The audited financial report of the Nigerian National Petroleum Company Limited for 2022 released recently opened a can of worms. FESTUS OKOROMADU, in this report examines some of the financial transactions that appear inimical to national interest and proffer solutions.
President Bola Tinubu’s recent decision ordering the Nigerian National Petroleum Company Limited to allow the Central Bank of Nigeria take charge of proceeds of crude oil sales may have come a little late but it is often said that it is better late than never.
To attest to the correctness of the President’s decision, a former deputy governor of CBN, Kingsley Moghalu described it as a brave move and highly important.
Commenting on the initiative via his X handle formerly known as Tweeter, Moghalu wrote; “President @officialABAT’s decision that @nnpclimited revenues be deposited @cenbank is a bold and necessary one and long overdue. The opacity of that NNPC has long been a problem for Nigeria and its fiscal management, but no President has had the political will to do this.”
Indeed, President Tinubu may have been guided by recent revelations of a number of critical financial transactions undertaken by NNPCL on behalf of the generality of Nigerians who are the owners of the company.
A review of two of such would drive home the point whether some of these decisions were actually made for the good of the Nigerian citizens or otherwise.
Dangote Refinery deal
In 2021, the NNPC Ltd announced the acquisition of a 20 percent stake in Dangote Refinery for $2.76 billion for what it termed, “National Interest.” But what the NNPC didn’t disclose then was the source of funding the deal and the details behind the proposed transaction.
“A public affair analyst, Makinde Adebayo, who spoke on the issue, noted that the management of the NNPC Ltd has more explanations to make as it concerns the loan transaction”
However, the NNPCL’s audited financial report for 2022 recently released revealed that out of the $2.76 billion investment proposal, the NNPCL obtained a loan facility of $1.036 was obtained out of which the sum of $1 billion was paid to Dangote Refinery and $36 million was for transaction costs. Better still; the NNPCL went ahead to pledge 35,000 barrels of crude oil per day as repayment for the loan.
“In September 2021, the NNPC entered into a forward sale agreement with Lekki Refinery Funding Limited, to supply 35,000 barrels of crude oil per day for the settlement of the $1.036 billion (N426.2 billion) funding already received for the financing of the investment in Dangote Refinery,” the NNPC Limited’s audited financial report for 2022 stated.
The report also explained that, “The interest rate for the facility is a three-month LIBOR plus 6.125 per cent. The arrangement has been scheduled to commence on August 30, 2023.
Project Bison has been transferred to NNPC Limited.”
The report further revealed that apart from the 35,000-forward sale, the NNPC also has a 90,000 bpd oil-for-debt financing deal of $3.3 billion with Afreximbank.
To complete the $2.76 billion for the 20 per cent stake, NNPC Ltd agreed to give Dangote Refinery a $2.5/bbl discount on the official selling price per barrel on 300,000 barrels per day and 100 per cent of NNPC’s portion of any dividend declared by the refinery throughout the repayment period.
“In September 2021, the NNPC acquired a 20 per cent interest in Dangote Petroleum Refinery and Petrochemicals Free Zone Enterprise (DPRP FZE) worth $2.76 billion. This investment is held by NNPC Greenfield (a special-purpose vehicle that is 100 per cent owned by NNPC) in trust for NNPC.
“This acquisition was financed by a $1.036 billion funding of which $1 billion was paid to Dangote Refinery and $36 million accounting for transaction costs.
“The balance of the cost of equity investments made in DPRP FZE, which is $1.76 billion will be paid upon completion of the refinery project starting April 1, 2023 or any other date agreed between the parties (the NNPC and Dangote Oil Refining Company Limited) via a combination of a $2.5/bbl discount on the official selling price per barrel on 300,000 barrels per day to DPRP FZE, and 100 per cent of NNPC’s portion of any dividend declared by DPRP FZE throughout the repayment period,” it added.
Implication of NNPCL’s borrowing on the economy
Speaking on the implication of NNPC Ltd borrowings and the explanations contained in the latest audited financial report, an economist, Monday Osasah, said there is more behind the Afreximbank deals with NNPC Ltd.
He wondered if this loan facility is the same as the one NNPC Ltd said it was going to secure last year to help reduce the country’s Foreign Exchange demand.
According to him, until there is clarity as to what the borrowed fund was actually used for it is difficult to say much. The whole thing as it is seems to have a lot of unexplained issues attached to the fund. If the money was borrowed and invested in the Dangote Refineries, how come we are talking about it in 2023 as a fresh facility made to resolve the scarcity of forex in the CBN?
