The money cost lost on Nigeria’s National Petroleum Corporation (NNPC) futile investments is no longer news, but what is perhaps more infuriating is the opportunity cost forgone in a dying economy.
In 2018 alone, the state-owned oil firm was owed huge sums by three refineries to the tune of ₦953 billion ($2.51 billion). It also wrote off almost half a trillion naira debt for another subsidiary. By implication, Nigeria and Nigerians have lost trillions of naira (approximately ₦1.4 trillion – $3.69 billion) to the ineffectiveness of these entities. This amount could build 450 primary health centres at the cost of ₦17 million ($44,000) each; i.e. at least four extra PHCs in each of the 109 senatorial districts.
What’s worse is that it seems the oil firm runs its business model without a thought to making a profit; counterintuitive right? Indeed, Dataphyte’s analysis of the 2018 financial reports of the 20 subsidiaries highlighted this. According to the analysis, Kaduna refinery, which posted a loss of ₦64.34 billion ($169.5 million) in the same financial year, owes NNPC about ₦424 billion.
The Port Harcourt refinery and Warri refineries also owed ₦372 billion ($980 million) and ₦157 billion ($413.7 million), respectively. The two refineries (Port Harcourt and Warri) recorded losses in annual statements released recently.
Also, NNPC wrote off a ₦423.14 billion debt for Petroleum Products Marketing Company Limited (PPMC), an amount allocated for the operational costs of the subsidiary. And while the PPMC mainly gets its funds from NNPC, the entity also markets and supplies refined petroleum products. Still, it seems it could not make enough profit to finance this debt. Interestingly, the state-owned oil company premised its decision to clear the debt to be on the recapitalisation of the PPMC.
It is also worth noting that before now, the finances of the 20 subsidiaries have been shrouded in secrecy, lacking accountability and transparency. Its operational cost has also been described as one of the world’s highest.
| NNPC Subsidiaries | Debts (to NNPC) | Profit/Loss (2018 FY) |
| Kaduna Refinery | ₦424 billion | (₦64.34 billion) |
| Warri Refinery | ₦157 billion | (₦44.44 billion) |
| Port Harcourt Refinery | ₦372 billion | (₦45.59 billion) |
| Petroleum Product Marketing Company (PPMC) | ₦423.14 billion* | ₦11.12 billion |
| Total | ₦1.376 billion |
* = Write off — Source: NNPC Financials/Dataphyte Analysis
Some of the Questionable Entries in the PPMC Financial Statement
Apart from NNPC clearing off the debt burden, PPMC still owes business clients the sum of ₦209.4 million. The first bill was the sum of ₦153.3 million awarded in favour of one of its customers in a court judgment; the other one is an out of court settlement worth ₦46 million in favour of a supplier. And while the company said it would pay the liability in the next accounting year (2019), the Corporation has not released the figures for the year. In total, PPMC’s overall litigation and claims currently stand at N1.02 billion.
On the operating side, the company recorded a total comprehensive profit of ₦11.13 billion in 2018. Most of the revenues were from tariff income earned from the sale of petroleum products.
Any Plan To Reduce What Downstream Businesses Cost Nigeria?
Within 2018, according to the financial statements, the total value of debt accrued to NNPC by the four subsidiaries amounted to ₦1.4 trillion. About 30 per cent of it has entered bad debt and written-off. Oil and Gas experts believe there is no guarantee that the rest would be recouped. “If these businesses were wound down and operated more efficiently (maybe through private hands) most of this money could have gone to the Federation Account,” one industry expert who works with NNPC and preferred anonymity said.
Ms Tengi George-Ikoli, the Program Coordinator of the Nigeria Natural Resource Charter (NNRC), said successful National Owned Companies are often products of a strong commercial mandate. Ms George-Ikoli cited Petrobas and Petronas as proven examples.
“Comparatively, the NNPC’s mandate is not strictly commercial, its key stakeholder; the government does not afford to prioritize profits.
