Earlier, Buhari’s administration revealed a ten-year plan to lift 100 million Nigerians from poverty. But NNPC’s transactions with OML 119 revenue may delay this plan by 12 years because of subsidy repayment.
- NNPC Board has mortgaged OML revenue to offset $2.3 billion of a $3.5 billion fuel subsidy debt, according to 2019 NPDC’s financial statement;
- The Board expected to use OML crude at 20,000 bpd to settle the debt for 12 years, but with four years to go and over $1 billion unpaid, repayment may take a toll on economic productivity for years to come;
- Meanwhile, NNPC GMD, Mele Kyari says dividend diversion is ‘practically impossible’.
Hopes for a better tomorrow may have to take a back seat as the subsidy conversation is not over. A Dataphyte analysis of the 2019 financial statement of Nigerian Petroleum Development Company showed a subsidy debt that may span over a decade to offset. So rather than focusing on social-economic development, the next 12 years will be all about that subsidy.
What stands out, however, is the timeline. Earlier, we noted how the Nigerian National Petroleum Corporation’s (NNPC) diverted $5 billion in dividends from shareholding firm NLNG towards a subsidy debt of $8.5 billion. Thereafter, by 2012, the Board of NNPC mortgaged OML 119 revenue under the Pre-Export Financing (PXF) to settle the $3.5 billion subsidy debt.
Repaying the Special Purpose Vehicle- PXF, a toll on future economic productivity
The special purpose vehicle (SPV), PXF 1, featured 20,000 barrels per day (bpd) of oil for five years to settle $1.5 billion. Spanning seven years, PXF 2 also used 20,000 bpd to settle $1.5 billion of the debt. So far, NPDC has paid $2.3 billion (₦712.6 billion) of the sum.
But with $1.2 billion owed, when will the agency settle these debts? Or worse, start repaying them. By implication, using the debut date for the PXF framework, Nigeria will settle these debts in another 12 years. This revelation comes amid controversy around subsidy removal. Also curious is how much subsidy debt NNPC accumulated till it started the deregulation policy of the oil sector.
Besides these, there is the opportunity cost of development to unborn generations. And President Buhari planned to lift 100 million Nigerians from poverty in a decade; this takes longer.
$12.3 Billion from OML 119 Unremitted into Federation Account
OML 119, in the southeastern Niger Delta, is one of Nigeria’s critical projects, according to the NNPC. It has two producing fields on the block – Okpoho and Okono fields.
In 2015, the Natural Resource Governance Institute (NRGI) raised queries over the non-depository of OML 119’s revenue into any federation account. According to the report, between 2005 and 2014, over 100 million barrels with an estimated value of $12.3 billion from OML 119’s Okono grade crude was not accounted for by NNPC. It also stated that NNPC provided ‘no public accounting of how it used a decade’s worth of revenues from an entire stream of the country’s oil production.’
NPDC’s 2019 financials, however, provides answers. Now we know that the unremitted OML 119 funds went into financing the PXF mechanism. The Board stated that OML 119 was picked because ‘it has a reliable stream of future cash flows to support the debt’.
Recommending a way out, NRGI urged the government to develop a new, legally mandated mechanism for funding NNPC operations. The model seems familiar with the new Petroleum Industry Bill (PIB) crawling at the National Assembly.
NNPC Remains Silent, Kyari Says Dividend Diversion Is ‘Practically Impossible’
When challenged with lines from the NPDC financial statement on borrowings, Mr Kehinde Obateru, the spokesperson of the NNPC, requested for more time to get responses from relevant departments. He has since not replied to reminders sent to his phone. Similarly, in September 2020, the National Assembly also queried the NNPC over withdrawals of NLNG dividend without approval; withdrawals that spanned the last four presidents, President Muhammadu Buhari inclusive.
Meanwhile, NNPC GMD, Mr Mele Kyari, maintained that it is practically impossible not to remit money into the federation account. “The @nigeriaLNG accounts are TSA accounts domiciled with the CBN. So, it is practically impossible not to remit money into the Fed. Account,” the official Twitter Account of the NNPC said in a tweet.
But the GMD’s statement failed to recall that TSA policy started recently; the dividend diversions did not. Moreover, NPDC’s financials already brought the cat out of the bag.
NNPC Cannot Hide Under Its Act To Violate Constitution – Expert
Ms Adejoke Akinbode, Program Officer, Extractives, at BudgIT Nigeria, said NNPC violated Section 80.3 of the 1999 constitution on the illegal diversion of oil revenue.
“Before any public revenue is spent, it must be appropriated by the National Assembly via an Appropriation Act. Proceeds from Assets represent public revenue, so the NNPC Board has no legal power to approve subsidy payment. So, according to the constitution, NNPC cannot unilaterally borrow and spend from any public revenue without National Assembly approval. However, NNPC often relies on section 7 subsection 4b of the NNPC Act, which empowers it to deduct any expenses it incurs from revenue that passes through the corporation.”
Over the years, NNPC had accumulated $8.5 billion in debt for subsidising fuel for the Nigerian market. Of the amount, the corporation borrowed $5 billion from the NLNG dividend to offset part of the debt.
The debt spanned through the governments of ex-Presidents Olusegun Obasanjo, late Umaru Yar’Adua, Goodluck Jonathan, and the current Muhammadu Buhari-led administration.
The implication for unborn children, mothers
Just as the deductions continue to affect the economic growth of Nigeria, repaying outstanding subsidies would affect future generations.
“There are two critical implications. First, critical infrastructure projects that would have benefited millions of Nigerians were not undertaken or completed because of the diversion of this huge public revenue. Second, Nigeria had to borrow a little more than it should have had to if these diverted revenues were available for public projects thus contributing to an increase in debt and future debt servicing obligations which will further crowd out future development projects that would have benefited Nigerians.”
Ms Adejoke Akinbode, Program Officer, Extractives, BudgIT Nigeria
For instance, Nigeria only needs about $900 million (₦350 billion) to close its funding gaps in malaria prevention programmes for children and mothers. Every year, malaria accounts for 30% of deaths to children under-five. With the $3.5 billion OML revenue, the country could eradicate malaria mortality and meet the 2030 SDG deadline.
The cost could have also built 23,000 additional and fully equipped primary health centres across the country at ₦40 million per unit. According to the United Nations Children’s Fund, UNICEF, Nigeria loses about 2,300 children under the age of five and 145 women of childbearing age daily to inefficient health services.
Editor’s note: headline edited to reflect numerical value.