But expatiating on what he suspected that the facility was made for, he said, “As at last year, when Mr. President announced the removal of petrol subsidy and the unification of the forex market it became obvious that Nigeria needs forex to settle her forex obligations including an outstanding obligation of over $7b including debts owed foreign airlines.
“My initial understanding therefore was that the NNPC Ltd arranged the $3.3b emergency loan from Afreximbank on behalf of the Federal Government of Nigeria.”
However, another economist who has a detailed knowledge of the transaction but preferred to remain anonymous, told The Point that, “The loan structure involves the NNPC Limited receiving cash today via an SPV (Special Purpose Vehicle) called Project Gazelle Funding Limited, sponsored by the NNPC Limited. The NNPC promises to repay AFEX with crude oil, equivalent to the principal borrowed plus an interest element of 11.85% APY.
The NNPC Limited borrowing is backed by its future sales of crude oil, he stated.
“As a collateral, Nigeria will deliver to Afreximbank 90,000 barrels of crude a day from 2024 until 2029, making a total of 164.25 million barrels valued at about $12.8 billion; this translates to three times the loan size of $3.3 billion,” he stated.
He added that, “The proceeds of the 90,000 barrels delivered by NNPC Ltd forward sales, up to 90 percent of excess cash (“Price Balance”) will be released back to NNPC Ltd via the Central Bank of Nigeria. At the same time, 10 percent will go towards the prepayment of the facility.”
This process is known as domiciliation of sales proceeds, he stated.
“You can borrow from a bank by pledging to deposit all your sales from your customers with that bank; that domiciliation of the sales is collateral as the bank has your sales from your customers in their vaults.
“Similarly, NNPC Ltd is domiciliating their sales proceeds with Afreximbank, which are worth $12.8 billion over five years.
“On timescales, in one week, NNPC will get an initial $2.2 billion loan disbursement but would only have put down 450,000 barrels with an estimated value of $36 million (using $80 per barrel x 90,000 barrels).
“So, if we flip it, AFEX is only getting a sales “collateral” of $36 million for releasing $2.2 billion. Look at the $12.8 billion as the total transaction size; what NNPC is paying back is $3.3 billion borrowed plus 11.85% APY excluding fees.
“However, the sales will be domiciled with AFEX, who will take their 10% to settle their obligations and pass on 90% to NNPC/CBN. This domiciliation was the essential collateral the syndicate financers needed for the total package.”
He submitted that the most important risk factor here is that if Nigeria does not deliver these oil barrels, then it incurs a penalty of 2% per annum.
A public affair analyst, Makinde Adebayo, who spoke on the issue, noted that the management of the NNPC Ltd has more explanations to make as it concerns the loan transaction.
“The NNPC Ltd is known for entering into all forms of fraudulent transactions,” he said.
“Recall the case of the P&ID which would have caused Nigeria to cash out $11 billion for signing agreements that are in no way beneficial to Nigeria. Is this the way others like ARAMCO are run, such that they report profit after tax running into hundreds of billion dollars annually?” he asked rhetorically.
He commended President Tinubu for the move to involve the CBN in the sale of the nation’s crude but warned that those in the CBN too have not shown in any way that they are better managers of the nation’s resources.
“Looking at discoveries made by the Jim Obazee investigative panel on CBN in recent times shows that the place needs clearing up too,” he said.
Also, the Chief Whip of the Senate, Ali Ndume, has commended President Tinubu’s recent directive to the NNPCL to transfer revenue from crude oil sales to the CBN.
The Senator representing Borno South in the red chamber said this in a chat with journalists in Abuja.
Ndume appealed to Tinubu to extend the initiative to all government agencies that generate revenues.
Some of them he listed included the Nigeria Customs Service, the Nigeria Ports Limited, the Nigerian Maritime Administration and Safety Agency, among others.
Ndume, said the agencies must not be allowed to keep government funds in commercial banks without proper monitoring, as such would be safer in the coffers of the CBN.
He said, “The President has now ordered that all crude oil sales money should be paid into the CBN. That is a very welcome and positive thing that he has done and he should not stop there.
“All agencies of government that are revenue generating should pay their money into the consolidated revenue account.
“As they present their budget, whatever expenditure they are going to incur, let them bring it before the National Assembly. That’s what the constitution says. So, what they now want is to make a political issue again out of it.
“This decision that Mr. President took is the right decision, it is constitutional and it should be supported by everybody.