“As such, loss-making refineries are maintained on the books at the detriment of Nigerians. “It is expected that the anticipated Petroleum Industry Bill will include these requirements for the National Oil Company; be it NNPC or any other proposed organisation.”
She said the NNRC and other stakeholders have advised NNPC to let go of these cost centre entities by either selling them outright or adopt Nigeria LNG Limited model to transition them to revenue/profit earners.
“Restructuring NNPC by making it more commercially driven with clear key performance indicators (KPIs) will be a necessary first step.”
What N1.4 trillion Could Do For Nigerian Citizens
Remember when we spoke of the opportunity cost lost on these “investments” by NNPC? Checks by Dataphyte shows that the cost of pumping trillions of naira into the four subsidiaries without viable revenue results could build 50,000 Primary Health Centres (PHC) across the country.
At an average cost of ₦28 million per one PHC, 50,000 additional functional health centres will complement the current 20 per cent functional out of the 30,000 available centres in the country. The cost could also build 82,000 3- block classrooms across the country at a cost of ₦17 million each.
The money could also do good on a host of sectors in the country not limited to:
On Jobs: The cost could have provided about 2 million jobs to unemployed Nigerian youths and catered for their 2-year take-home pay at ₦30,000 minimum wage per person. After all, the country’s unemployment rate currently stands at 23.1 per cent, according to a 2019 report of the National Bureau of Statistics (NBS). It could have spiked due to COVID-19 disruption of businesses.
On Housing: The ₦1.4 trillion could have helped the country built 93,000 mortgage homes at ₦15 million each across the country and reduce the homeownership gap in the country. The housing deficit is projected at 17 million, and the figure is rising daily due to urban population growth.
On water supply: It could have constructed 2.33 million boreholes at ₦600,000 each across the country. The boreholes would have reduced the challenges of proper sanitation faced by acute water scarcity in the communities, especially rural areas.
For SMEs: With ₦2 million loans each, it could have helped 700,000 small business owners to scale their businesses, employ millions, and grow the economy.
On Electricity: It could have provided 3,888 megawatts of solar electricity to the national grid at ₦360 million per megawatt.
On Roads: About 2,800 km of road networks could have been constructed across the country at ₦500 million per km. The amount is enough to build the proposed 38-km-long Lagos’ 4th Mainland Bridge between Lagos Island and Lagos Mainland to ease communities. In essence, it could help Africa to achieve its 1,080 km Abidjan-Lagos highway project.
Percentage of the Ogoni clean-up cost
The environmental hazards faced by the people of Ogoniland is not novel. Indeed, the Niger Delta communities have suffered wide-scale contamination through oil pollution for years now. Well, a fraction (25%) of the ₦1.4 trillion funds could have helped the government to clean up Ogoniland and restore hope to the people in line with the recommendations of the United Nations Environment Programme (UNEP). In 2017, the Nigeria Government announced a $1 billion (₦360 million) clean-up programme for the land.
What are the Fiscal Implications
The debt owed by the NNPC’s subsidiaries could pay more than 80% of Nigeria’s domestic debt service for 2020. In its 2020 revised budget, the government has set aside ₦1.73 trillion as repayment for domestic debts. The figure could also clear off ₦719.88 billion foreign debt service in the revised 2020 appropriation. And while Nigeria’s foreign debt stands at ₦33 trillion, ₦1.4 trillion is certainly a start.
Meanwhile, the bad debt also amounts to the cost of budgets for five key federal ministries. Per the 2020 revised appropriation, the Ministry of Education, Water Resources, Works and Housing, Science and Technology, and Health amounted to ₦1.4 trillion. Therefore, it stands to reason that “NNPC’s investments” would make actual returns if channelled in this regard.
Furthermore, the figure could also fund the budget of seven out of the nine (9) Niger Delta states in Nigeria. More so, it could finance the combined 2020 revised budgets of Akwa-Ibom (₦366 billion), Bayelsa (₦183 billion), Cross River (₦147.1 billion), Delta (₦282.3 billion), Edo (₦128.8 billion ), Imo (₦108.3 billion), and Ondo (₦151.4 billion) states.