 64(M) of the Petroleum Industry Act (PIA) 2021, any expenses incurred by NNPC Limited (Group) serving as a last resort energy supplier to ensure energy security shall be borne by the Federation along with all its related costs.
The NNPCL was directed by the government to limit its sale of Premium Motor Spirit below a regulated price. Nevertheless, importing this PMS often comes with costs exceeding the regulated amount, leading to under-recovery- i.e., a discrepancy between actual landing expenses and regulatory pricing. This difference is utilized in minimizing overall sales cost for Group purposes.
The relevant record is applied to either lessen the Federation’s obligation or as a claim against them. If there is credible assurance of receiving compensation for under-recovery costs in Premium Motor Spirit, and all related conditions are met, it will be acknowledged. In instances where this pertains to an expenditure item, it will be subtracted when reporting its corresponding expense within cost of sales.
As per the audited statement, the company garnered a revenue of N23.99tn from customer contracts while incurring a cost of sales worth N16.95tn resulting in a gross profit amounting to N7.03tn.
Experts state that the cost of sales, which reflects directly on producing goods or services sold in your company, is excessive and harmful to its financial stability.
The number represents a rise of 63.2% or N15.17tn from the revenue earned through contracts in 2022, and an increase of 60.5%, equivalent to N10.25tn, compared to the cost of sales recorded at N6.7tn in that year as well..
Upon additional examination, it was discovered that the organization generated N14.07tn in revenue from crude oil sales, earned N7.15tn through petroleum product transactions, obtained N2.3tn from natural gas sales and acquired N94m via power trade; besides earning an aggregate of N464.94bn as a result of conducting seismic contracts, time-based agreements for services related to gas transmission tariffs along with shipping operations involving marine engineering activities – all culminating into a sum total of earnings amounting to 23.99 trillion naira by the company’s various ventures/accounts/profit centers’.
The company’s revenue was mainly generated by Nigerians, making them the top geographical market with a total sales worth N21.3tn. Panama comes second in line contributing an amount of N2.05tn to the revenue list and other countries like Cayman Islands (N402.76bn), Bahamas (N151 .79bn) , Cyprus (N80.499 bn) , United Arab Emirates(N3.l5 billion ), and United Kingdom(£50 million).
In 2023, the NNPCL expended N132.6bn towards the sale and delivery of petroleum products to distributors and marketers, signifying a surge of 82.7% in sales expenses from its previous year’s figure of N22.88bn in 2022.
There was a profit of N15.95tn gained through exchange differences in translating foreign operations, signifying an 86.39% rise equating to N13.78tn from the previous year’s figure of N2.17tn in 2022.The company also contributed a sum of N199m to host communities after not making any donations during the same period last year.
According to the statement, potential legal liabilities facing the Group are projected at N18.14bn and N620.24bn respectively.
According to the Financial Statements, there is a provision for contingent liabilities in lawsuits against the Group valued at N18.14bn based on confirmations from external legal advisors of the Company. However, some pending cases estimated at N620.24bn may not succeed as advised by legal counsel which makes it possible but not probable; thus no financial provisions have been made regarding these specific contingent liabilities stated in the statement.”
The NNPCL reports that it has achieved a 60% repayment of its $1.036bn loan, which was obtained in September 2021 to fund the purchase of a 20% share in the Dangote Petroleum Refinery and Petrochemicals Free Zone Enterprise.
According to the financial statement, as of December 31st, 2023, NNPC has paid back $625 million of the original loan amount. This leaves a remaining principal balance of $424 million on the loan.
Lekki Refinery Funding Limited was the source of a secured loan obtained at an interest rate equivalent to 3-month LIBOR plus 6.125 per cent through a forward sale agreement.
The financial statement stated that NNPC engaged in a forward sale agreement with Lekki Refinery Funding Limited to provide 35,000 barrels of crude oil per day in September 2021. This deal is intended to pay off the $1.036 billion (N426.2 billion) funding received by investing in Dangote Refinery financing.
As of December 31, 2023, NNPC Limited has paid a principal amount of $625 million while an outstanding balance of $424 million (equivalent to N324 billion) remains for the facility with an interest rate based on three-month LIBOR plus 6.125 percent.
At first, NNPC Greenfield Limited – a special-purpose vehicle fully owned by NNPC- took charge of managing this investment.
After the restructuring of NNPC based on the Petroleum Industry Act, management of this investment was transferred to NNPC Downstream Investment Service.
As a result of the restructuring, there was a substantial alteration in how payments were made. Rather than receiving a crude oil discount of $2.5 per barrel on the official selling price, which had been suggested initially, payment for equity investments totaling $1.76 billion would now be provided in cash instead.
NNPC Limited confirmed earlier reports by Dangote Group’s Chairman, Aliko Dangote that it holds a 7.25 per cent stake in DPRP FZE as of December 31st,2023.