“That way, it should also apply to other agencies of government that are driving revenue. They cannot keep it. NIMASA should pay directly like NNPCL into the CRF.
“The Nigeria Ports Authority (NPA) should do the same. The Nigeria Customs Service and all other revenue agencies should pay revenues into the Consolidated Revenue Fund of the Federation and their accounts should remain with CBN because they can do banking.”
Speaking further, he said, “If they want to withdraw money, they should withdraw through the CBN. They were doing this before. Don’t go and keep people’s money in commercial banks and do transactions with it. That is it.
“I reiterate my call commending him for asking NNPCL to pay all oil revenue into the Consolidated Revenue account.”
The Senator reiterated his appeal to Tinubu to proclaim an Executive Order on Unexplained Wealth.
He said such a law would empower anti-graft agencies to go after Nigerians with questionable riches.
He said people, especially the political class, must explain their sources of wealth or forfeit the same to the government.
He added, “The next thing now, if President Tinubu wants to fight corruption, would be to sign an Executive Order on Unexplained Wealth in this country.
“Let all these people explain where they got their money, including myself. People should stop talking about trivialities or personal issues; they should talk about national issues.”
However, the 2023 presidential candidate of the PDP, Atiku Abubakar, on Thursday, faulted the decision of the CBN to take over the sales of crude oil from the NNPCL.
Atiku described the decision as an illegal action.
He lamented that the Nigerian Government has not released details of its latest decision to the public.
Posting on X, Atiku wrote: “Without prejudice to the possibility of any good that was intended in the decision of the Federal Government to make the @cenbank (CBN) take over the responsibility for crude oil sales proceeds from the @nnpclimited (NNPCL), it must be clearly stated that the action is not legal in its application.
“Although, as usual, of the current administration, little has been communicated to the public about explaining details of the decision.
“According to what is publicly available, the President has issued a directive that henceforth, the NNPCL would submit receipts for crude oil sales to CBN for vetting and documentation.
“Whatever may be the merit of the new arrangement, the presidential directive is a violation of the legal status of the NNPCL.
“It is an arbitrary order capable of undermining the operational independence of the NNPCL.”
Other controversial spending by NNPC Ltd
“Some experts said the only way for the NNPC Ltd to become truly transparent and accountable in its transactions is for it to be listed on the Nigerian Stock Exchange”
Meanwhile, the NNPC Ltd audited report revealed other details such as that the firm spent an estimated N2.9 trillion on wages, entertainment, bank charges, running cost and others between September 2021 and December 2022, just as N1.2 trillion was spent on general and administrative charges for the 16 months period.
The report further showed that both NNPCL Group and the company spent a total of N872 billion on “other expenses” not clearly specified in the document.
While security expenses by the Group and the company stood at N532 billion, entertainment was N8.35 billion, employee benefit expenses, which include salaries, wages, allowances, pensions and gratuities, N373 billion and directors’ expenses N1.2 billion.
Office running costs gulped N1.8 billion, while management and facilitation fees took N295 million, donations N1.65 billion, and audit fees N2 billion while fines & penalties took N45 billion.
Other expenses include bank charges, N675 million; depreciation of other property, plants and equipment, N67.9 billion; depreciation of right of use asset, N1.3 billion; advertisement and publicity, N4.9 billion; legal and professional fees, N8.3 billion; printing and stationery, N57.5 billion; rents and rates, N35 billion; repairs and maintenance N219.9 billion; travelling and transport, N354.2 billion; minimum tax and levy, N15.65 billion, write-off of property, plant and equipment, N139.8 billion; postages and telephone, N3.46 billion among others.
Call for listing of NNPC Ltd on NGX
Reacting to the release of the audited financial reports, some experts said the only way for the NNPC Ltd to become truly transparent and accountable in its transactions is for it to be listed on the Nigerian Stock Exchange.
Speaking on the development, the chief executive officer of the Center for The Promotion of Public Enterprises, Muda Yusuf, called for greater efficiency in the way the company is run.
Though Yusuf applauded the public presentation of the company’s financial statement, he insisted that greater reduction of government influence will go a long way to make the NNPC Ltd more profitable.
He said like Saudi Arabia’s ARAMCO, the NNPC Ltd should be made to run more transparently and profitably to help address the huge revenue gap.
“In my opinion the NNPC should be quoted both in Nigeria Stock Exchange and foreign markets to be able to attract investors and earn more foreign exchange for the country,” he said.
