Group Executive Director, Finance and Accounts of the corporation, Mr. Umar Ajiya, who spoke on Arise Television, THISDAY’s broadcast arm, explained that the national oil company had been able to reverse its impairment losses from previous years.
The corporation’s auditors had raised questions over its impairment losses, a reduction in the carrying amount of an asset that is triggered by a decline in its fair value, casting doubts over the future of the national oil company.
However, Ajiya explained that 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 a provision for bad or doubtful debts previously made against profits, it 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,” he 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 N285 billion, 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.
“And because of that approval, the write-back had to take place. But let me clarify one thing, it is not because of that write-back that NNPC made profit. It was actually driven by sheer financial prudence and operational excellence in the sense that we know what we did internally.
“So, whether there was write-back or not, we would have ended up with a loss, but we went ahead through five significant options to exit existing joint ventures that are not viable and that were sucking the fortunes of the corporation,” he added.
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.
The NNPC official 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.
“That was part of the disruption and that’s why we had to stop with the refinery operations until all of them are fully rehabilitated. So, to that extent, we had to shut in many oil wells in order to cut costs,” he emphasised.
On the Dangote refinery, he assured that monies invested would be recovered in five years, reiterating that the NNPC was not paying a once-and-for-all cash for the transaction.
“By the way, we’re not paying for the full value of the equity. We’re actually paying part of the equity from the dividends derivable from that refinery. That’s how the contract is and we are only going to part with $1 billion initially, as part of the equity stake which is valued at $2.7 billion.
“So, $1.7 billion will not be paid to Dangote refinery now, it will be a combination of price adjustment and the crude that we’ll be selling to that refinery as well as the recovery from the dividend that Dangote refinery will be making,” he noted.
